Precise Biometrics — Annual Report 2013

Sep 4, 2014

Annual report 2013

annual report 2013

Our business
CEO Comments	3
Important events during the year	5
Year in numbers	7
Precise Biometrics in one minute	8
Vision & objectives	9
History	11
Business areas
Precise Biometrics in the world	12
Mobile Smart Card Solutions	14
Fingerprint Technology	15
Desktop & Physical Access Solutions	16
Our responsibility
Sustainability	17
Staff	19
Staff stories	20
Financial information
The share	22
Shareholder statistics	25
Five-year review	27
Key ratios	29
Administration report	30
Corporate Governance report	36
Income statements	41
Balance sheet	43
Change in equity	45
Cash flow statement	47
Notes	48-90
Treatment of loss and Assurance from the Board	91
Auditors report	92
Financial Glossary	94
Corporate governance
Board of Directors	96
Management	99
Annual General Meeting	101
Distribution of annual report	102
Financial calender	103
Contact	104

CEO Comments

Opportunities for expansion in the mobile market

2013 has been an eventful year for Precise Biometrics with many activities and external factors that have reinforced our outlook on the Company's opportunities for expansion in a market that continues to rapidly expand.

We have continued to maintain a high tempo in the development of our products and services, while also sharpening our focus on sales. Precise Biometrics has more than one leg to stand on, with very competitive products and services that address different parts of the market for biometric identification and smart cards.

Nevertheless, I can confirm that sales and profit for 2013 as a whole were something of a disappointment. Even if the federal legislation concerning mobile security has been in place for some time, investments related to this have not materialized following a delay in the US government budget. This meant that the expected sales levels for Tactivo™, our mobile case with embedded fingerprint and smart card reader, were not reached. By the end of 2013 the government budget was finally in place, which creates prospects for implementation of mobile security solutions for us in the important government agency market.

Although volumes have been lower than expected we have received important orders for Tactivo during the year. Examples include sales to a large mobile operator in the U.S., a general agreement spanning several years with the vehicle manufacturer Volkswagen, and sales to partners who we are closely cooperating with to build up an eco system of solutions around the product.

We have also received several orders for our traditional fingerprint readers, both from customers in the Middle East and a Swedish gym chain.

Concerning our algorithms, I would like to draw special attention to two events that show that we are an important player in the biometrics market. The first is the strategically important order from a market leading global supplier of financial information services based in the U.S. We are especially proud of this transaction because the markets for financial services have some of the most severe requirements in the world in relation to usability and security. The second important event in this area is the partnership agreement with Fingerprint Cards. This company licenses Precise Biometrics' fingerprint algorithm Precise Biomatch™ Mobile to further enhance performance in its capacitive sensors. The first phones with Precise Biometrics' algorithms have been launched in Asia.

We continue to maintain a high tempo in our product development. We have as mentioned above launched Precise BioMatch Mobile, which has been developed and optimized for integration of fingerprint recognition in smartphones and tablets. Tactivo is being developed for an increasing number of products and platforms, while we have also launched a global eco system of partner solutions that can be used with Tactivo.

Successful new issues of shares provide peace of mind at work

Two new issues of shares were implemented during the year. In the second quarter the Company received SEK 48.7 million after issue costs in an oversubscribed preferential rights issue to existing shareholders. SEK 80.9 million after issue costs was received in September after a private placement. This enabled us to have sufficient working capital to continue to develop and position operations in relation to the potential in the market. We consider the great interest in new issues of shares as evidence of strong confidence in the Company and biometrics in general.

Very strong interest in biometrics in the mobile market ensures excellent market prospects

Apple launched iPhone 5s with an embedded fingerprint reader in September and we have seen a great interest in biometrics among leading phone manufactures as a result of this. The message from mobile phone manufacturers is that fingerprint technology will

Håkan Persson President and CEO, Precise Biometrics

come to be a natural part of the their products in future. One tangible result of this is the interest expressed by leading phone, sensor and platform manufacturers in Asia, who now want to evaluate our products and services.

We also believe that the extensive general interest for biometrics and an increased familiarity of users using biometrics for identification purposes are two other important factors that will encourage demand for mobile security solutions such as Tactivo. The strong trend of moving from desktop and laptop computers to smart units continues. Nevertheless, the use of mobile units like smartphones and tablets sets more stringent requirements on security. Precise Biometrics has a well-developed and explicit offering in mobile authentication that meets these security requirements.

We therefore see a continuation of an exciting potential for Tactivo, partly for example as a result of several pilot projects involving government agencies in the U.S., and partly from the health care sector in Sweden. There is an overwhelming need for secure solutions here for mobile access to different systems. In Europe the corporate market has taken the lead in the development of mobile security solutions, as opposed to in the US where government agencies are the main proponents in the market.

We continue to have a positive outlook on the future. The budget in the U.S. gives us greater opportunities for implementation of projects with Tactivo, and the growing interest in the mobile market for biometrics is opening up new business in the licensing sector where there are potential volumes of great interest to the Company.

Active and focused sales policies

In the next few months we will be monitoring signals to see how rapidly developments in the market for mobile biometric identification solutions are taking place, and we will be working hard with sales policies at local level in the most important markets to accommodate the extensive potential that exists. We have made intensive efforts to reinforce our partner network in 2013, and we will continue to do so with full force in 2014.

The new business area divisions previously advised within the Company, and which became applicable at the year end, have been made on the basis of a greater interest in the licensing of our algorithms in the mobile market. The new organization means that we are moving from the previous division into the two business areas IAM (Identity and Authentication Management) and Mobile, to three business areas: Mobile Smart Card Solutions (Tactivo), Fingerprint Technology (licensing of algorithm software) and Desktop & Physical Access Solutions (fingerprint readers and access solutions for premises and computers).

Precise Biometrics has a solid product program that addresses important parts of the market for mobile security. In combination with our range of software and hardware-based solutions, focused sales, long-term cooperation with partners and a great interest for biometrics in the market, this means that we see positive opportunities to create first-rate values for the Company, customers and our shareholders.

Håkan Persson President and CEO, Precise Biometrics

Important events during the year

Net annual sales...

... for the group amounted to SEK 34.9 million (28.3) at the end of the fiscal year.

Profit/loss for the year...

... amounted to SEK -43.3 million (-47.0) after tax.

Earnings per share...

... for the fiscal year amounted to SEK -0.14 (-0.23).

Liquid assets...

... at the end of the fiscal year amounted to SEK 101.2 million (37.6).

Precise Biometrics received an order for 5,000 Tactivo™... …from a mobile operator in the U.S.

A market-leading global supplier of financial information services…

…chose Precise Biometrics during the first quarter as its new supplier of fingerprint algorithms.

Follow-up orders for a total of SEK 9.9 million…

…for fingerprint readers were received during the second and third quarter from a government agency customer in the Middle East.

A general agreement for further deliveries of Tactivo to Volkswagen…

…was signed during the third quarter. The contract has an expected term of several years. Volkswagen uses Tactivo as part of its security infrastructure.

A partnership agreement with Fingerprint Cards (FPC)…

…was signed during the third quarter. FPC licenses Precise Biometrics' fingerprint algorithm Precise Biomatch™ Mobile to further enhance performance in its sensors.

The first mobile phone …

….to integrate a sensor from Fingerprint Cards with Precise BioMatch Mobile was released in the Asian market during the fourth quarter.

Tactivo became, as the first …

….smart card reader for mobile units, FIPS 201 (Federal Information Processing Standards), certified for the US Government Service Administration Approved Products List.

The launch of…

…Tactivo for iPhone 5 and iPad 4 and Tactivo mini for Android was advertized during the year.

A preferential rights issue for Company shareholders...

…was implemented during the second quarter. The preferential rights issue was oversubscribed and injected SEK 48.7 million into the Company after issue costs.

The Company's cash flow was reinforced by an additional SEK 80.9 million…

… after issue costs through a private placement during the third quarter.

Håkan Persson was appointed interim CEO…

… with a view to providing the Company with advanced sales competence and to further consolidate the position of the Company in the strongly expanding mobile market.

After the year end…

... Tactivo for iPad mini and Tactivo for iPad Air were launched.

Year in numbers

	2013	2012	2011
Net sales, Thousand SEK	34,944	28,281	21,615
Operating profit/loss, Thousand SEK	-42,180	-42,902	-33,412
Gross margin, %	54	56	56
Liquid assets, Thousand SEK	101,197	37,584	28,930
Cash flow from current operations before changes in working capital, Thousand SEK	-36,942	-44,620	-31,851
Working capital, Thousand SEK	109,498	28,008	33,140
Liquid ratio, %	618	145	235
Equity/assets ratio, %	88	56	73
Number of employees at year-end	29	37	35
Profit/loss per share, SEK	-0.14	-0.23	-0.20
Equity per share, SEK	-0.39	0.18	0.25

Precise Biometrics in one minute

Precise Biometrics is a market-leading supplier of solutions for fingerprint recognition. With cutting-edge competence in fingerprint biometrics, Precise Biometrics offers rapid, precise and secure authentication.

The Company's offering

Precise Biometrics develops software and hardware for fingerprint recognition and smart cards. Precise Biometrics offers secure and simple authentication and traceability through biometrics and in some cases in combination with smart cards. The products can be integrated in all existing authentication systems.

The Company has built up a strong network of partners in recent years. Through this network Precise Biometrics can reach out with its products in a global market. Major smart card manufacturers, global systems integrators and local dealers, as well as developers of desktop and mobile solutions are all part of this global partner network.

Business areas

The following division of business areas applies from 1 January 2014.

Mobile Smart Card Solutions

In its business area Mobile Smart Card Solutions, Precise Biometrics offers the product portfolio Tactivo™ - a range of smart cards and fingerprint readers for smartphones and tablets, and software for the development of apps for Tactivo.

Fingerprint Technology

This is where Precise Biometrics offers core technology in the form of algorithms for matching of fingerprint recognition and software for integration in third-part hardware – such as mobile phones.

Desktop & Physical Access Solutions

Desktop & Physical Access Solutions include Precise Biometrics' fingerprint and smart card readers and development software for authentication at desktop computers, as well as physical access through fingerprint recognition to buildings.

Business model

Precise Biometrics sells both fully packaged end-to-end solutions as well as solutions developed in cooperation with customers and its partners. The Company's solutions and products are sold both directly and via partners to end customers. Partners also have the opportunity to develop their own applications for Tactivo together with Precise Biometrics.

Customers

Precise Biometrics' customers include global companies and large government agencies and hardware manufacturers who need secure and simple authentication on mobile units and desktop computers. The Company's products mainly focus on the government agency, healthcare, financial and corporate segments.

Organization

The parent company Precise Biometrics AB, with offices in Lund and Karlstad in Sweden, had 26 employees as of 31 December 2013.

The group has had a subsidiary in the U.S. since 2000. Precise Biometrics Inc. had 3 employees as of 31 December 2013.

The group also includes the dormant company, Precise Biometrics Services AB.

Vision & objectives

The vision and objectives that have formed the basis for the Company in 2013 are presented below.

Business concept

Precise Biometrics' business concept is, together with strong partners and through global networks, to offer countries, government agencies, companies and organizations, user-friendly and interoperable solutions to secure the identity of individuals in a cost-effective and reliable way.

These companies and government agencies thereby save money through reduced costs for identity checks and password handling, identity theft and fraud. For users this is a simple and integrity-protecting way of identifying themselves.

Mission

Precise Biometrics' mission is to promote the global use of mobile security through well designed, user-friendly and secure solutions for mobile access, communication and transactions.

Vision

Precise Biometrics wants to enable people to use smart mobile units and to feel secure with them. This is achieved by making security convenient for users.

Objectives

Precise Biometrics' main objective is to generate long-term growth in value for Company shareholders through its operations. Growth and profitability are therefore import criteria for success. Long-term and strategic choices of profitable business, based on commercial products with a high value for customers, will contribute towards this end. The following strategies and operational objectives serve to guide the Company.

Commercial and operational objectives

In 2013 the Company's operations have focused on the two business areas Mobile and IAM. As of 1 January 2014 the business area IAM has been divided into two new business areas: Fingerprint Technology and Desktop & Physical Access Solutions. Mobile has been changed to Mobile Smart Card Solutions. This means that Precise Biometrics' operations are now divided into three business areas.

The business area Mobile Smart Card Solutions focuses on reaching out to the large market for smart units. The Company sees significant business opportunities for mobile security solutions. With Precise Biometrics' smart card and fingerprint readers on mobile units, customers can achieve stringent requirements for network security and verification in a user-friendly way.

In the IAM business area Precise Biometrics has in 2013 offered solutions for national ID cards, algorithms for calculations in fingerprint reading, and biometric security for government agencies, banks and companies. Embedded solutions and biometric physical access are also included in this business area.

The business area Fingerprint Technology embraces the Company's core technology and offers the market's best algorithm in terms of flexibility and performance for fingerprint recognition.

The Desktop & Physical Access Solutions business area offers Precise Biometrics' authentication solutions for desktop computers and physical access to buildings. This must take place in a simple and secure way for customers.

In all its three business areas Precise Biometrics solutions offer powerful authentication with a very high level of security. They should also be simple to use and contribute towards improving efficiency and thereby reducing costs for customers.

Our business areas reinforce the continued commercialization of our offering in that each business area delivers well-defined productive and custom-designed solutions. By combining the Company's competence in mobile security solutions for smart cards and fingerprint technology, Precise Biometrics has excellent prospects of improving its profitability.

Market strategy

Precise Biometrics aims to increase market shares in each respective business area and to develop the Company's prominent position, which to a large extent will be achieved through its extensive network of partners. The Company has several globally established partners and new partnerships are developed on a continual basis.

Strategic business area Mobile Smart Card Solutions

The business area Mobile Smart Card Solutions is based on the product portfolio of smart card and fingerprint readers for mobile units – Tactivo™. Tactivo targets companies and government agencies that want to make systems and networks accessible from a mobile device in a secure and easy way.

In 2013 Precise Biometrics has been building up an eco system of partners around Tactivo. The strategy involves close cooperation with different types of partners in order to be able to offer overall solutions based on Tactivo. The eco system also includes channel partners such as distributors and dealers. The eco system continues to be developed. The initial focus is the U.S. and Europe where the Company has found the greatest potential, but the eco system for Tactivo will continue to expand to include a global market.

Strategy for business area Fingerprint Technology

The business area for Fingerprint Technology includes Precise Biometrics' core technology – i.e. the software based on the algorithms that enable fingerprint recognition. During the year the Company has initiated cooperation with Fingerprint Cards, which manufactures the sensors to integrate Precise Biometrics' core technology with their sensors for the mobile market. Precise Biometrics employs a strategy to cooperate with sensor manufacturers, but also focuses on end customers who are interested in integrating fingerprint technology in their hardware – such as mobile phone manufacturers.

Strategy for business area Desktop & Access Solutions

By utilizing the success of its two other business areas the Company will be developing its position in the segment for ID cards and physical access. The Company has an extensive network of global leading smart card partners and continued cooperation with these already established partners will help to achieve the objectives.

History

Precise Biometrics was started in Lund, Sweden, in 1997. The basic idea was to combine smart cards with advanced image analysis for automatic recognition of fingerprints. The first products included the world's first combined smart card and fingerprint reader, and the world's smallest fingerprint reader.

Precise Biometrics was listed on the Stockholm Stock Exchange in 2000. Precise Match-on-Card™ was developed the same year, and led to business transactions with both the US Department of Defense and the US Department of Treasury.

The Company received its first large order in 2004 when the U.S. Department of State chose Precise Match-on-Card for all employees at U.S. embassies and consulates. An agreement was signed the same year with the gym chain Fitness24Seven for Precise Biometrics' access solutions.

Precise Biometrics acquired the development company Fyrplus Teknik in Karlstad, Sweden, in 2005. The same year Thailand was the first country in the world to choose Precise Match-on-Card for its national ID cards.

SAS started implementing biometric check-in systems from Precise Biometrics on all its domestic flights in Sweden in 2006.

The analysis company Frost & Sullivan nominated Precise Biometrics in 2008 as the key player in the biometrics industry because of its strong market growth, innovative capacity and exceptional customer services.

In 2009 Precise Biometrics received a large order for fingerprint readers from the US Department of State, worth 6 million dollars.

Precise Biometrics' algorithms received a top ranking in the standardization test Ongoing Minex in 2010. The Nigerian Interswitch rolled out a federal ID with payment services that utilized biometrics from Precise Biometrics.

In 2011 the focus switched to solutions for mobile units. Match-on-Card achieved further success, firstly in the form of a partnership with G&D and NXP Semiconductors, and secondly with a top ranking in the US government agency test MINEX II. Nigeria chose Precise Biometrics' solution for its new national ID cards.

Tactivo™ for iPhone and iPad was launched in 2012, along with several pilot projects in mobile solutions.

Investment in Tactivo continued in 2013, and included a unit for Android - Tactivo Mini. Precise Biometrics received an order for 5,000 Tactivo from a mobile operator in the U.S. The Company's world-leading algorithms for fingerprint reading achieved a commercial breakthrough when a leading player in financial services chose Precise Biometrics. Later on during the year a partnership agreement was signed for algorithms with the sensor manufacturer Fingerprint Cards.

Precise Biometrics in the world

The Company's different business areas market their products in a global market. Prospects vary on the basis of local factors, and this also influences the Company's marketing in the different regions.

Precise Biometrics' sales have been divided into two business areas in 2013: IAM (Identity Authentication Management) and Mobile. On 1 January 2014 the business area IAM was divided into two new business areas: Fingerprint Technology & Desktop and Physical Access Solutions. Mobile was changed to Mobile Smart Card Solutions. Precise Biometrics' operations will in the future therefore be divided into three business area.

• Mobile Smart Card Solutions
• Fingerprint Technology
• Desktop & Physical Access Solutions

Precise Biometrics is active in four geographical areas: Europe, North America, Asia, and the Middle East & Africa. The North American market is operated by the US subsidiary, while Europe and the other parts of the world are operated by a sales organization under the head office in Lund, Sweden. Operations in the different geographic regions were as follows in 2013.

North America

In the U.S. the market for biometrics is a mature market, with a widespread use of smart cards. There are an estimated 5.7 million smart cards in use at US government agencies. They are to a large extent covered by federal legislation, which defines smart cards as a security solution. For example, Match-On-Card™ is part of the requirements set by government agencies for their cards, which also apply to suppliers to these agencies. Tactivo™ became in 2013 the first smart card reader for mobile units to be FIPS 201 certified on the GSA Approved Products List. A large order for Tactivo was also received from one of the leading mobile operators in the U.S.

Precise Biometrics' strong result in MINEX II implies a prominent position in future US government agency projects. MINEX II is an interoperability test for Match-on-Card arranged by NIST (US National Institute of Standards and Technology). The results from MINEX II have also led to a direct increase in business. A large order for Precise Biometrics' algorithms was received in the beginning of 2013 from a market-leading global provider of financial information services, based on the success in MINEX II.

Europe

Precise Biometrics has several established partners in this region and the majority of the players in smart cards also have their head offices here. Europe is also a mature mobile market with a high penetration of mobile units like smartphones and tablets.

The market is mainly motivated by the initiatives of different government agencies, where countries such as the UK, the Netherlands, Germany and Italy have implemented biometrics in different projects. Portugal is one of the markets that has chosen to place Precise Biometrics' technology in its national ID card.

Sweden has a common card system in health care, the so-called SITHS card, and with over 470,000 users it is a very interesting market for Tactivo.

A frame agreement related to Tactivo was signed with Volkswagen during the year.

Access solutions is an interesting area in Precise Biometrics' traditional operations. The Company cooperates, for example, with Fitness24Seven, one of Scandinavia's largest gym chains, which is now expanding in Europe with Precise Biometrics' products.

In 2013 an important partnership agreement was signed with the sensor manufacturer Fingerprint Cards (FPC). FPC will be using Precise Biometrics' algorithms together with the its sensors, primarily for mobile units.

Middle East and Africa

Precise Biometrics' main focus in the Middle East and Africa is on the sale of products in the business area Desktop & Physical Access Solutions. These markets are managed from the head office in Lund, together with several partners with a strong local presence. Important business has been conducted, above all with the combined smart card and fingerprint readers in the 200 series. During the year Precise Biometrics announced a follow-up order worth SEK 9.9 million from an existing customer in the Middle East.

The Middle East is an active region in the procurement of national ID cards. Precise Biometrics has a good position in this segment because the Company has won two national procurements for ID cards with Match-on-Card™ in the region: Bahrain and Qatar. Active marketing with Precise Match-on-Card has now resulted in several countries in the region now specifying Match-on-Card as a requirement during negotiations for ID cards.

Asia

Asia is an established market for biometric solutions and is expected to expand in the years to come. Japan, China, India and South Korea are the most important economies driving the demand for biometrics, with the banking market and ID card projects as important areas. Asia is also an interesting market because all the leading manufacturers of Android phones are based there. Asia is also the dominant market in the production of fingerprint readers and other biometric hardware, which exposes the region to competition in the hardware sector.

Mobile Smart Card Solutions

This business area consists of security for mobile unit such as smartphones and tablets. In 2013 the name of the business area was Mobile.

The use of mobile units is dramatically increasing, which generates requirements for secure authentication for companies, organizations and government agencies. It has also become common for employees to use private units to gain access to company information.

To offer enhanced security for mobile units Precise Biometrics launched Tactivo™, a smart case and a dongle for iOS and Android with embedded smart card reader and fingerprint reader. Tactivo protects both the information stored locally in the unit and communication online, e.g. to servers. Tactivo guarantees a very high level of security for mobile units, while complying with greater demands for network security and verification. In 2014 Precise Biometrics launched Tactivo for iPad Mini and iPad Air with only smart card readers.

During the year the Company has focused on building up partnerships and distributors for Tactivo in order to offer end customers an eco system of comprehensive solutions for authentication in mobile phones in relation to services such as secure email and browsing.

In 2013 a leading mobile operator in the U.S. purchased 5,000 units. A frame agreement with Volkswagen for further deliveries of Tactivo was also signed during the year. All over the world, especially in the U.S., pilot projects are in progress to evaluate Tactivo.

Objectives

The business area Mobile Smart Card Solutions will be a main contributory factor for the Company to achieve its objectives and profitability. The launch of a global eco system of partner solutions, greater demands and requirements from end users of mobile solutions, and the fact that the US has now budgeted for higher mobile security requirements and created prospects for implementation in the government agency market, all mean that we see a positive development of this business area.

Strategy

In 2014 Precise Biometrics will continue to invest in Tactivo, primarily by continuing to develop strategic partnerships in order to offer complete solutions where Tactivo produces value for customers.

Fingerprint Technology

In 2013 Precise Biometrics' algorithms were part of the business area IAM. When the Company experienced that demand was increasing it then chose as of 1 January 2014 to divide IAM into two new business areas: Fingerprint Technology which works exclusively with sales of the Company's algorithms, and Desktop & Physical Access Solution.

The business area Fingerprint Technology includes all the software that utilizes the Company's algorithms; Precise BioMatch™ Embedded, Precise BioMatch™ Mobile and Precise Match-on-Card™.

Precise Biometrics' algorithms have received a high ranking in several independent tests, including the US government agency tests Minex II and Ongoing Minex. The algorithm offering is also independent in the respect that they can be implemented in all types of sensors.

During the year the Company launched new software developed and optimized for integration of fingerprint recognition in smartphones and tablets, Precise BioMatch Mobile. This software was initially adapted for small sensors and is particularly suitable for use in, for example, mobile units.

During the year Precise Biometrics signed a partnership agreement with the Swedish sensor manufacturer Fingerprint Cards for licensing of algorithms for integration in the company's sensors. The algorithms have also been licensed by a market-leading, global player in financial information.

After Apple's launch of iPhone 5s with fingerprint sensors interest in implementing biometrics in mobile phones has dramatically increased. Most of the major mobile phone manufacturers are expected to introduce biometrics in their phones and tablets in the years ahead. Precise Biometrics continues to establish strategic partnerships and to cultivate relevant customers. With the market's best independent fingerprint algorithm, the Company is well-positioned in the market for mobile phones and tablets.

Precise Biometrics has excellent references in the market for Match-on-Card, with almost 160 million licensed users. On the basis of the number of contracted cards and the smart card partners the Company has signed agreements with, Precise Biometrics is a world leader.

Objectives

The objective of the new business area Fingerprint Technology is to develop and reinforce Precise Biometrics' business in its core operations, algorithms. With an explicit and world-leading offering the Company can take relevant market shares in an area with enormous potential.

Strategy

Through partnerships with mobile phone and component manufacturers throughout the world we guarantee the roll-out of our algorithms.

Desktop & Physical Access Solutions

Desktop & Physical Access Solutions include sales of fingerprint readers for desktop computers and solutions for physical access. In 2013 Desktop & Physical Access Solutions was part of the business area IAM, but on 1 January 2014 IAM was divided into two new business areas.

Operations mainly focus on sales of fingerprint readers for desktop workplaces and physical access. Precise Sense™ – a product family with compact fingerprint and smart card readers for companies is part of this.

In 2013 a follow-up order for fingerprint readers worth SEK 9.9 million was received from an existing government agency customer in the Middle East. One of Scandinavia's largest gym chains, Fitness24Seven, also continues to expand in Europe with Precise Biometrics' access solutions.

Objectives

By utilizing the success of its two other business areas the Company will be developing its already strong position in the segment for ID cards and physical access.

Strategy

The Company has an extensive network of global leading smart card partners and continued cooperation with these already established partners will help to achieve these objectives.

Sustainability

Precise Biometrics has a responsible approach and the determination to achieve long-term sustainability. The Company acts with the same respect for customers, owners and employees as for other interested parties, the world at large and the environment. Precise Biometrics secures its ambitions by following international principles.

Code of Conduct

The Code of Conduct highlights the fundamental principles that Precise Biometrics observes when conducting its business operations, and supports the Company's employees in their relations with business partners and other interested parties.

Precise Biometrics' Code of Conduct is based on:

• The UN general declaration on human rights.
• The UN initiative Global Compact, the objective of which is to promote social and environmental awareness in internationally active companies.
• The ILO (International Labour Organization) declaration on fundamental principles and rights in the workplace.

All employees are expected to support and uphold the Company's values and responsibilities. Precise Biometrics also encourages its suppliers and other business partners to follow these principles. The Code of Conduct includes a policy structure that helps employees to act and take decisions in accordance with the code.

Ethics – secure identity and preservation of integrity

Precise Biometrics offers user-friendly solutions to enhance security during personal identification, while also preserving or reinforcing personal integrity. Individuals, companies and government agencies all over the world use Precise Biometrics' systems every day to secure their identities and protect their integrity, and to securely and easily gain access to specific information.

The right to feel safe and secure is one of the most important fundamental principles in society, and includes the right to be able to identify oneself and protect your integrity and property. This is a corner stone in a well-functioning society and becomes ever more important in the transition to a mobile world.

Precise Biometrics' responsibility

The Company's sales are mainly directed to global and well-established partners, and only on a limited scope to end customers and end users. The Company has confidence in the processes and policies of its partners in terms of analyzing the countries and organizations that use the products and the risks/infringement that this usage could pose for Precise Biometrics' Code of Conduct or national legislation. Precise Biometrics also conducts its own risk analyses during its establishment in new markets or when entering new partnership agreements, in those cases and to the extent the Company considers this to be necessary. The Company's subcontractors must follow the agreed guidelines drawn up in supplier contracts. The Company is non-political and does not support special interests. Precise Biometrics maintains a high level of business ethics and all our employees are encouraged to report any deviations from the Code of Conduct to their immediate manager.

Environment

Precise Biometrics' products consist of intangible assets such as software and algorithms, which are sold in the form of user licenses. The Company also supplies development tools and other user interfaces for fingerprint recognition. The Company also sells a hardware products under the brand name of Tactivo™, which is used in combination with smartphones and tablets. The use of the Company's software products has no, or negligible impact on the environment.

Precise Biometrics' products are manufactured or installed by carefully selected and established partner manufacturers with whom Precise Biometrics has agreements. These partner manufacturers purchase components for the products according the

specifications of Precise Biometrics. The Company endeavors to manufacture products as near to the markets as possible to avoid unnecessary transportation. Such is for example the case with the product family Tactivo, which has the U.S. as its main sales market. To avoid long transportation distances these products will therefore be manufactured in the U.S.

Recyclable and non-toxic materials and components should be used as far as this is possible. Subcontractors are responsible to ensure that they follow the handling instructions included with products for their recycling. Precise Biometrics complies with the EU's RoHS directive on the restriction of hazardous substances in electronic products and the WEEE directive on collection and recycling.

Precise Biometrics also aims to minimize the number of journeys made and to select the most environment-friendly means of travel possible. Recycling and the efficient use of resources are key factors in purchasing for the Company's offices.

Employees

Precise Biometrics shall be a safe and stimulating workplace. All forms of discrimination are unacceptable, which is regulated in Company's HR policy. All employees are entitled to annual developmental conversations with their immediate manager and a personal development plan. Issues concerning the working environment, health and safety are handled within the framework of Swedish legislation.

Staff

In innovative companies at the cutting-edge of technology it's the people who are the decisive factor for success. Precise Biometrics operates in a global and fast-changing industry and relies on the commitment, competence and insights of its employees to deliver competitive products

The ability of employees to see opportunities and create solutions to complex demands are qualities that are extremely valuable to our Company. It is therefore also important to be an attractive workplace, where creative people can enjoy themselves and develop.

Stimulating working environment

Precise Biometrics has a culture that values initiative, and which therefore gives employees room to assume responsibility for their work assignments. Being able to influence your working conditions is an important feel-good factor, which in combination with opportunities to develop creates the foundation for rewarding jobs for all parties. Precise Biometrics encourages further education and also offers a series of benefits such as a company health service, an options program and a result-based bonus program.

Employee statistics

• The number of employees within the group amounted to 29 (37), of which 3 (7) in the US, at the year end.
• Of the total number of employees at the end of the year, 20 (25) were men and 9 (12) were women.
• Staff turnover in the group was 26.7 per cent (10.8). The high figure is a result of organizational changes in the US subsidiary.

Employees tell their story

If you would like to know more about what it's like working at Precise Biometrics here are the stories of some of our staff.

Patrik Lindeberg, Chief Operating Officer

Peter Sassner, Project Manager

Patrik knows the business, inside out

Patrik Lindeberg is COO at Precise Biometrics. As Chief Operating Officer he is responsible for the operative work of sales, marketing and development and is therefore involved in most things that take place in the Company.

How long have you been working at Precise Biometrics?

I have worked here for two different periods. The first time, 1998-2004, began when I was doing my thesis and afterwards was offered a job. I was first involved in product development and later on began working with sales, business development and product management. I returned to Precise Biometrics in 2007 after just over three years in the mobile sector – first as development manager and later as CTO with responsibility for product management. I received my present position in the summer of 2013. I have therefore seen most parts of our operations, which I derive a lot of benefit from today.

What's the best thing about your job?

That there are always new challenges. It's also very stimulating to work with the very competent people we have here. With our development in the last few years I'm also very pleased to be back in the mobile sector, the products there are really at the forefront of technology.

What do you do in your free time?

The family lives on a farm with horses, dogs and cats, so there is always something to do. Animals are at the centre of our lives, and I really enjoy living near them and in the nature. If I have some spare time I usually do some training, preferably ball sports. Everything to do with balls is fun, but if I had to choose just one recreational activity it would definitely be golf.

In which new area would you like see biometrics?

The potential in mobile units is enormous. Even if this area is not completely new, we have only seen the beginning of all the opportunities biometrics will be offering the mobile industry.

Patrik Lindeberg COO

Peter steers the projects

Peter Sassner is Project Manager at Precise Biometrics in Karlstad. He leads the product development project in R&D, and is also involved in the delivery of projects directly to customers.

What does it take to become a project manager at Precise Biometrics?

I am basically a software developer with most of my experience from telecom and now most recently biometrics. I have, however, had the advantage of working with such diverse domains as harness racing, customer baskets and television-based information systems, and also as a sounding board and support in a company incubator.

How long have you been employed?

My career at Precise Biometrics began as an employee at the consultancy company Fyrplus 2002. This company was acquired and became a subsidiary of Precise Biometrics AB in 2005.

What's the best thing about your job?

From all the very good things, I choose the advantage of having very professional and competent colleagues. It's a key component in making good products for the benefit of our customers, which in turn helps to make you feel satisfied with the job.

What do you do in your free time?

The family and an old house mean that there are always things to do. I have also been a scout in Västerstrand's scouts since I was a boy, so I've always loved the outdoor life. Getting out gives me the energy I need and lots of amusing and exciting experiences.

In which new area would you like see biometrics?

The idea is not new, but I would like to see more biometrics in the car to simplify adjustments and so on when several people are using the same car.

Peter Sassner Project Manager

The share

History

Precise Biometrics' share was listed on the Stockholm Stock Exchange on 3 October 2000 at a quotation price of SEK 63.19.

As of 30 December 2013 the Company had 345,306,094 shares listed on the Small Cap list of the Nasdaq OMX Nordic. A standard trading unit is one share. The short name is PREC and the ISIN code is SE0001823303.

Share price movement

In 2013 there was a total turnover of 3,468,950,587 PREC shares, i.e. an average turnover of 14,453,961 shares per day of trading. The closing price on 30 December 2013 was SEK 1.63. During the year the share price has fluctuated from SEK 0.69 to 5.10.

Ownership

The number of shareholders at the end of the year was 14,281 (7,674). Foreign shareholders accounted for 16.6 per cent (14.1).

See table, for shareholder statistics as of 30 December 2013.

Option program

In 2011 an option program was initiated for the executive group and other key persons in the Company. The program has issued options, on market terms basis, that have been transferred to the employees. Allocated volume was contained within an authorization for a maximum of 7,100,000 subscription options issued at the Annual General Meeting in 2011.

The market value has been established by an external assessor using the Black & Scholes model. At the time of the valuation the share price was SEK 1.32, which is based on the volume weighted share price during the period 2 May 2011 to 13 May 2011.

The subscription price was set to SEK 2.90. After the issues in the fall of 2012 and spring of 2013 the subscription price was recalculated by an external assessor to SEK 2.40, and for each option 1.22 shares were awarded upon exercise of the program.

A total of 4,400,000 options were subscribed to by employees in 2011, which supplied Precise Biometrics with liquid assets of SEK 440,000.

Shares may be subscribed to through the exercise of subscription options during the period 1 January 1 - 30 June 2014.

See also for additional information. Note 17

Share issue 2013

Precise Biometrics implemented in May 2013 a new issue of shares with preferential rights to existing shareholders. The issue of shares that was guaranteed up to 70 per cent was oversubscribed to 169.4 per cent, and was implemented to finance new orders involving increased need of working capital and to further develop Tactivo™ by means of an increase in resources to production, product development and sales and marketing efforts around the world. The share issues supplied Precise Biometrics with SEK 48.7 million after costs. The number of shares increased by 58,782,926, from 264,523,168 to 323,306,094, which led to a dilution of 18.2 per cent.

In September 2013 Precise Biometrics completed a private placement which supplied the Company with SEK 80.9 million after costs. The capital injection from the private placement has further reinforced the Company's working capital related to growth and order financing. The number of shares increased by 22,000,000 from 323,306,094 to 345,306,094, which led to a dilution of 6.4 per cent.

Shareholder information

Previously printed annual reports, interim reports or other information may be found at www.precisebiometrics.com. Information may also be ordered by calling +46 46311100.

Questions can be addressed directly to the Company via email investor@precisebiometrics.com

Share capital development

	Increase in no. of shares	Total no. of shares	Increase in capital stock, SEK	Total capital stock, SEK	Nominal amount, SEK
1997 - Company registered	1,000	1,000	100,000	100,000	100
1997 - New issue	220	1,220	22,000	122,000	100
1998 - Split	1,218,780	1,220,000	-	122,000	0.10
1998 - New issue	180,000	1,400,000	18,000	140,000	0.10
1998 - New issue	223,700	1,623,700	22,370	162,370	0.10
1999 - Bonus issue	-	1,623,700	487,110	649,480	0.40
1999 - New issue	720,000	2,343,700	288,000	937,480	0.40
2000 - New issue 1)	250,000	2,593,700	100,000	1,037,480	0.40
2000 - Redemtion of subs. options	74,000	2,667,700	29,600	1,067,080	0.40
2000 - New issue 2)	600,000	3,267,700	240,000	1,307,080	0.40
2000 - Redemption of subs.options	204,500	3,472,200	81,800	1,388,880	0.40
2001 - Redemption of subs.options	54,500	3,526,700	21,800	1,410,680	0.40
2002 - New issue 3)	350,000	3,876,700	140,000	1,550,680	0.40
2002 - Redemption of subs.options	80,000	3,956,700	32,000	1,582,680	0.40
2002 - New issue 4)	7,913,400	11,870,100	3,165,360	4,748,040	0.40
2003 - New issue 5)	23,740,200	35,610,300	9,496,080	14,244,120	0.40
2004 - New issue 6)	5,000,000	40,610,300	2,000,000	16,244,120	0.40
2004 - New issue 7)	20,305,150	60,915,450	8,122,060	24,366,180	0.40
2005 - New issue 8)	105,000	61,965,450	420,000	24,786,180	0.40
2005 - New issue 9)	1,053,750	63,019,200	421,500	25,207,680	0.40
2005 - New issue 10)	8,700,000	71,719,200	3,480,000	28,687,680	0.40
2005 - New issue 11)	71,250	71,790,450	28,500	28,716,180	0.40
2006 - New issue 12)	1,125,000	72,915,450	450,000	29,166,180	0.40
2006 - New issue 13)	24,305,150	97,220,600	9,722,060	38,888,240	0.40
2007 - New issue 14)	4,000,000	101,220,600	1,600,000	40,488,240	0.40
2009 - New issue 15)	33,740,200	134,960,800 13,496,080		53,984,320	0.40
2011 - New issue 16)	53,984,320	188,945,120 21,593,728		75,578,048	0.40
2012 - New issue 17)	75,578,048	264,523,168 30,231,219 105,809,267			0.40
2012 - Reduction of capital stock 18)	0	264,523,168 -31,742,780		74,066,487	0.28
2013 - New issue 19)	587,782,926	323,306,094 16,459,219		90,525,706	0.28
2013 - New issue 20)	22,000,000	345,306,094	6,160,000	96,685,706	0.28

1) Issue directed to institutional investors. The subscription rate amounted to SEK 160 and Precise Biometrics received an issue amount of SEK 40 million.

2) Issue directed to institutional investors. The subscription rate amounted to SEK 225 and Precise Biometrics received an issue amount of SEK 135.3 million.

3) Issue directed to institutional investors and a small number of large private investors. The subscription rate amounted to SEK 87 and Precise Biometrics received an issue amount of SEK 30.5 million.

4) Issue with preferential rights to existing shareholders. The subscription rate amounted to SEK 4 and Precise Biometrics received an issue amount of SEK 31.7 million.

5) Issue with preferential rights to existing shareholders. The subscription rate amounted to SEK 1.70 and Precise Biometrics received an issue amount of SEK 40.4 million.

6) Issue directed to institutional investors and a small number of large private investors. The subscription rate amounted to SEK 3.10 and Precise Biometrics received an issue amount of SEK 15.5 million.

7) Issue with preferential rights to existing shareholders. The subscription rate amounted to SEK 2.25 and Precise Biometrics received an issue amount of SEK 45.7 million.

8) Issue directed to the Japanese partner Silex technology, Inc. The subscription rate amounted to SEK 7.04 and Precise Biometrics received an issue amount of SEK 7 million.

9) Issue directed to Loqware Sweden AB's main shareholders for acquisition of the company for a value of SEK 8.3 million.

10) Issue directed to European institutional investors. The subscription rate amounted to SEK 7.25 and Precise Biometrics received approx. SEK 63 million before deductions for issue costs.

11) Issue for acquisition of remaining shares in Loqware Sweden AB. Precise Biometrics received approx. SEK 580,000.

12) Non-cash issue for acquisition of 30 per cent of Smart Unicorn Solutions.

13) Issue with preferential rights to existing shareholders. The subscription rate amounted to SEK 3.50 and Precise Biometrics received an issue amount of SEK 85 million.

14) Non-cash issue for acquisition of 8 percent of Smart Unicorn Solutions.

15) Issue with preferential rights to existing shareholders. The subscription rate amounted to SEK 1.60 and Precise Biometrics received an issue amount of SEK 54 million before deductions for issue costs.

16) Issue with preferential rights to existing shareholders. The subscription rate amounted to SEK 1.00 and Precise Biometrics received an issue amount of SEK 54 million before deductions for issue costs.

17) Issue with preferential rights to existing shareholders. The subscription rate amounted to SEK 0.72 and Precise Biometrics received an issue amount of SEK 54,4 million before deductions for issue costs.

18) Reduction of capital stock. In accordance with the proposal of the board, the Annual General Meeting resolved that the company's share capital shall be reduced by SEK 31,742,780.16 to cover loss. The reduction entails a reduction of the quota value of the shares with SEK 0,12 from SEK 0,40 to SEK 0,28.

19) Issue with preferential rights to existing shareholders. The subscription rate amounted to SEK 0,93 and Precise Biometrics received an issue amount of SEK 54.7 million before deductions for issue costs.

20) Private placement of 22 million shares. The subscription rate amounted to SEK 3.90 and Precise Biometrics received an issue amount of SEK 85.8 million before deductions for issue costs.

Shareholder statistics

Shareholder register

	No of shares	No in % of capital stock and votes
Avanza Pension Försäkring AB	27,803,252	8.1%
Nordnet Pensionsförsäkring AB	6,457,384	1.9%
Swedbank Försäkring AB	5,864,979	1.7%
HJ Byggkonsulter AB	5,000,000	1.4%
Torgils Bonde	3,880,863	1.1%
Grothe Jensen Flemming	2,612,500	0.8%
Robert Andersson	2,585,946	0.7%
Skagen fonder	2,440,240	0.7%
Skandia Försäkring AB	2,135,523	0.6%
Johnny Ludvigsson	2,100,000	0.6%
Others	284,425,407	82.4%
Total	345,306,094	100.0%

Allocation of shares

	No of shares	No in %
Foreign owners	57,391,627	16.6%
Swedish owners	287,914,467	83.4%
whereof institutions		13.2%
stock funds		0.8%
private investors		69.4%

Allocation of shareholders

	No in %
10 largest shareholders	17.6%
25 largest shareholders	23.2%
100 largest shareholders	33.8%

Shareholder statistic (number of shares owned)

	No of shareholders	No in %	No of shares	Proportion of votes in %
1-2 000	5,409	37,9%	4,720,677	1.4%
2 001-10 000	5,047	35,3%	27,480,378	8.0%
10 001-100 000	3,324		23,3% 104,903,003	30.4%
100 001-1 000 000	470		3,3% 111,439,276	32.2%
1 000 001-50 000 000	31	0,2%	96,762,760	28.0%
Total	14,281		100,0% 345,306,094	100.0%

Geographic allocation of shares in %

	No in %
Sweden	83.2%
Denmark	4.9%
Switzerland	2.5%
Norway	2.3%
Great Britain	2.2%
Luxembourg	1.5%
United States	0.7%
Netherlands	0.6%
Ireland	0.3%
Finland	0.3%
Others	1.5%
Total	100.0%

Five-year review

Income statements, Thousands SEK

	Year
	2013	2012	2011	2010	2009
Net sales	34,944	28,281	21,615	44,944	68,655
Cost of goods and services sold	-15,976	-12,495	-9,548	-17,425	-32,863
Gross profit	18,968	15,786	12,067	27,519	35,792
Selling-, administration
and R&D expenses	-60,790	-57,960	-45,189	-40,831	-55,091
Other operating income/expenses	-358	-728	-290	-1,185	-977
Operating profit/loss	-42,180	-42,902	-33,412	-14,497	-20,276
Net financials	-1,092	-4,050	208	-135	-1,492
Profit/loss after financial items	-43,272	-46,952	-33,204	-14,632	-21,768
Tax	-	-	-12	-16	-4
Profit/loss for the year	-43,272	-46,952	-33,216	-14,648	-21,772

Balance sheet, Thousands SEK

	Year
	2013	2012	2011	2010	2009
Assets
Intangible fixed assts	21,574	18,358	12,778	6,664	3,802
Tangible fixed assets	3,475	1,829	1,070	704	868
Financial fixed assets	-	-	-	-	-
Current assets	127,875	65,464	50,557	40,723	68,423
of which liquid assets and
current investments	101,197	37,584	28,930	24,544	40,884
Total assets	152,924	85,651	64,405	48,091	73,093
Equity and liabilities
Equity	134,547	48,195	46,988	31,244	45,408
Current liabilities	18,377	37,456	17,417	16,847	27,685
Total equity and liabilities	152,924	85,651	64,405	48,091	73,093

Cash flow analysis, Thousands SEK

	Year
	2013	2012	2011	2010	2009
Cash flow analysis, thousands SEK
Cash flow from current operations
before changes in working capital	-36,942	-44,620	-32,147	-13,257	-14,276
Changes in operating capital	2,723	-4,252	-4,099	2,781	-6,931
Cash flow from investment business	-11,749	-9,143	-8,679	-4,710	-1,299
Cash flow from financial business	109,580	66,669	49,015	-1,492	52,047
Change in liquid assets	63,612	8,654	4,090	-16,678	29,541

Key ratios

	Year
	2013	2012	2011	2010	2009
Gross margin	54%	56%	56%	61%	52%
Working capital, thousand SEK	109,498	28,008	33,140	23,876	40,738
Liquid ratio	618%	145%	235%	192%	225%
Equity/assets ratio	88%	56%	73%	65%	62%
Return on equity	neg	neg	neg	neg	neg
Capital employed, thousand SEK	91,371	58,297	40,447	39,575	31,839
Return on capital employed,	neg	neg	neg	neg	neg
Profit/loss per share SEK	-0,14	-0,23	-0,20	-0,11	-0,19
EBITDA, thousand SEK	-35,293	-40,100	-31,213	-12,485	-12,662
Equity per share, SEK	0,39	0,18	0,25	0,23	0,34
No of shares		345,306,094 264,523,168 188,945,120 134,960,800 134,960,800
Average number of outstanding shares		306,146,542 207,839,632 166,451,653 134,960,800 112,467,333
Operating cash flow per share, SEK	-0,10	-0,18	-0,19	-0,07	-0,16
Number of employees at the end of the
year	29	37	35	34	36
Average number of employees	34	37	34	34	38

Administration report

The board of directors and the president of Precise Biometrics AB (publ), CIN 556545-6596, with headquarters in Lund, Sweden, hereby submit their Annual Report and consolidated financial statements for the fiscal year 2013.

Activities

Precise Biometrics develops, markets and sells solutions for fingerprint biometrics, which includes hardware, software and services.

Precise Biometrics' mission is to work with strong partners and through global networks offer countries, agencies, companies and organizations to user friendly and interoperable solutions to ensure the identity of individuals in a simple, cost effective and reliable manner.

These companies and agencies thereby save money by reducing the costs of identity and password management, identity theft and fraud. For the user, it is a simple and integrity protective way of identifying himself.

The Company has been organized in two business units during 2013; Mobile and IAM (Identity and Authentication Management):

• The business area Mobile started up in 2011 in as the commercial product family Tactivo™ was launched. Tactivo comprises a case to mobile phones combined with smart cards and fingerprint identification. The products, for the expanding mobile market, leads to increased security while using smartphones and tablets. During the year the Company launched Tactivo for iPhone 5, iPad 4 and Tactivo Mini for Android.
• In the business area IAM the Company offers solutions for national ID cards and government, banks and companies. Embedded solutions and biometric physical access products are also included in the business area. Precise Biometrics' solutions provide strong security while contributing to increased efficiency and revenue opportunities or cost savings for the customer.

In 2013, Precise Biometrics has seen significant opportunities for its core product, algorithms, especially after the agreement signed with Fingerprint Cards (FPC) under which FPC licenses Precise BioMatch™ Mobile to further enhance the performance of their sensors.

As an effect of opportunities in the licensing of its algorithms the Company has, as of January 1 2014, divided the operations into three business areas. The Company moves from the previous division into the two business areas IAM and Mobile, to three business areas: Mobile Smart Card Solutions (Tactivo), Fingerprint Technology (licensing of algorithms) and Desktop & Physical Access Solutions (fingerprint readers and solutions for access to premises and computers).

The Company's most important focus areas are:

• To establish Precise Biometrics' market profile as a reliable supplier with expertise and extensive experience in advanced fingerprint solutions. Precise Biometrics offers solutions that provide strong security while contributing to increased efficiency and sales opportunities or cost savings for the customer.
• Growth and profitability with the necessary product development to secure the Company's continued strong positioning.
• In all three business units Precise Biometrics should strengthen the continued commercialization of Precise Biometrics' unique technology by each business unit delivering value added and custom-designed solutions. In all three businesses Precise Biometrics' solutions should give strong security while they will help drive efficiency, increased revenue opportunities or cost savings for the customer.

The sales organization

As of January 1, 2014, Precise Biometrics has divided its operations into three business units. The Company goes from the former division in two areas, IAM and Mobile, into three business units: Mobile Smart Card Solutions (Tactivo), Fingerprint Technology (licensing of algorithms), and Desktop & Physical Access Solutions (fingerprint readers and access solutions for access to buildings and computers).

Precise Biometrics is through its business units operating in four geographic areas: Europe, North America, Asia, and Middle East & Africa. The North American market is operated by its own subsidiary in the U.S., while Europe and other parts of the world are operated by a sales organization at the head quarters in Lund.

Further information about the business units is available in . Note 2

The most important business events during 2013:

• A market-leading global provider of financial information services selected, in the first quarter, Precise Biometrics as their new fingerprint algorithm vendor.
• One of the mobile operators in the U.S. placed an order of 5,000 Tactivo units during the first quarter.
• Precise Biometrics announced follow-up orders for fingerprint readers of SEK 9.9 million from a government customer in the Middle East.
• Precise Biometrics signed a framework agreement with Volkswagen, with an expected duration of several years, for further supply of Tactivo. Volkswagen uses Tactivo as part of their security infrastructure.
• Precise Biometrics and Fingerprint Cards (FPC) entered into an agreement where FPC will license Precise Biometrics' fingerprint algorithm Precise BioMatch™ Mobile to further enhance the performance of their world leading sensors. The first smart phone that integrates a FPC sensor with Precise BioMatch Mobile was launched on the Asian market.
• Tactivo was the first mobile smart card reader that was FIPS 201-certified (Federal Information Processing Standards) for the US Government Service Administration Approved Products List.
• During the year the company launched Tactivo for iPhone 5, iPad 4 and Tactivo mini for Android.
• Precise Biometrics' rights issue, during the second quarter, with preferential rights for Precise Biometrics' shareholders was oversubscribed and supplied the Company with SEK 48.7 million after issue costs. During the third quarter the company completed a private placement, based on the authorization from the Annual General Meeting 2013, that further strengthened the company's available cash by SEK 80.9 million after issue costs.
• During the fourth quarter the Board of Precise Biometrics hired Håkan Persson as interim CEO, replacing former CEO Thomas Marschall, in order to provide the company with deep sales competence and to further position the company on the growing mobile market.

Significant event after the end of the year:

Precise Biometrics launched Tactivo for iPad mini and Tactivo for iPad Air.

Patents

The group's overall patent strategy is based on securing the rights to Precise Biometrics' own technology, creating value for future business and enhancing the company's competitiveness.

Since 2001, the patent portfolio has been successively reinforced to include 63 registered patents and 14 patent applications within 17 different patent families at the end of 2013.

Brands

Precise Biometrics works actively and strategically with a trademark portfolio consisting of a small number of carefully selected trademarks:

• TACTIVO™ the trademark for Precise Biometrics' latest product. The trademark is registered in the EU, the U.S., Australia and patents has been applied for in Canada, China and Russia.
• PRECISE BIOMETRICS™ registered as both a trade image and trade name in several countries.
• PRECISE BIOMATCH™ the overall trademark for the core technology, which is used as the basis for the naming of software products. The trademark is registered in both the EU and the US.
• BIOMATCH™ the overall trademark for Precise Biometrics' core technology. The trademark is registered in both the EU and the U.S.
• PRECISE MATCH-ON-CARD™ the established and very well-known trademark for Precise Biometrics' technology to save and match a fingerprint on a smart card. The trademark is registered in the EU.
• PRECISE SENSE™ the trademark for Precise Biometrics' biometric readers that were launched in 2011.

Sales and income

Sales during the fiscal year amounted to SEK 34.9 million (28.3). The improved sales are impacted by the order from the US-based provider of financial information services and the order from one of US mobile operators in the first quarter, along with hardware deliveries to a government customer in the Middle East.

The gross margin was 54 per cent (56) which is at the same level as previous year. The group's net loss for the fiscal year amounted to SEK -43.3 million (-47.0).

Operating expenses for the fiscal year amounted to SEK -61.1 million (-58.7). Operating costs are higher compared to the same period last year due to costs associated with the CEO transition. The former CEO Thomas Marschall resigned November 8th 2013 and was replaced by Håkan Persson.

Earnings per share (average number of shares) for the period amounted to SEK -0.14 (-0.23).

Financing and liquidity

As of December 31, 2013 equity amounted to SEK 134.1 million (48.2) and equity per share to SEK 0.39 (0.18).

Liquid assets amounted at the end of the fiscal year to SEK 101.2 million (37.6). During the second quarter the company carried out a share issue with preferential rights for Precise Biometrics' shareholders that was oversubscribed and supplied the company with SEK 48.7 million after issue costs. The company completed, during the third quarter, also a private placement that further strengthened the company's available cash by SEK 80.9 million after issue costs. In the first quarter the company fully re-paid the credit facility that was obtained in 2012, in total SEK 25.5 million including interest.

Cash flow from current operations amounted to SEK –34.2 million (-48.6).

Capitalization and depreciation of development work

Development work costs of SEK 9.4 million (8.0) were capitalized during the fiscal year. The main part of development work has focused on the mobile segment. Depreciation of capitalized costs for development work amounted in the fiscal year to SEK 4.1 million (1.7). Write-downs of projects amount to SEK 2.1 million during the year.

The Company has, during the fourth quarter, made a revised assessment in relation to the depreciation of the development projects related to Tactivo. The Company has determined that the products in the product family Tactivo has a shorter life span than the Company's more traditional products and thus can be written off faster. The revised assessment had a negative impact on the result by SEK 0.6 million in the fourth quarter.

Research and development

Precise Biometrics' research is central to the Company and allows for maintaining competitiveness in an industry that is constantly evolving. Research and development efforts are mainly aimed at developing fingerprint algorithms that the Company's products are based on. Precise Biometrics research and development department is working to develop existing products and patents and to develop new solutions. Support and consulting services are also included in the department's duties. The department works both in customer-specific projects and internal development projects related to the Company's products and offers.

Tactivo™

The Tactivo project has accounted for the majority of all project hours during 2013. The work has been focused on continued development of Tactivo for Apple's products iPhone and iPad, but also solutions for Android have been developed during the year.

Organization and personnel

The organization consists of Precise Biometrics AB with the head office in Lund, Sweden and an office in Karlstad, Sweden. The organization also consists of the subsidiary Precise Biometrics Inc. with an office in Virginia, U.S.

The number of employees in the group amounted to 29 (37) at the end of the year, 26 in Sweden and 3 in the U.S. Of the total number of employees at the end of the year, 20 (25) were men and 9 (12) were women.

Staff turnover in the group was 26.7 per cent (10.8). The increase compared to 2013 is due to changes in the US subsidiary.

The share

Precise Biometrics had, per December 31 2013, 345,306,094 shares listed on Nasdaq OMX Nordic Small Cap list, Sector Industrial Goods & Services. A trading lot is 1 share. Short abbreviation is PREC and the ISIN code SE0001823303.

Share price development

During 2013, a total of 3,468,950,587 PREC shares have been traded, representing an average annual turnover of 14,453,961 shares traded per day. The closing price on December 30 2013 was 1.63 SEK. The share price has during the year varied between 0.69 SEK and 5.10 SEK.

Shareholder strukcture

The number of shareholders at year-end were 14,281 (7,674). The foreign ownership was accounting for 16.1 percent (14.1) of total shares. See shareholder statistics in the segment "The share and shareholders", showing the ownership structure as of December 30, 2013.

Transferability of shares

There are no restrictions on the transferability of shares. Nor are there any known to the company agreements between shareholders that may result in restrictions on the transfer of shares.

Risks

The following specification of risk factors related to operations does not claim to be complete, nor are the risks ranked in their order of importance.

For information regarding Financial Risks see . Note 27

Risks related to operations

Technological development

The market in which the Company operates is subject to rapid change. New technology and new players are constantly appearing. The company's technology must therefore to a large extent be accepted by the leading players in the market, both suppliers and customers. The market must be mature enough to understand and accept the new technology supplied by the company.

Market development

As the market in which the Company operates grows and the number of players increases, there is a risk that alternative technologies will be developed and that the price of comparable products will thereby be reduced. This may require major investment in marketing and sales to achieve the expected sales volumes.

Product capacity

The company depends on external production capacity. If the demand for components and production capacity should increase, the manufacturing costs for the Company's products will also increase. An increase in the demand for components could also lead to delayed deliveries, which could result in income displacement.

Key persons

There are a number of key persons in Precise Biometrics who are important for operations, especially in research and development, where they possess unique competence. If one or more of these key persons should leave the Company it could, in the short term, have a negative impact on operations. There is also the risk that the recruitment of new employees for these positions can take time and result in additional costs for the Company.

Partners

Today the Company cooperates with several different partners. They include smart card manufacturers, chip manufacturers and suppliers of applications. The Company relies on this cooperation in order to be able to offer end customers complete security solutions. There is a risk that one or more of these partners could end their cooperation or fail to achieve the expected results, which would result in a loss of expected future earnings.

Patents and intellectual property rights

It is important for the company to protect its technology through patents or other intellectual property rights and create the opportunity for earnings in the future. The company therefore pursues an active patent strategy, which involves applying for patents for strategically important inventions in the countries where this is considered to be appropriate. Nevertheless, it cannot be guaranteed that the company will obtain patents in the countries where it has made applications or can protect granted patents. Over and above this, there is a risk that new technologies will be developed, which could circumvent or replace the Company's patents. The Company cannot guarantee that its products do not infringe on the patents or intellectual property right of others. In that case the Company's operations, result, possibilities to deliver products and other financial position could be negatively impacted.

Competitors

The company is operating in the market for biometrics. The competition in this market is severe. The competing companies can have substantially larger financial and industrial resources at their disposal than the Company, and it cannot be excluded that competition from players like these will lead to diminished market shares and/or a reduction in the profitability of Precise Biometrics.

Change in control clause

There are no agreements to which the company is committed that would come into effect, cause the company to be changed, or cease to be valid, if the control of the Company was changed as a result of a public takeover bid, and no agreements of such a nature that nationalization would in all probability seriously damage the company.

Proposed guidelines for the compensation of leading executives

The proposal of the board of directors concerning the establishment of guidelines for remuneration of leading executives implies that remuneration and terms and conditions of employment will be based on the market and be competitive, with predetermined caps on remuneration. Bonus remuneration will not exceed 50 percent of the fixed annual salary for the president, and 30 per cent for other executives. Bonus remuneration for US employees will not exceed 50 per cent of basic salary. Remuneration will also be provided in the form of options or other share-related incentive programs.

The president is subject to a mutual period of notice of 6 months and the other executives to a period of notice of 3-6 months. Severance pay for the president may not exceed 12 months' salary if employment is terminated at the initiative of the company. Other executives are not entitled to severance pay.

The retirement age is 65 years and the pension premium is calculated as a base of age and salary and may amount to a maximum of 25 per cent of the fixed salary. The decision means a level of remuneration that in general is in line with the previous year.

The Board's proposal for guidelines for remuneration to leading executives

The Board of Directors proposes that the Annual General Meeting 2014 resolves on guidelines for remuneration to senior management consistent with the policies adopted by the 2013 Annual General Meeting, with the adjustment that the variable salary shall not exceed 75 per cent of the fixed annual salary for the president an 50 per cent of the fixed annual salary for other management.

Parent company

Parent company sales for the fiscal year amounted to SEK 28.5 million (24.5). Operating loss before tax for the fiscal year amounted to SEK -43.1 million (-49.7).

At the end of the fiscal year there were 26 persons employed in the parent company.

Liquid assets at the end of the year amounted to SEK 97.0 million (35.2).

Proposed treatment of accumulated result

Proposed treatment of accumulated result is to be found in the segment Result Disposition and Assurance from Board on page 86.

Corporate Governance report

From July 1, 2008, Precise Biometrics has applied the Swedish corporate governance code (the Code). Corporate governance is founded on the company bylaws, the Swedish Companies Act and stock exchange rules, including the Code. Precise Biometrics' application of the Code differs for the following items:

• The Company has decided not to establish a separate internal audit function. This is further explained in the section "The board of directors' report on internal control for the fiscal year 2013".
• The Board of directors' report regarding remuneration to senior management was published later than two weeks ahead of the Annual General Meeting 2013. Up to the Annual General Meeting in april 2013 the board as an entity acted as the Compensation committee.
• Name of newly elected board members were not included in the notice convening the Annual General Meeting 2013.

The corporate governance report provides a general description of how the company applies the Code.

The General Meeting of the shareholders

The General Meeting is Precise Biometrics supreme governing body and the forum through which shareholders may exercise their influence over the company. At the annual general meeting, which is held yearly, the shareholders exercise their voting rights by, among else, appoint board of directors, the external auditors and make decisions on other issues such as the income statement and balance sheet, the principles of the nomination committee should be appointed and guidelines regarding remuneration to senior management. At the Annual General Meeting the shareholders also have the possibility to ask questions about the company. Precise Biometrics 2013 annual general meeting was held at the company headquarters in Lund, Sweden on 23 April 2013.

• Torbjörn Clementz, Eva Maria Matell and Lisa Thorsted were re-elected as members of the board, whilst Lena Widin Klasén and Erwin Leichtle declined re-election. Anders Harrysson, Matts Lilja and Torgny Hellström were elected as new members of the board. Lisa Thorsted was elected as chairman of the board.
• The Annual General Meeting resolved on a new share issue with preferential right for the company's shareholders. Name of newly elected board members were not included in the notice convening the Annual General Meeting 2013.
• In accordance with the proposal of the board, the Annual General Meeting resolved to adopt guidelines for management principally entailing that remuneration and terms of employment shall be competitive and in accordance with market conditions.
• In accordance with the recommendations of the board of directors, the General Meeting resolved to authorize a new issue to a maximum of 26.5 million shares. Full exercise of the authorization, at full conversion, is equivalent to a dilution of approximately 10 % of the present share capital and votes. The purpose of the authorization and the reason for the deviation from the shareholders' preferential right is to enable the Company to effect payment of company acquisitions by the Company's own shares and/or convertibles and to obtain capital contributions from new owners that are considered strategically important in an operational, financial, structural or other perspective.
• In accordance with the proposal of the board, the Annual General Meeting resolved that the company's share capital shall be reduced by SEK 31,742,780.16 to cover loss. The reduction shall be effected without retirement of shares and without repayment to the shareholders. After the reduction, the company's share capital will amount to SEK 74,066,487.04, allocated between a total number of 264,523,168 shares. The reduction entails a reduction of the quota value of the shares with SEK 0.12 from SEK 0.40 to SEK 0.28.

For more details regarding the above resolutions taken at the Annual General Meeting 2013 see Precise Biometrics website under Annual General Meeting.

The Annual General Meeting for Precise Biometrics AB (publ) will be held on Tuesday, April 29, 2014 at 16.00 at Precise Biometrics' headquarters in Lund, Scheelevägen 30.

The Swedish Companies Act and the company bylaws describe how general meetings are convened and who is entitled to participate in them and vote. The minutes of the meeting are available on the Precise Biometrics website.

Under the company bylaws, the meeting is convened through announcements posted in the Swedish national newspapers. Shareholders wishing to attend the meeting must be entered in the company's share register per April 23. Applications to attend the meeting are to be made in the manner specified in the convening notice.

Nomination committee

Following a decision taken at the Annual General Meeting on April 23, 2013, a nomination committee is to be established. The nomination committee shall consist of one representative from the three largest shareholders as of August 31 2013, together with the chairman of the board.

The nomination committee consequently consists of Torgils Knutsson Bonde (private holdings), Ole Søeberg (Skagen Fonder) och Christer Jönsson (private holdings). These participants represents the three largest shareholders as of August 31 2013, that have accepted participation in the nomination committee. The chairman Lisa Thorsted also sits on the committee, and is the convener.

The nominating committee's proposals for the board of directors and remuneration to board members, proposals for auditors and auditors' fees, including the proposed chairman of the meeting, are contained in the notice convening the meeting.

The Board of directors

The members of the Board are elected at the Annual General Meeting and the Board member's mandate period runs up to the following year's Annual General Meeting. During the intervening period between Annual General Meetings, the Board of directors of Precise Biometrics remains the highest executive body. Under the bylaws, the Board of directors shall consist of at least three and no more than seven members.

According to the company's bylaws the Board shall consist of not less than three and not more than seven members. After the Annual General Meeting in April 2013, the Board of directors has consisted of six directors: Lisa Thorsted (chairman), Torbjörn Clementz, Eva-Maria Matell, Anders Harrysson, Matts Lilja and Torgny Hellström. All Board members are independent in relation to Precise Biometrics and the Company Management. The composition of the Board of directors and their various duties is indicated under the headline "Board of directors" in the Annual Report.

The work of the Board of directors

The work of the Board of directors is regulated by rules of procedure prepared on an annual basis. The rules of procedure include instructions for the company's president and CEO, the assignments incumbent on the chairman, the agenda of board meetings and decision-making procedures. According to the rules of procedure, six ordinary Board meetings should be held apart from the statutory board meeting. In addition to these meetings, the Board meet whenever is needed. In 2013 the Board of directors held 19 meetings at which the minutes were taken, of which 1 was held per capsulum. The members of the Board have been present at the Board meetings as follows:

	Elected year	Presence 2013	Committee 3)	Board fee (SEK)	committee fee (SEK)	Independent in relation to the company and the company management
			Audit comm
sa Thorsted, chairman	2006	19 av 19	Compensation comm.	210 000	17 223	Yes
orbiörn Clementz	2009	19 av 19	Audit comm.	105 000	17 223	Yes
a Maria Matell	2007	19 av 19	Compensation comm.	105 000	17 223	Yes
ders Harrysson 1)	2013	13 av 14	Compensation comm.	70 000	17 223	Yes
latts Lilia	2013	12 av 14	Compensation comm.	70 000	17 223	Yes
1) orgny Hellström	2013	13 av 14	Audit comm.	70,000	17 223	Yes
na Widin Klasén 2)	2007	3 av 5		35 000		Yes
2) win Leichtle	2012	5 av 5		35 000		Yes
				700,000	102.229

The Chairman organizes and directs the work of the Board. Issues dealt with during the year included strategy and long-term focus, organization including change of CEO, corporate governance, financing, decision regarding share issue as well as interim and year-end reports.

During the year an evaluation of the work in the Board has been conducted by an

external advisor. The findings have been presented and discussed with the whole Board. The Chairman of the Board has also informed the Nomination committee of the evaluation.

The President keeps the board of directors up-to-date at all times. In addition to the ordinary meetings, the chairman and other directors have been in continuous contact with leading executives in the company, primarily the President and CFO. Apart from meetings where minutes have been taken, the board of directors has also received monthly updates on the company's financial results and position.

Remuneration to the board of directors is also to be found in . Note 23

Group executive

Precise Biometrics senior management is based at the headquarters in Lund, Sweden. The composition of the executive as of December 31, 2013 is indicated under the heading "Management Team" in the Annual Report. The group held formal weekly meetings during the year and a strategy and budget meeting. Per December 31, 2013 the management team consisted of interim CEO Håkan Persson, Patrik Lindeberg, COO; Patrik Norberg, CFO and Anna Herdenberg, Corporate Counsel.

During the fourth quarter Håkan Persson replaced former CEO Thomas Marschall. Patrik Lindeberg (previously CTO and Vice President, R & D) entered into a new and expanded role during the year. As the Chief Operating Officer (COO) he is responsible for the Group's operational activities which, among other duties, include sales and product development. Anna Herdenberg has during the year become a new member of the management team.

Compensation committee

The duties of the Compensation committee include issues concerning salaries, pensions, incentive schemes and other terms and conditions for the employment of company executives. Up to the annual general meeting 2013 the entire Board constituted the Compensation committee. During the year the committee has primarily focused on remuneration to the executive team including incentive program and option program. The guidelines for leading executives are described in the administration report in the Annual Report. Precise Biometrics' Compensation committee consist of the board members Lisa Thorsted (chairman of the committee), Eva-Maria Matell, Matts Lilja and Anders Harrysson.

The Audit committee

The overall duty of the Audit committee is to supervise and prepare a number of questions to the Board which supports the Board's role to fulfill the responsibility regarding audit, internal control and financial reporting. Up to the annual general meeting 2013 the entire Board constituted the Audit committee. During the year the committee has primarily focused on reporting (quarterly reports, annual report and internal reporting), operational risk assessment and internal control. Separate meetings are held on two occasions every year. These meetings discuss among other things, reporting, business related risks and internal control. Precise Biometrics' Audit committee consist the board members Torbjörn Clementz (chairman of the committee), Lisa Thorsted and Torgny Hellström.

See further below in the section "The Board of directors' report on internal control for the fiscal year 2013".

Auditors

At the annual general meeting 2013 Öhrlings PricewaterhouseCoopers AB, with Eva Carlsvi as head auditor, was elected as Precise Biometrics' auditor up to the annual general meeting in 2014. Öhrlings PricewaterhouseCoopers AB has been the auditor of Precise Biometrics since the company was founded in 1997. They auditors also perform assignments for other listed companies, but not to such an extent that this would interfere with the proper auditing of Precise Biometrics. The auditors do not carry out any assignments that would question their independence in relation to the company.

Information on auditor fees is indicated at Note 7 for both the group and the parent company.

Policies (within the framework of Corporate Governance)

Precise Biometrics has established several policies. All of these policies form the basis for the way in which the board of directors and the executive advocate that the organization should work. The policies established by the company are reported below. All policies are revised annually.

This policy is for the purpose of establishing guidelines concerning how the company manages financing, currency exposure, investments, insurance, and accounting and financial reporting.

Information policy

The information policy ensures that the company issues consistent and correct information on its operations and complies with the requirements of the stock exchange for information to the stock market.

Information security policy

The policy covers all information within the Group, ie, both in IT, mobile, email, telephone, physical access, archiving of paper documents, etc. This policy facilitates the Group's efforts to secure information and is binding for all employees.

Insider policy

This policy ensures that there is no insider trading with the company's share. The company maintains a log of all activities which may affect the share price and the people in the company and on the board of directors who may have knowledge of such activity.

IT policy

This policy is for the purpose of establishing guidelines for ownership rights and purchasing of computers. The IT policy also includes regulations concerning which programs are allowed and the procedures applicable for installation of software. Rules for internet use also form part of the IT policy.

Ethics policy

The company's ethics policy deals with issues and values concerning the company's relations with its environment, staff, market and shareholders.

Environmental policy

The purpose of the company's environmental policy is to ensure that its work, investments and other activities take into consideration their impact on the environment. To achieve this, the company uses recyclable materials in its production of hardware. Another aspect of this policy is that employees in the company shall as far as possible choose eco-friendly ways of travelling on business trips.

Change in control clause

There are no agreements to which the company is committed that would come into effect, cause the company to be changed, or cease to be valid, if the control of the Company was changed as a result of a public takeover bid, and no agreements of such a nature that nationalization would in all probability seriously damage the company.

The board of directors' report on internal control for the fiscal year 2013

Under the Swedish Companies Act and the Code, the board of directors is responsible for internal control. According to the Code, the board of directors ensures that the company has good internal control and remains continuously informed of, and evaluates how the Company's internal control functions. The board of directors' report has been limited to only include the internal control of the financial reporting.

The Control environment

In order to create and maintain an efficient control environment the board of directors has drawn up a number of documents of significance for the financial reporting. These documents include the board of directors' rules of procedure and instructions for the president. The president is responsible to ensure that the guidelines drawn up by the board of directors are followed on a daily basis in their operative work. The president regularly reports to the board of directors on the basis of the established procedures, at board meetings and at more informal update meetings.

In addition, the company's auditors report to the board of directors at least twice during the fiscal year. It should also be noted that the review of internal control has been done within the framework of the external audit. The head auditor also maintains regular contact with chairman.

The most important parts of the control environment are the documents that govern the accounting and financial reporting. The company follows a well-defined procedure in relation to annual and monthly financial reporting. The closing financial statements are presented to the board of directors every month according to a predetermined template.

The organization of the company and the way in which the business is run also form an important platform for the internal control. All areas of responsibility and employees have clearly defined roles. The policies of the company are an important platform to ensure that the control environment works.

Risk assessment and inspection activities

Precise Biometrics assesses on a regular basis the current risk situation in relation to

financial reporting. The company pays special attention to risks in the financial reporting, i.e. whether there are any accounting errors, how assets and liabilities are valued, and their completeness. The management of internal transactions within the group can also be subject to risks. These risks are considered, however, to be of minor importance in that the company has a well-defined monthly financial reporting process and established follow-up procedures and policies. It should also be noted that the company continuously updates its finance handbook.

Manual inspections are carried out to prevent errors in the financial reporting. These inspections are also integrated in the accounting and other IT systems.

Information and communications

The board of directors receives monthly reports from the president and CFO about the company's financial position, development and projects in progress.

The company continuously informs the staff of updates to accounting principles, policies and other changes in reporting requirements.

All external information and communications are regulated by the company's information policy.

Follow-up

The board of directors and the audit committee continuously assess the information submitted by executives. The company's financial position is discussed at every board meeting, and at more informal monthly update meetings. Budget comparisons and forecasts, including analysis of any deviations, are described in the monthly reports.

The board of directors examines interim and year-end financial statements before they are published.

The assignments of the external auditors also include auditing the internal control in the group.

In this context the board of directors has not found it necessary to establish a separate internal audit.

Income statements

Group, figures in Thousands SEK

	note	2013	2012
Net sales	2	34,944	28,281
Cost of goods and services sold		-15,976	-12,495
Gross profit		18,968	15,786
Selling expenses		-24,777	-25,812
Administration expenses		-14,706	-13,909
R & D expenses	9	-21,307	-18,239
Other operating income		-	104
Other operating expenses		-358	-832
		-61,148	-58,688
Operating profit/loss	6, , , 7 8 27	-42,180	-42,902
Interest revenue		479	140
Interest expenses	29	-1,571	-4,190
		-1,092	-4,050
Profit/loss before tax		-43,272	-46,952
Income tax	10
NET PROFIT/LOSS FOR THE YEAR		-43,272	-46,952
Profit/loss attributable to:
Owners of the parent		-43,272	-46,952
Profit/loss per share, attributable to
owners of the parent (SEK per share)
Profit/loss per share, SEK (before/after dilution)	11	-0.14	-0.23
Groups report concerning comprehensive income
Profit/loss for the year		-43,272	-46,952
Comprehensive income:
Items that can be reclassified into profit or loss
Change in accumulated exchange rate differences		43	143
Comprehensive income for the year, net of tax		43	143
Total comprehensive income for the year		-43,229	-46,809
Attributable to:
Owners of the parent		-43,229	-46,809
Total comprehensive income for the year		-43,229	-46,809

Income statements

Parent Company, figures in Thousands SEK

	note	2013	2012
Net sales	2	28,517	24,512
Cost of goods and services sold		-18,875	-23,421
Gross profit		9,642	1,091
Selling expenses		-15,859	-12,628
Administration expenses		-14,704	-13,908
R & D expenses		-21,307	-18,239
Other operating expenses		-356	-2,432
		-52,226	-47,207
Operating profit/loss	6, , 7 8	-42,584	-46,116
Interest revenue		1,058	557
Interest expenses		-1,566	-4,187
		-508	-3,630
Profit/loss before tax		-43,092	-49,746
Income tax		-	-
NET PROFIT/LOSS FOR THE YEAR		-43,092	-49,746
Parent company's report concerning comprehensive income
Profit/loss for the year		-43,092	-49,746
Comprehensive income:
Result from merger		-	124
Comprehensive income for the year, net of tax		0	124
Total comprehensive income for the year		-43,092	-49,622
Total comprehensive income attributable to:
Owners of the parent		-43,092	-49,622
Total comprehensive income for the year		-43,092	-49,622

Balance sheet

Group, figures in Thousands SEK

	note	13.12.31	12.12.31
ASSETS
Fixed assets
Intangible fixed assets	3	21,574	18,358
Tangible fixed assets	5	3,475	1,829
Total fixed assets		25,049	20,187
Current assets
Inventories	13	14,228	10,985
Accounts receivable and other receivables	14	12,450	16,895
Liquid assets	15	101,197	37,584
Total current assets		127,875	65,464
TOTAL ASSETS		152,924	85,651
EQUITY & LIABILITIES
EQUITY
Capital stock	17	96,685	105,809
Other added capital		689,382	582,420
Reserves	17	676	727
Balanced loss and loss for the year		-652,196	-640,761
Total equity		134,547	48,195
Current liabilities
Trade accounts payable and other liabilities	18	17,869	17,009
Borrowing	19	-	20,000
Other provisions	20	508	447
Total current liabilities		18,377	37,456
TOTAL EQUITY AND LIABILITIES		152,924	85,651

Balance sheet

Parent Company, figures in Thousands SEK

	note	13.12.31	12.12.31
Fixed assets
Intangible fixed assets	4	21,574	18,358
Tangible fixed assets	5	3,475	1,829
Financial fixed assets	16	1,058	1,058
Total fixed assets		26,107	21,245
Current assets
Inventories		10,913	9,810
Accounts receivable		1,777	5,954
Receivables from group companies		35,497	32,742
Other receivables		5,345	3,867
Prepaid expenses and accrued income	24	2,860	2,107
Liquid assets	15	96,976	35,196
Total current assets		153,368	89,676
TOTAL ASSETS		179,475	110,921
EQUITY AND LIABILITIES
EQUITY
Capital stock	17	96,685	105,809
Statuory reserve		1,445	1,539
Share premium reserve		106,961	17,785
Loss carried forward and loss for the year		-43,092	-49,622
Total equity		161,999	75,511
Provisions Other provisions	20	100	117
Current liabilities Accounts payable	18	6,258	2,840
Other liabilities		448	21,847
Accrued expenses and prepaid income		10,670	10,606
Total current liabilites		17,376	35,293
TOTAL EQUITY AND LIABILITIES		179,475	110,921
MEMORANDUM ITEMS
Pledged assets	21	24,000	24,000
Contingents liabilities		None	None

Change in equity

Group, figures in Thousands SEK

	Attributable to Parent company owners
	Capital Stock	Other paid-in capital	Reserves	Balanced loss and loss for the year	Total eguity
Opening balance of January 1, 2012	75,578	564,635	584	-593,809	46,988
Comprehensive income
Loss for the year	-	-	-	-46,952	-46,952
Other comprehensive income
Exchangerate differences	-	-	143	-	143
Total other comprehensive income	0	0	143	0	143
Total comprehensive income	0	0	143	-46,952	-46,809
Transactions with the shareholders
New share issue	30,231	17,785	-	-	48,016
Total transactions with the shareholders	30,231	17,785	0	0	48,016
Closing balance as of December 31, 2012	105,809	582,420	727	-640,761	48,195
Opening balance as of January 1, 2013	105,809	582,420	727	-640,761	48,195
Comprehensive income
Loss for the year	-	-		-43,272	-43,272
Other comprehensive income
Exchangerate differences	-	-	43	-	43
Total other comprehensive income	0	0	43	0	43
Total comprehensive income	0	0	43	-43,272	-43,229
Transactions with the shareholders
Reduction of the quota value of the shares	-31,743		-94	31,837	0
New share issue	16,459	32,204	-	-	48,663
New share issue	6,160	74,758	-	-	80,918
Total transactions with the shareholders	-9,124	106,962	-94	31,837	129,581
Closing balance as at December 31, 2013	96,685	689,382	676	-652,196	134,547

For additional information about change of equity see . Note 17

Change in equity

Parent company, figures in Thousands SEK

		Attributable to Parent company owners
	Capital stock	Statuory reserve	Share premium reserve	Loss carried forward and loss for the year	Total equity
Opening balance as of January 1, 2012	75,578	9,512	26,981	-34,954	77,117
Comprehensive income
Loss for the year	-	-	-	-49,746	-49,746
Other comprehensive income
Transfer of annual profit/loss	-	-7,973	-26,981	35,555	601
Result from merger	-	-	-	124	124
Group contributions				-601	-601
Total other comprehensive income	0	-7,973	-26,981	35,078	124
Total comprehensive income	0	-7,973	-26,981	-14,668	-49,622
Transactions with shareholders
New share issue	30,231		17,785		48,016
Total transactions with shareholders	30,231	0	17,785	0	48,016
Closing balance as of December 31, 2012	105,809	1,539	17,785	-49,622	75,511
Opening balance as of January 1, 2013	105,809	1,539	17,785	-49,622	75,511
Comprehensive income
Loss for the year	-	-	-	-43,093	-43,093
Other comprehensive income
Transfer of annual profit/loss	-	-	-17,785	17,785	0
Total other comprehensive income	0	0	-17,785	17,785	0
Total comprehensive income	0	0	-17,785	-25,308	-43,093
Transactions with shareholders
Reduction of the quota value of the shares	-31,743	-94	-	31,837	0
New share issue	16,459	-	32,204	-	48,663
New share issue	6,160	-	74,758	-	80,918
Total transactions with shareholders	-9,124	-94	106,962	31,837	129,581
Closing balance as of December 31, 2013	96,685	1,445	106,962	-43,093	161,999

For additional information about eguity see Note 17.

Cash flow statement

Figures in Thousands SEK

	note	Group		Parent Company
		2012	2011	2012	2011
Cash flow from current operations
Cash flow from current operations	28	-43,939	-35,676	-40,928	-39,057
Interest income paid		141	299	557	297
Interest cost paid		-4,190	-91	-4,187	-5
Taxes paid		-615	-779	-615	-599
Cash flow from current operations		-48,603	-36,247	-45,173	-39,364
Cash flow from investment business
Capitalized developement work		-7,970	-7,891	-8,055	-7,891
Aquisition of tangible fixed assets		-1,173	-787	-1,254	-787
Cash flow from investment business		-9,143	-8,678	-9,309	-8,678
Cash flow from financial business
Payment for issue of common stock		48,016	48,575	48,016	48,575
Loans raised		20,000	-	20,000	-
Amortization of loans		-1,347	-	-	-
Payment for issue of options			440	-	-
Cash flow from financial business		66,669	49,015	68,016	48,575
Decrease/Increase in liquid assets		8,923	4,090	13,534	533
Opening liquid assets		28,930	24,544	21,662	21,129
Exchange rate differences		-269	296	-	-
Closing liquid assets		37,584	28,930	35,196	21,662

Notes

• Note 1 Accounting policies
• Note 2 Segment information
• Note 3 Intangible fixed assets, group
• Note 4 Intangible fixed assets, parent company
• Note 5 Tangible fixed assets
• Note 6 Costs allocated per type
• Note 7 Auditors´remuneration
• Note 8 Operational leasing agreements
• Note 9 Government support
• Note 10 Income tax
• Note 11 Profit/loss per share Note 12 Deferred tax
• Note 13 Inventories
• Note 14 Accounts receivable and other receivables
• Note 15 Liquid assets
• Note 16 Financial fixed assets
• Note 17 Equity
• Note 18 Accounts payable and other liabilities
• Note 19 Borrowing
• Note 20 Other provisions
• Note 21 Pledged assets
• Note 22 Employee and personnel expenses
• Note 23 Remuneration to leading executives
• Note 24 Prepaid expenses and accrued income
• Note 25 Cash flow from operations
• Note 26 Purchases and sales between group companies and transactions with
• associates
• Note 27 Financial risk factors
• Note 28 Merger of Subsidiary
• Note 29 Interest expenses
• Note 30 Significant changes after the end of the year

Note 1 - Accounting policies

General basis for preparation of the reports

The consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards (IFRS) and IFRIC adopted by the EU, the Swedish Annual Accounts Act, and RFR1, Supplementary Accounting Regulations for Groups.

The consolidated financial statements have been prepared in accordance with the acquisition method, with the exception of financial assets valued at fair value in the income statement.

The parent company essentially applies the same accounting policies as the group and RFR2, Supplementary Accounting Regulations for Legal Entities.

The board of directors approved these consolidated financial statements for publication on March 27, 2014.

New and amended standards applied by the group from January 1, 2013

IAS 1 "Presentation of Financial Statements", which came into force on 1 July 2012, introduced changes concerning other comprehensive income. The most significant change in the revised IAS 1 is the requirement that the items recognized in "other comprehensive income" will be presented divided into two groups. The distribution is based on if the entries may be reclassified to the income statement (reclassification adjustments) or not. The amendment does not address the question of which records are included in "other comprehensive income".

IFRS 13 "Fair Value Measurement" aims to fair value measurements more consistent and less complex by at providing a precise definition and a common source of IFRS to fair value increases and related disclosures. The standard provides guidance on fair value measurements for all types of assets and liabilities, financial and non-financial. The requirements do not extend to when fair value should be applied but provide guidance on how it should be applied when other IFRSs already require or permit fair value measurements.

None of the other IFRS or IFRIC interpretations which for the first time are mandatory for the fiscal year that began on January 1, 2013 have had any essential impact on the group.

New IFRS, supplements to IAS and IFRIC interpretations taking effect in 2014, or later

IFRS 9 "Financial instruments" concerns the classification, valuation and recognition of financial liabilities and assets. IFRS 9 was issued in November 2009 for financial assets and in October 2010 for financial liabilities, and replaces the parts in IAS 39 related to classification and valuation of financial instruments. IFRS 9 specifies an acquisition value. Classification is determined on the first accounting occasion on the basis of the Company's business model and characteristic attributes in the contractual cash flows. No significant changes have occurred for financial liabilities in comparison with IAS 39. The main amendment refers to liabilities that are identified to fair value. For these, the part of the change in fair value attributable to the credit crisis will be recognized in other comprehensive income instead of income, in so far as this does not lead to an accounting mismatch. The group intends to apply the new standard by the fiscal year that starts on January 1, 2015 and has therefore not yet evaluated the effects. The standard has not been adopted by the EU up to date as it is uncertain when the whole package will be ready.

None of the other IFRS or IFRIC interpretations that have so far not come into force are expected to have any essential impact on the Group.

Consolidated financial statements Subsidiaries

Subsidiaries are all the companies, including companies for special purposes, where the group is entitled to arrange financial and operative strategies in the structure normally employed for a shareholding of more than half of the voting rights.

The group also estimates if there is a controlling influence even if the shareholding does not amount to more than half of the voting rights, but where it still has the option to control financial and operative strategies through de facto control. De facto control can arise in circumstances where the proportion of the group's voting rights in relation to the size and distribution of other shareholder voting rights gives the group the opportunity to control financial and operative strategies etc.

Subsidiaries are included in the consolidated financial statements from the date the controlling influence is transferred to the group. They are excluded from the consolidated financial statements from the day the control no longer exists. The acquisition method is used to report the group's business acquisitions. The purchase price for acquisition of a subsidiary consists of the fair value of transferred assets, liabilities the group incurs from previous owners of the acquired company, and the shares issued by the group. The purchase price also includes the fair value of all assets or liabilities resulting from an agreement of a conditional purchase price. Identifiable acquired assets and transferred liabilities in a business acquisition are initially valued at the fair value on the date of acquisition. For each acquisition, i.e. acquisition for acquisition, the group determines if holdings without controlling influence in the acquired company will be recognized at the fair value, or to the proportional share of the holding in the recognized value of the acquired company's identifiable net assets

Acquisition-related expenses are recognized when they arise. If the business acquisition is implemented in several stages, the previous equity in the acquired company will be re-valued to its fair value at the time of acquisition. Any arising profit or loss will be recognized in income.

Each conditional purchase amount that is to be transferred to the group is recognized at the fair value on the acquisition date. Subsequent amendments to the fair value of a conditional purchase amount classified as an asset or liability are recognized in accordance with IAS 39, either in the income statement or in other comprehensive income. Conditional purchase amounts classified as equity are not re-valued and any subsequent regulation is recognized in equity.

Goodwill is valued initially as the amount whereby the total purchase amount and fair value for holdings without controlling influence exceed the fair value of identifiable acquired assets and adopted liabilities. If the acquisition value is lower than the fair value of the acquired subsidiary's net assets, the difference is recognized directly in the income statement.

Intergroup transactions, balance sheet items, earnings and transaction expenses between group companies are eliminated. Profit and loss resulting from intergroup transactions, and which are reported in assets, are also eliminated.

The accounting policies for subsidiaries have, where appropriate, been amended to assure consistent application of group policy.

Segment reporting

Operating segments are reported so as to correspond with the internal reporting submitted to the chief executive. The chief executive is the responsible function for allocation of resources and assessment of operating segment profits. In the group this function has been identified as the management group, in which the president is also included, and it is they who make strategic decisions.

In 2013, the business has been organized into two business units, Mobile and IAM (Identity and Authentication Management). The business area Mobile started up in 2011 when the commercial product family Tactivo™ was launched. Tactivo includes cases for mobile phones with smart cards and fingerprint identification. In the business area IAM Precise Biometrics offers solutions for national ID cards and government, banks and companies. Embedded solutions as well as biometric physical access are included in the business area.

In 2013, Precise Biometrics has seen significant opportunities for its core technology, algorithms, especially after the cooperation agreement concluded with Fingerprint cards (FPC). Opportunities in licensing of Precise Biometrics algorithms has led to the Group from 1 January 2014 has divided operations into three distinct business areas. The group goes from the former division into IAM and Mobile, to the business units Mobile Smart Card Solutions (Tactivo), Fingerprint Technology (licensing of algorithms) and Desktop & Physical Access Solutions (fingerprint readers and solutions for access to facilities and computers).

The management group does, however, also follow up operations from a product

perspective. The group has three types of products, these being Products, Licenses and Services. Also see Note 2 Segments.

The management group evaluates the operating segments on the basis of results defined in Note 2 Segments.

Translation of foreign currency

Funcional currency

Items included in the financial reports for the different units in the group are valued in the currency used in the financial environment where respective companies are primarily active (functional currency). Swedish kronor (SEK) is used in the consolidated financial statements, which is the parent company's functional and recognition currency.

Transactions and balance sheet actions

Transactions in foreign currency are converted to the functional currency according to the exchange rates applicable on the transaction date. Exchange rate profits and losses incurred during the payment of such transactions and during the conversion of monetary assets, or liabilities in foreign currency, to the balance sheet date rate are reported in the income statement. Exceptions are when transactions constitute an assurance that complies with the conditions for hedge accounting of cash flows, or for net investments when profits/losses are recognized in equity. All foreign exchange differences arising are recognized in other comprehensive income. Foreign exchange differences on financial transactions which are classified as net investment in foreign activities are recognized in other comprehensive income.

Group companies

The income and financial position for all group companies (of which none have a high inflation currency), which have a functional currency other than the reporting currency, are translated to the group's reporting currency as follows:

• Assets and liabilities for each of the balance sheets are converted to the rate on balance sheet date.
• Revenue and expenses for each of the income statements are translated to the average exchange rate (insofar as this average rate is not a reasonable approximation of the accumulated effect of the rates applicable on the transaction date, in which case income and costs are converted as per the transaction date).
• All foreign exchange differences arising are recognized as a separate part of equity.
• Foreign exchange differences on financial transactions seen as an extended net investment are also recognized directly in equity.

Tangible fixed assets

Tangible fixed assets are valued at the acquisition value, reduced by accumulated depreciation. The acquisition value includes charges that can be directly attributed to the acquisition of the asset.

Additional charges are added to the recognized value of the asset or are recognized as a separate asset, depending on which is applicable, only when it is likely that the future financial benefits associated with the asset will benefit the group and the acquisition value of the asset can be reliably measured. All other forms of repairs and maintenance are recognized as expenses in the income statement during the period in which they arise.

In order to reduce their acquisition value to the estimated residual value, tangible fixed assets are depreciated in a straight line according to plan over the estimated period of use as follows:

• Computers: 3 years
• Equipment: 5 years

Depreciation of tangible fixed assets is included in Selling expenses, Administration expenses and R&D expenses in the income statement. The allocation of functions is carried out with a formula based on the number of employees per function.

The residual values and service lives of assets are assessed on the balance sheet date, and adjusted when necessary.

In the event the recognized value of an asset is considered to exceed its estimated recovery value, the asset is immediately written down to its recovery value.

Gains and losses on disposals are determined through a comparison between the proceeds of sale and the recognized value, and are recognized in the income statement.

Intangible assets

Research & development

Research expenses are recognized as they arise. Development expenses consist of the costs of further development of equipment for biometric fingerprint identification. These are recognized as intangible assets when it is likely that the project will be successful in terms of its commercial and technical potential, and if the costs can be reliably measured. Other development expenses are recognized as they arise. Previously recognized development expenses are not carried forward to the subsequent period. Development expenses have a limited useful life and are depreciated on a straight line basis from the date when the commercial production of the product commences.

From October 1, 2013 there is a new assement of capitalized development expenses related to the Tactivo family. The products are expected to have a shorter useful period compared with the Group's more traditional products.

The estimated useful period extends from two to five years. Depreciation of capitalized development costs is included in R&D expenses in the income statement.

Software

Expenses for maintenance of software are recognized as when they arise. Expenses for purchasing and development of software are capitalized if the criterias are met in accordance with IAS 38 and IFRS 3. The expenses are capitalized on basis of the costs incurred when the software in question is acquired and put into service and when the development costs incurred respectively. These expenses are written off during the estimated useful life, which extends to five years.

Patents

Patents have a limited useful life and are therefore recognized at the acquisition value, minus accumulated depreciation. Depreciation is made in a straight line over ten years.

Write-downs

Assets that have an indeterminable useful life are not written down, but are estimated annually in terms of any write-down requirements. The Company does not at present have any assets with an indeterminable useful life. Assets that are written down are estimated in relation to the reduction in value whenever events, or changes in current conditions, indicate that the recognized value is not recoverable. Write-downs are made to the amount by which the asset's recognized value exceeds its recovery value, which is the higher of the net sales value and the utility value. When calculating the utility value, the future cash flow is discounted at an interest rate that takes into consideration the market assessment of risk-free interest and risk associated with the specific asset. For an asset that depends on other assets generating a cash flow, the recovery value is calculated for the cash generating unit to which the asset belongs, i.e. the lowest levels where there are identifiable cash flows.

Financial instruments

Loans receivable and accounts receivable

Loans receivable and accounts receivable are non-derivative financial assets with fixed or fixable payments that are not listed in an active market. One of their particular characteristics is that they are incurred when the group supplies money, products or services, directly to a customer without the intention of negotiating the receivable created. They are therefore included in current assets, with the exception of items with due dates more than 12 months after the balance sheet date, which are then classified as financial fixed assets. Loans receivable and accounts receivable are included in the item accounts receivable and other receivables in the balance sheet.

Accounts receivable

Accounts receivable are initially recognized at the fair value and thereafter at the accrued acquisition value with application of the effective interest method, minus a possible reserve for value impairment. Reserves for the impairment of accounts receivable are built up when there is objective evidence that the group will not be able to receive all the amounts due in accordance with the original conditions for the receivable. The size of such reserves consists of the difference between the recognized value of the assets and the current value of estimated future cash flows, discounted at the effective rate.

Liquid assets

Liquid assets consist of cash and bank deposits, and other short-term investments with due dates within three months, including overdraft facilities. Overdrafts are recognized in the balance sheet as borrowing under current liabilities.

Financial fixed assets

Financial investments consist of financial fixed assets when the expected holding period is longer than one year, or when the due date for loan receivables and accounts

receivable is longer than one year. When valuing to the fair value via the income statement, the change in value is recognized under net financials.

Capital stock

Common stock is classified as equity. Transaction costs directly attributable to the issue of new common stock or options are recognized in equity as a deduction from issue liquidity. Repurchasing of stock is recognized in equity.

Income taxes

Tax expenses for the period include current and deferred taxes. Tax is recognized in the income statement, except for when it refers to items recognized in other comprehensive income or directly in equity. In such cases the tax is also recognized in other comprehensive income and equity.

The valuation of all tax liabilities/receivables is made at nominal amounts and the actual tax cost is calculated on the basis of the tax regulations decided on the balance sheet data, or decided in practice in the countries where the parent company and its subsidiaries operate and generate taxable income. The management estimates on a regular basis the claims made in tax returns concerning situations where the applicable tax regulations are subject to interpretation. It allocates provisions, when this is considered appropriate, for amounts that will in all probability be paid to the tax authority.

Deferred tax is recognized, in accordance with the balance sheet method, as all the temporary differences arising between the taxable value of assets and liabilities, and their recognized values in the consolidated financial statements. Deferred tax liabilities are not recognized, however, if they have arisen as a result of the first reporting of goodwill. Nor is deferred tax recognized if it has arisen as a result of a transaction that constitutes the first reporting of an asset or liability that is not a business acquisition, and which at the time of the transaction neither affects recognized nor taxable income. Deferred income tax is calculated on application of tax rates (and laws), decided or advised on the balance sheet date, and which are expected to apply when the deferred tax receivable is realized or the deferred tax liability is regulated.

The deferred recognized tax for group tax refers to internal profits in inventories, and is valued at the tax rates decided and advised on the balance sheet date. Deferred tax receivables relating to loss carry forwards are recognized to the extent that it is probable that deductions can be offset against future surpluses for tax purposes. Against the backdrop of past evolution in group earnings, no deferred tax receivables relating to loss carry forwards have been reported. Deferred tax on temporary differences for investments in subsidiaries are not recognized since the parent company can control the date for reversing temporary differences, and it is not considered likely that reverses will be made in the foreseeable future.

Inventories

Inventories are valued according to the first-in/first-out (FIFO) method at the lesser of the acquisition value and the net sales value.

Remuneration to employees

Pensions

The group has both defined contribution and defined benefit pensions plans. The pension plans are financed through payments from respective group companies. The defined benefit pension plans refer to the ITP plans, which are insured by Alecta. Following a statement from Råder for financial reporting, UFR 3, this is a defined benefit pension plan that covers several employers. In the fiscal year of 2013, the group did not have access to such information that would enable this plan to be reported as a defined benefit pension plan. Pension plans which in accordance with ITP are insured by Alecta are therefore reported as defined contribution plans.

Expenses for pension insurances subscribed in Alecta amounted to SEK 2,516 thousand (2012: 2,418). Alecta's surplus can be distributed to insured parties. At the end of 2013, Alecta's surplus amounted in the form of the collective consolidation level to 148 per cent (2012: 129). The collective consolidation level consists of the market value of Alecta's assets in per cent of the insurance undertakings calculated in accordance with Alecta's insurance undertakings, which did not correspond with IAS 19.

For defined contribution pension plans, the group pays contributions to publicly or privately managed pension insurance plans on a compulsory, contractual or voluntary basis. The group has no additional payment obligations after contributions have been paid. The contributions are recognized under personnel expenses when they are due for payment. Prepaid contributions are recognized as assets to the extent that cash repayments or the reduction of future payments benefit the group.

Severance pay

Severance payments are made when employees are given notice to quit prior to the

normal pension date, or when an employee accepts voluntary retirement in exchange for such payments. The group recognizes severance pay when it is demonstrably obliged either to terminate an employee's contract according to a detailed, formal plan and irrevocable plan, or to provide compensation as a result of an offer made to encourage voluntary retirement from the employment. Benefits due more than 12 months after the balance sheet date are discounted to the current value.

Bonus plans

The group reports a liability and cost for a bonus on the basis of the result for the year when an obligation exists.

Options programs

Precise Biometrics has an outstanding options program for employees in Sweden and the US. Subscription options have been issued to employees in Sweden and the US as part of the program on ordinary market terms. Payments received by Precise Biometrics have been recognized in other paid-in capital. On acquisition of subscription options by employees, the payments received are recognized in other paid-in capital. The capital stock is increased by each newly issued share's nominal value on the utilization of options, and the corresponding share premium is recognized in other paid-in capital.

Accounts payable

Accounts payable are recognized at fair value. Accounts payable are valued as current liabilities if they fall due within one year, otherwise they are accounted for as long-term liabilities.

Provisions

Provisions are recognized when the group has an existing legal or informal obligation as a result of previous events, whereby it is more likely than not that resources will be needed to settle a liability and the amount can be reliably measured.

Provisions are made for expected guarantee requirements relating to products that have been sold in the last fiscal year. Provisions are currently made at 2.3 per cent of recognized income, reflecting the estimates of amounts that will have to be settled. Expenses are estimated to be incurred in the subsequent fiscal year.

Revenue

The group's revenue mainly stems from the sale of products and is recognized on delivery of the products to the customer in accordance with the terms and conditions of delivery. Sales are reported net of VAT, discounts and exchange rate differences for sales in foreign currency. Intragroup sales are eliminated in the consolidated financial statements. Intragroup sales are priced according to ordinary market conditions.

License revenues are recognized when license agreements, without interruption clauses, have been signed and delivery has taken place, and when price and payment plans have been determined without any other commitments in addition to the provision of licenses. Licenses sold in combination with hardware, which are a prerequisite for the functioning of the software, are recognized when the hardware is delivered. Consultancy services performed on account are reported as the work is completed. Revenue attributable to customer-financed development projects is recognized in accordance with IAS 18, under which project expenses are invoiced as work is completed instead of being carried forward in the financial statements until full completion and final delivery.

Leasing agreements

Leasing where a substantial part of the risks and benefits of ownership are retained by the lessor is classified as operational

leasing. Payments made during the leasing period (after deductions for any incentives from the lessor) are recognized in the income statement linearly over the leasing period. The group has no financial leasing contracts.

Loan expenses

Loan expenses are recognized in the period to which they relate.

Governement subsidies

Subsidies from the government are reported at fair value when there is a reasonable assurance that the subsidy will be received and that the group will satisfy the conditions associated with the subsidy. Government subsidies for expenses are accrued and recognized in the income statement over the same periods as the expenses which the subsidies are intended to cover.

Government subsidies for the purchase of fixed assets are recognized as a reduction of the acquisition value of the fixed asset.

Important estimates and assessments for accounting policies

In order to prepare the financial statements in accordance with generally accepted accounting principles, it is necessary to make estimates and assumptions that affect the income statement, balance sheet and other information. Actual outcomes may differ from the estimates made.

a) Important estimates and assumptions for accounting policies

Capitalization of development expenses

The area where estimates and assumptions could involve risks for adjustment of recognized values for assets and liabilities during the next fiscal year is mainly related to capitalized development expenses. The group regularly examines if there is a need for write-downs of capitalized development expenses in accordance with the accounting policies described under Intangible assets. This examination is made through an estimate of the project in relation to future cash flows. Projects that will not bring the Company any future financial benefits are written down. Forecasts for future cash flows are based on the best possible estimates of future revenues and expenses.

Income tax

The group has to pay taxes in several different countries. Against the backdrop of past evolution in group earnings, the group's tax cost is assessed to be limited.

The group makes ongoing estimates related to opportunities to utilize loss carry forward in the future, based on the past and predicted evolution of earnings.

b) Important estimates for application of group accounting policies

Estimates of the survival of the company

At the end of 2011 Precise Biometrics completed the strategic objective for the company's further development based on growth and profitability. The development of a major new application and commercial product with the business area Mobile was the most important strategic goal for the company.

During 2013, further investments were made in the business area Mobile and the proprietary product Tactivo™. However , sales have been limited. Precise Biometrics estimates that sales will develop better in 2014 and particularly in the U.S. where the focus is on sales to governments.

Since January 2014, Precise Biometrics has implemented a new business division. This has been made from the great potential that the company sees the mobile phone market. Precise Biometrics moves from the former division into two business areas IAM and Mobile, to three business units: Mobile Smart Card Solutions (Tactivo) Desktop & Physical Access Solutions (fingerprint reader and access solutions for access to buildings and computers) and Fingerprint Technology (licensing of algorithms). In this way three focused business units are created with distinct specializations that logically reflect market conditions and our business.

In 2013, Precise Bometrics have implemented two new share issues, a preferential rights issue and a directed new share issue, which supplied the company with SEK 129.6 million after issue costs. This means that the company is in terms of capital prepared to meet future investments with a focus on marketing and sales.

Note 2 - Segment information

Operating segments are reported in a way that is in accordance with the internal reporting that is submitted to the management group, including the president.

In 2013, business has been organized into two business units, Mobile and IAM (Identity and Authentication Mangement). The business area Mobile started up in 2011 when with the commercial product family Tactivo ™ was launched.

In 2013 Precise Biometrics has seen significant opportunities for its core technology, algorithms, especially after the cooperation agreement concluded with Fingerprint cards (FPC). Opportunities in the licensing of Precise Biometrics algorithms has led to the Group from 1 January 2014 has divided operations into three distinct business areas. The group goes from the former division into two divisions the IAM and Mobile, for three business units: Mobile Smart Card Solutions (Tactivo), Fingerprint Technology (licensing of algorithms), and Desktop & Physical Access Solutions (fingerprint reader and solutions for access to facilities and computers).

The management group also assesses the operation from a product perspective. The types of products that are followed up are hardware, licenses and services.

The management group assesses the operating segments based on earnings per business area. For a definition of earnings, see the table below.

The segment information, regarding those segments for which information shall be submitted to the management group for the financial year 2013 is as follows:

	IAM		MOBILE		Other		Total
	2013	2012	2013	2012	2013	2012	2013	2012
Earnings
External sales	30,618	25,549	4,326	2,732			34,944	28,281
Total profit/loss
Profit/loss per segment1)	-13,659	-12,685	-30,599	-35,028	2,078	4,811	-42,180	-42,902
Operating profit/loss							-42,180	-42,902
Interest revenue							479	140
Interest expenses							-1,571	-4,190
Tax expenses for the year							-	-
Net profit/loss for the year							-43,272	-46,952
Other information
Assets2)	21,053	28,129	23,072	12,016	108,799	45,506	152,924	85,651
Liabilities3)	2,109	991	5,184	2,687	11,084	33,778	7,293	3,678
Investments	2,161	5,216	9,588	3,927			11,749	9,143
Depreciation	1,665	2,768	3,127	35			4,792	2,803

1) Profit/loss per segment consist of revenue minus cost for goods sold as well as direct, and a portion of indirect, costs.

2) All fixed assets are attributable to Sweden, where Precise Biometrics AB has its registered office. Consequently, information about fixed assets per individual country is not reported. Other assets mainly consist of Cash and bank balances amounting to SEK 101,967 thousand.

3) Other liabilities mainly consist of accrued personnel expenses totalling SEK 9,622 thousand.

An allocation of revenue per product is as follows:

	Products		Licenses		Services		Total
	2013	2012	2013	2012	2013	2012	2013	2012
Earnings External sales	21,834	20,015	8,114	4,107	4,996	4,159	34,944	28,281
Assets Investments	32,908 0	18,629 0	6,942 0	1,569 0	4,275 0	1,589 0	44,125 0	21,787 0

The Company has its registered office in Lund. The group's revenue from external customers in Sweden totals SEK 3.9 million (2012: 2.7) and the total revenue from external customers in other countries totals SEK 31.0 million (2012: 25.6), of which revenue from the US was SEK 10.3 million (2012: 5.1) and the Middle East SEK 13.2 million (2012: 12.8). Revenue from external customers, which makes up ten percent or more of the group's revenues, can be attributed to the segment Middle East and totals SEK million (2012: Middle East 10.8).

The parent company's revenue from customers in Sweden totals SEK 3.9 million (2012: 2.7) and revenues from customers in other countries total SEK 12.1 million (2012: 9.7), of which revenue from the US was SEK 5.2 million (2012: 0.0).

Note 3 - Intangible fixed assets, group

			Capitalized
	Capitalized Developmentwork	Patent	computer software	Total
As at January 1, 2012
Acquisition value	71,507	11,563	4,214	87,284
Accumulated depreciation and write-downs	-58,729	-11,563	-4,214	-74,506
Book value	12,778	0	0	12,778
January 1 - December 31, 2012
Opening book value	12,778	0	0	12,778
Purchasing for the year	7,970	-	-	7,970
Write-down	-641	-	-	-641
Depreciation	-1,748	-	-	-1,748
Closing book value	18,359	0	0	18,359
As at December 31, 2012
Acquisition value	79,477	11,563	4,214	95,254
Accumulated depreciation and write-downs	-61,118	-11,563	-4,214	-76,895
Book value	18,359	0	0	18,359
1 januari - 31 december 2013
Opening book value	18,359	0	0	18,359
Purchasing for the year	9,368	-	-	9,368
Write-down	-2,096	-	-	-2,096
Depreciation	-4,057	-	-	-4,057
Closing book value	21,574	0	0	21,574
As at December 31, 2013
Acquisition value	88,845	11,563	4,214	104,622
Accumulated depreciation and write-downs	-67,271	-11,563	-4,214	-83,048
Book value	21,574	0	0	21,574

Comment on the table:

Depreciation is included in Selling expenses, Administration expenses and R&D expenses in the income statement. Basis for the allocation is number of employees per function.

Note 4 - Intangible fixed assets, parent company

	Capitalized
	developmentwork	Patent	Other	Total
As at January 1, 2012
Acquisition value	69,107	8,721	972	78,800
Accumulated depreciation and write-downs	-56,415	-8,721	-972	-66,108
Book value	12,692	0	0	12,692
January 1 - December 31, 2012
Opening book value	12,692	0	0	12,692
Purchasing for the year	8,055	-	-	8,055
Write-down	-641	-	-	-641
Depreciation	-1,748	-		-1,748
Closing book value	18,358	0	0	18,358
As at December 31, 2012
Acquisition value	77,162	8,721	972	86,855
Accumulated depreciation and write-downs	-58,804	-8,721	-972	-68,497
Book value	18,358	0	0	18,358
1 januari - 31 december 2013
Opening book value	18,358	0	0	18,358
Purchasing for the year	9,368	-	-	9,368
Write-down	-2,096	-	-	-2,096
Depreciation	-4,057	-		-4,057
Closing book value	21,573	0	0	21,573
As at December 31, 2013
Acquisition value	86,530	8,721	972	96,223
Accumulated depreciation and write-downs	-64,957	-8,721	-972	-74,650
Book value	21,573	0	0	21,573

Comment on the table:

Depreciation is included in Selling expenses, Administration expenses and R&D

expenses in the income statement. Basis for the allocation is number of employees per function.

Note 5 - Tangible fixed assets

		Equipment
		Parent
	Group	Company
As at January 1, 2012
Acquisition value	9,603	8,117
Accumulated depreciation and write-downs	-8,533	-7,174
Book value	1,070	943
January 1 - December 31, 2012
Opening book value	1,070	943
Purchasing for the year	1,173	1,254
Write-down	-9	-9
Depreciation	-405	-359
Closing book value	1,829	1,829
As at December 31, 2012
Acquisition value	10,776	9,371
Accumulated depreciation and write-downs	-8,947	-7,542
Book value	1,829	1,829
1 januari - 31 december 2013
Opening book value	1,829	1,829
Purchasing for the year	2,381	2,381
Write-down
Depreciation	-735	-735
Closing book value	3,475	3,475
As at December 31, 2013
Acquisition value	13,157	11,752
Accumulated depreciation and write-downs	-9,682	-8,277
Book value	3,475	3,475

Comment on the table:

Depreciation is included in Selling expenses, Administration expenses and R&D expenses in the income statement. Basis for the allocation is number of employees per function.

Note 6 - Costs allocated per type

	Group		Parent Company
	2013	2012	2013	2012
Depreciation and write-downs (Note 3, Note 4 and Note 5)	6,888	2,803	6,888	2,803
Personnel expenses	33,342	29,681	26,861	23,760
Goods for resale	15,976	12,495	18,875	21,491
Travel expenses	2,781	2,771	2,272	1,639
Telephone costs	833	728	683	526
Insurance expenses	674	378	478	196
Consultancy costs	1,530	7,045	748	4,691
Premises costs	3,753	3,957	3,362	3,632
Development costs (net of subsidies received)	6,472	4,127	6,472	4,127
Other sales expenses	2,365	4,734	2,019	3,703
Management expenses	1,310	977	1,310	977
Exchange rate adjustments	358	728	356	2,432
Other external income & costs	843	759	778	651
Total	77,125	71,183	71,102	70,628

Note 7 - Auditors´remuneration

	Group		Parent Company
	2013	2012	2013	2012
PwC
Audit assignment	325	300	325	300
Audit other	143	-	143	-
Consulting tax	161	63	161	63
Consulting other	74	96	74	96
Total	703	459	703	459

Note 8 - Operational leasing agreements

Operational leasing agreements mainly refer to office rent.

	Group		Parent Company
	2013	2012	2013	2012
Leasing costs during the year	2,524	2,140	2,224	1,613
Other leasing	421	466	421	135
Total	2,945	2,606	2,645	1,748
Nominal value of agreed future leasing charges
Due for payment in 1 year	2,804	2,252	2,470	1,421
Due for payment after 1 year, but within 5 years	1,756	3,799	1,756	624
Due for payment after 5 years	-	-	-	-
Total	4,560	6,051	4,226	2,045

Note 9 - Government support

Precise Biometrics has received SEK 550 thousand in development subsidies from the EU. The amount is included in R&D expenses.

Note 10 - Income tax

	Group		Parent Company
	2013	2012	2013	2012
Current tax	-	-	-	-
Deferred tax (Note 12)	-	-	-	-
Total	0	0	0	0

Tax on group profit before tax differs from the theoretical amount that would have resulted from a balanced average tax rate in the consolidated companies as follows:

	Group
	2013	2012
Profit/loss before tax	-43,272	-46,952
Tax calculated as per national tax rates
applicable for profit in respective countries	9,520	12,348
Tax effect on taxable income
Tax effect on non-deductable costs	32	54
Tax deficit for which no deferred
tax claim can be reported	-9,552	-12,402
Tax expenses	0	0

Note 11 - Profit/loss per share

Before dilution

Earnings per share before dilution are calculated in that the earnings referable to parent company owners are divided by a balanced average number of outstanding common shares during the period, excluding repurchased shares of the parent company (see Note 17 Equity).

	Group
	2013	2012
Profit/loss referable to parent company owners (Thousand SEK)	-43,229	-46,809
Weighted average number of outstanding ordinary shares (thousands)	306,147	207,840
Profit/loss per share before dilution (SEK per share)	-0.14	-0.23

Profit/loss per share after dilution

To calculate earnings per share after dilution, the balanced average number of outstanding common stock is adjusted for the dilution effect of all potential common stock. The parent company only has one category of potential common stock with a dilution effect, i.e. stock options.

For stock options, a calculation is made for the number of shares that could have been purchased at fair value (calculated as the average market price for year for the parent company stock), for an amount corresponding to the monetary value of the subscription rights linked to outstanding stock options.

The number of shares calculated as per the above is compared with the number of shares that would have been issued on the assumption that the stock options were utilized. If all outstanding subscription option programs were redeemed in their entirety, the maximum dilution would amount to 8,662,000 shares.

However, outstanding subscription options have not been taken into consideration in the calculation below, since the redemtion price was higher than the market price as at December 31, 2013 and also since the Result attributable to parent company shareholders is negative.

	Group
	2013	2012
Profit/loss attributable to parent company stockholders	-43,229	-46,809
Weighted average number of outstanding ordinary shares (thousands)	306,147	207,840
- adjustment for share options	0	0
Weighted average number of common stock for calculation of earnings
per share after dilution (thousands)	306,147	207,840
Profit/loss per share after dilution (SEK per share)	-0.14	-0.23

Note 12 - Deferred tax

The parent company does not have any deferred tax assets or tax liabilities.

Against the background of past evolution in group earnings, no deferred tax assets relating to loss carried forwards have been reported. There is no time limit regarding the possibility to use future loss carry forwards.

Deferred tax relating to temporary differences attributable to investments in subsidiaries is not reported, since the parent company can control the date for reversing temporary differences, and it is not considered likely that reverses will be made in the foreseeable future.

Accrued, taxed loss carried forwards excluding net profit/loss for the year in the parent company amounted to approx. SEK 549 (2012: 499) million and in the American subsidiary to approx. SEK 31 million (2012: 33).

Note 13 - Inventories

	Group
	2013	2012
Components	6,724	5,772
Goods for sales	7,504	5,213
Total	14,228	10,985

The costs reported for inventories are included in the Cost of goods sold item, and amounted to SEK 15,976 thousand (2012: 12,495).

Note 14 - Accounts receivable and other receivables

	Group
	2013	2012
Accounts receivable1)	4,127	10,803
Minus: reserve for impairment of receivables	-130	-
Accounts receivable net	3,997	10,803
Other receivables	5,455	3,867
Prepaid expenses and accrued income	2,998	2,225
Total	12,450	16,895

1) Include receivables concerning contract manufacturer totalling SEK 0.4 million for 2013 (2012: 1.7).

There is one accounts receivable amounting to SEK 133 thousand that is written-down. For the rest there is not considered to be a write-down for accounts receivable that have been due. As at December 31, 2013, accounts receivable amounting to SEK 1,016 thousand (2012: 5,629) were due without any write-down requirement being considered necessary. These refer to a number of independent customers which have not previously had payment difficulties. The age of these accounts receivable is analyzed in the below table.

As at December 31, 2013, the Group recognized no accounts receivable due for more than six months (2012: 11). The reserve for doubtful accounts receivable amounted to SEK 133 thousand as at December 31, 2013 (2012: 0). The age analysis of all accounts receivable is as follows:

	2013	2012
Less than 3 months	4,024	10,792
3 to 6 months	106	-
Of which written down	-133	-
More than 6 months	0	11
Of which written down	-	-
Total	3,997	10,803

The remaining categories in accounts receivable and other receivables do not include any assets for which there is a write-down requirement.

The maximum exposure to credit risk on balance sheet date is the fair value for each category of receivable. The group has no collateral as security.

The recognized amounts, per currency, for the group's accounts receivable and other receivables are as follows:

	2013	2012
SEK	837	2,384
USD	446	1,028
EUR	28	199

Sensitivity analysis

If the Swedish krona (SEK) increases/decreases 5% in value compared with the USD while all other variables remain constant, annual income as at December 31, 2013 would have been SEK 701 thousand (2012: 751) higher/lower, mainly as a result of gains/losses when translating internal and external receivables and loan receivables in USD.

Equity would have been approx. SEK 612 thousand (2012: 601) lower/higher, mainly as a result of exchange rate differences when translating the above items and translating subsidiaries.

Financial risk management

Credit risk management

Credit risks are managed at group level. Credit risks are mainly incurred through receivables and agreed transactions. An external credit rating is made for large orders to new customers. An individual rating is made for orders from known customers. No new orders are delivered if customers have accounts receivable due for payment. Payment in advance is required if there are any doubts concerning a credit rating.

Risk capital management

The group's capital structure objective is to secure the group's capacity to continue its operations and generate returns in the future for its stockholders. Until now the Company has only run at a loss, and has therefore had to rely on financing from its stockholders.

There is no guarantee that the present capital will be sufficient until the Group achieves a positive cash flow, but this is an essential objective for the Company. The Company is strongly focused on reducing tied-up capital, primarily working capital, using a variety of measures.

Note 15 - Liquid assets

	Group		Parent Company
	2013	2012	2013	2012
Cash and bank balances	101,197	37,584	96,976	35,196
Total	101,197	37,584	96,976	35,196

	Group
	2013	2012
Liquid assets in the cash flow statement include the following:
Liquid assets	101,197	37,584
Overdrafts	-	-
Total	101,197	37,584

Note 16 - Financial fixed assets

	Parent Company
	2013	2012
Opening balance	1,058	1,058
Total	1,058	1,058
Long-term payment	1,058	1,058

Participation in subsidiaries

	Parent Company
	2013	2012
Precise Biometrics Services AB
Corp ID 556582-9347, head office: County of Skåne, Lund
No of shares	1,000	1,000
Stock share	100%	100%
Book value	100	100
Precise Biometrics Inc
Company No: 544077-1, Vienna, Washington DC, USA
No of shares	10	10
Stock share	100%	100%
Book value	958	958

Note 17 - Equity

Capital stock

	Number of shares
As at January 1, 2012	188,945,120
New issues of shares	75,578,048
As at December 31, 2012	264,523,168
New issues of shares	58,782,926
New issues of shares	22,000,000
As at December 31, 2013	345,306,094

Rights issue

During 2013 Precise Biometrics has completed two rights issues, of which the first one with preferential rights supplied the company with 58,782,926 shares at a rate of SEK 0.93. Through this new share issue SEK 48.663 thousand with deuctions for issue costs SEK 6.005 thousand was added to the company, of which SEK 16,459 thousand was added to capital stock and SEK 32,204 to the share premium reserve.

The second rights issue was a private placement and supplied the company with 22,000,000 shares at a rate of SEK 3.90, a total of SEK 80,918 thousand with deductions for issue costs totalling SEK 4,882 thousand. The company's capital stock thus increased by SEK 6,160 thousand och the share premium reserve increased by SEK 74,758 thousand.

During 2012 Precise Biometrics completed a preferential rights issue totalling 75,578,048 shares at a rate of SEK 0.72 less issue costs amounting to SEK 6,400 thousand.

Reduction of the share capital

The share capital was reduced by SEK 31,743 to cover loss. The reduction entails a reduction of the quota value of the share with SEK 0.12, from 0.40 to SEK 0.28.

Stock options

During 2011, an option program was initiated for all employees under which a maximum of 7,100,000 options may be allocated as authorized by the annual stockholders' meeting in 2011. A total of 4,400,000 number of options was subscribed to and Precise Biometrics received additional liquid assets of SEK 440,000. Stock may be subscribed to through the exercise of subscription rights between January 1 and June 30, 2014 at a price of SEK 2.40. The original price which amounted to SEK 2.90 has been recalculated after the rights issues during 2012 and 2013. The Market value has been established by PwC by the application of the Black & Scholes valuation method. At the time of valuation the share price was SEK 1.32, which is based on the volume weighted share price from May 2, 2011 to May 13, 2011. The subscription price equaled to 220 per cent of the volume weighted average price at the time of valuation.

Full exercise of subscription rights will increase the capital stock with SEK 1,988,000, which corresponds to approx. 2.1 per cent of the company's present capital stock. The liquid assets received from the acquisition of options have been transferred to other paid in capital.

The nominal value of a share is SEK 0.28.

The change in the number of outstanding stock options and their weighted average redemption price is as follows:

		2013		2012
	Redemtion price SEK per share	Options (thousands)	Redemtion price SEK per share	Options (thousands)
As at January 1	2.60	4,440,000	2.90	4,400,000
Allocated	-	-	-	-
Lapsed	-	-	-	-
Change of redemtion price	-0.20	-	-0.30	-
As at December 31	2.40	4,440,000	2.60	4,440,000

Reserves

	Reserves
Opening balance as at January 1, 2012	584
Exchange rate differences:
- The Group	143
Closing balance as at December 31, 2012	727
Exchange rate differences:
- The Group	43
Reductions of the quota value of shares
- The Group	-94
Closing balance as at December 31, 2013	676

Note 18 - Accounts payable and other liabilities

	Group		Parent Company
	2013	2012	2013	2012
Accounts payable	6,487	3,675	6,258	2,840
Accrued payroll costs	6,686	4,617	6,582	3,998
Payroll overhead and other taxes	2,936	2,067	2,923	2,011
Accrued expenses	1,199	4,847	1,166	4,691
Other liabilities	560	1,803	447	1,753
Total	17,868	17,009	17,376	15,293

Note 19 - Borrowing

	Group		Parent Company
	2013	2012	2013	2012
Short-term
Liabilities to credit institutes	-	20,000		20,000
Total	0	20,000	0	20,000

Liabilites to credit institutes concerns a credit facility and was repaid in January 2013.

Note 20 - Other provisions

	Guarantee provisions
	Group	Parent Company
As at January 1 2013	447	117
Year's change in guarantee provision	61	-17
As at December 31 2013	508	100

Note 21 - Pledged assets

The amount SEK 24,000 thousand as at December 31, 2013, refers to not used floating charge due to underlying agreements are terminated.

Note 22 - Employee and personnel expenses

Gender balance in group

	2013				2012
	Men	Women	Men	Women
Precise Biometrics AB, Sweden	19	7	21	9
Precise Biometrics Inc, USA	1	2	4	3
	20	9	25	12

Gender balance in corporate management – Proportion of women

	Group		Parent Company
	2013	2012	2013	2012
The board of directors	40%	60%	40%	60%
President and leading executives	25%	0%	25%	0%

Salaries and remuneration are allocated as follows:

		Group		Parent Company
	2013	2012	2013	2012
Board and President, Sweden
Salaries and other remuneration	7,268	3,546	7,268	3,546
Pension expenses	9	13	9	13
Payroll overhead, incl. payroll tax	2,112	1,114	2,112	1,114
Total	9,389	4,673	9,389	4,673
Others, Sweden
Salaries and other remuneration	15,921	15,923	15,921	15,923
Pension expenses	2,508	2,405	2,508	2,405
Payroll overhead, incl. payroll tax	5,630	5,789	5,630	5,789
Total	24,059	24,117	24,059	24,117
TOTAL, SWEDEN	33,448	28,790	33,448	28,790
Board and President, USA
Salaries and other remuneration	-	-	-	-
Pension expenses	-	-	-	-
Payroll overhead, incl. payroll tax	-	-	-	-
Total	0	0	0	0
Others, USA
Salaries and other remuneration	4,865	6,733	-	-
Pension expenses	164	208	-	-
Payroll overhead	339	662	-	-
Total	5,368	7,603	0	0
TOTAL, USA	5,368	7,603	0	0
TOTAL	38,816	36,393	33,448	28,790

Note 23 - Remuneration to leading executives

Principles

Remuneration is paid to the chairman and board members in accordance with the decision of the annual stockholders' meeting.

Remuneration to the President and other leading executives consists of their basic salary, flexible remuneration and pension benefits. The former CEO of the company Thomas Marschall resigned as of November 8, 2013. In addition to the notice period of 6 months a severence payment of 12 months is also included. Provision for salary, flexible remuneration and social security during the notice period as well as severence payment is included in the down below table, of which social security amounts to SEK 988 thousand.

Other leading executives are the persons who together with the President constitute the corporate management. During the year other leading executives have on average amounted to four people, but by December 31, 2013 they were three persons. For the composition of the corporate management, see . The Board

The division between basic salary and flexible remuneration must be proportional to leading executives' responsibilities and powers. For the President, the flexible remuneration is a maximum of 50 per cent of the basic salary. For other leading executives, the flexible remuneration is a maximum of 30 per cent of the basic salary. For employees in the U.S. the flexible remuneration is a maximum of 50 per cent of basic salary. Pension benefits are included as part of the total remuneration.

Remuneration and other benefits in 2013

	Basic salary/Board remuneration	Flexible remuneration	Other benefits	Pension expenses	Other remuneration	Total
Lisa Thorsted, Chairwoman of the Board	227	0	0	0	0	227
Mats Lilja, member of the Board	87	0	0	0	0	87
Erwin F Leichtle, member of the Board	35	0	0	0	0	35
Lena Klasén, member of the Board	35	0	0	0	0	35
Eva-Maria Matell, member of the Board	122	0	0	0	0	122
Anders Harrysson, member of the Board	87	0	0	0	0	87
Torgny Hellström, member of the Board	87	0	0	0	0	87
Torbjörn Clementz, member of the Board	122	0	0	0	0	122
President, Thomas Marschall	5,477	266	153	9	27	5,932
President, Håkan Persson	0	0	0	0	543	543
Other leading executives average 4 persons (see
below)	5,567	209	106	526	225	6,633
Total	11,846	475	259	535	795	13,910

Comments to the table:

Cost for social security is not included in the table. Remuneration to the President Håkan Persson (appointed as new CEO as of November 8, 2013) is invoiced as consultant fee.

Payment of board fees has been made monthly since 2003 with 1/12 of the fee decided by the annual general meeting. From April 23, 2013 there is an additional payment of a monthly committee fee with 1/12 of the fee decided by the annual general meeting. Paid fees have been written off. The fees above refer to the cost that has affected the year's earnings.

The Group has both defined contribution and defined benefit pension plans. Both of these are reported under defined contribution plan. The pension costs refer to the cost that has affected the year's earnings. The chairman of the board has not received any remuneration in addition to the board fee.

Flexible remunerations

For the President, flexible remuneration is based on the Group's earnings as well as individual goals. These goals are established by the Board. The maximum flexible remuneration amount that can be paid out to the president totals 50 per cent of the basic salary. The flexible remuneration amount corresponded to 5 per cent of salary for the calendar year for 2013. For other leading executives, the variable salary for 2013 is based on individual goals and the Group's sales and earnings. Leading executives that have sales responsibility also get commission on their own area of responsibility's sales. For 2013, the variable portion of basic salary for other leading executives totaled 4 per cent.

Other benefits

Other benefits consist of company car, gas, travel and computers.

Share related compensation

In 2011 options were issued through an option program that included all employees and the allocated volume was within an authorization of a maximum of 7,100,000 options issued by the annual general meeting in 2011. In total, 4,400,000 options were subscribed for, of which the President subscribed to 1,600,000 and the rest of the management group subscribed to 1,000,000. Liquid funds were contributed to Precise Biometrics in the amount of SEK 440,000. Subscription of shares with utilization of subscription options can be made during the period January 1 - June 30, 2014 at the price of SEK 2.40. The original price which amounted to SEK 2.90 has been recalculated after the rights issues during 2012 and 2013. With full utilization of the subscription options, share capital will increase by SEK 1,988,000, which corresponds to approximately 2.1 percent of the Company's current share capital. The liquid funds that Precise Biometrics received through the transfers have been added to other paid-in capital.

Precise Biometrics currently has one option program. Of the 4,400,000 outstanding options (2012: 4,400,000 options), no options were (2012: 0 options) able to be exercised during the year.

A share's implied book value totals SEK 0.28.

The weighted average actual value for options that were allocated in 2011 was established with the help of an external valuation and the Black&Scholes valuation model and totals SEK 0.10 per option. Important input data in the model are volume-weighted average share price during the period May 2, 2011 through May 13, 2011 of SEK 1.32, the above redemption price, volatility of approximately 40%, expected term of the options of 3 years and an annual risk-free interest rate of 2.63 per cent. The volatility measured as a standard deviation for expected return on share price is based on a statistical analysis of daily share prices over the last 7 years.

No cost has been reported in the income statement since the allocated options have been paid for by employees.

The subscription price corresponded to 220 per cent of the volume-weighted average price at the time of valuation.

Pensions

Retirement age for the President is 65. The pension premium shall total a maximum of 25 per cent of the fixed salary from the parent Company. For other leading executives, the retirement age is also 65. According to the pension agreement, the pension premium is calculated based in accordance with a scale based on age and salary.

For the highest current age interval, the premium totals 7 per cent of the pension-based salary up to 7.5 base amounts, 42 per cent of the pension-based salary between 7.5 and 20 base amounts and by 22 per cent of the pension-based salary for salaries over 20 base amounts.

For information about the ITP plan/Alecta see in the section "Pensions". Note 1

Severance pay

Between the Company and the President, a mutual notification of termination period of 6 months applies. In addition, severance pay is paid out consisting of salary for 12 months if the president is terminated by the Company.

Notification of termination period between the Company and other leading executives is 3-6 months. No severance pay is paid for other leading executives.

Change in control

There are no agreements, with the exception of employment contracts, whose content has been commented on in detail above, between the Company and its employees, which prescribes that compensation shall be paid if their termination is a result of a public purchase offer.

Preparation and decision-making process

The Remuneration council handles salaries, pension conditions, incentive programs and other employment conditions for management. Until the annual meeting held in April 2013 the Remuneration council was made up of the entire Board. During 2013 the council has mainly focused on remuneration to leading executives, including incentive programs and options programs.

Remuneration to the President is decided by the Board based on the recommendation from the Remuneration council within the guidelines agreed at the annual meeting. Remuneration to other executives has been decided on by the President in consultation with the Remuneration council and the Board. At the annual general meeting held on April 23, 2013, it was decided to adopt the Board's proposal for guidelines for determining salaries and other compensation to the President and other leading executives.

Note 24 - Prepaid expenses and accrued income

	Parent Company
	2013	2012
Prepaid rents	382	492
Prepaid insurance	770	240
Prepaid sales expenses	292	430
Accrued income	645	664
Prepaid car lease	192	5
Prepaid pension costs	203	109
Prepaid patent charges	-	123
Other items	376	44
Total	2,860	2,107

Note 25 - Cash flow from operations

	Group		Parent Company
	2013	2012	2013	2012
Result for period before financial items	-42,180	-42,902	-42,584	-46,116
Adjusted for:
- depreciation and write-downs of tangible and
non-current assets	6,887	2,803	6,887	2,757
- other items with no influence on liquidity	50	412	0	124
Changes in working capital
- inventories	-3,243	-1,312	-1,103	-137
- accounts receivable and other receivables	5,045	-4,325	-209	-844
- accounts payable and other liabilities	921	1,385	2,066	3,288
Cash flow from operations	-32,520	-43,939	-34,943	-40,928

Note 26 - Purchases and sales between group companies and transactions with associates

Parent Company sales to other group companies amounted to SEK 12.5 million (10.2). Purchases from group companies amounted to SEK 6.4 million (10.2). For information on transactions with related persons see note 25 Remuneration to leading executives.

Transfer pricing between the parent Company and foreign subsidiaries is based on the Transactional Net Margin Method and the level of profit as Return on Sales, which for 2013 amounted to 2 per cent. Internal sales in Sweden are subject to market conditions.

Note 27 - Financial risk factors

The following specification of risk factors does not claim to be complete, nor are the risks ranked in their order of importance.

Management of capital

The Group's target concerning capital structure is to safeguard the Group's ability to continue its operations, so that it can provide returns for shareholders and benefit for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

Future capital

There is no guarantee that the capital will be sufficient until the Company achieves a positive cash flow. Neither is there any guarantee that new capital can be acquired if the need should arise, or that such capital can be acquired on preferential terms.

Forecasting problems

The Company operates in a market that is in an early stage of growth and which is characterized by low initial sales levels, which implies considerable problems with accurate forecasts. Earlier or later submissions of orders can have a significant effect on annual sales and earnings.

Currency exposure risks

A large part of the Company's expenses is in Swedish kronor (SEK), while a significant part of earnings and production costs are generated in foreign currency (mainly USD), which increases the Company's currency exposure risks. The Company has adopted a currency exposure risk policy for the purpose of minimizing the risks in operations .For sensivity analysis concerning currency see Note 14 Accounts receivable.

Credit risk

The Company has guidelines for awarding credit to its clients. The Company believes that there is no significant concentration of credit risks in relation to any individual client or other party.

Interest risks

The Company is not subject to any tangible interest risks.

Cash flow

The Company puts a lot of effort into minimizing the time capital is tied up, for example in inventory and accounts receivable. To reduce the risk involved in tied up capital, the Company works actively to improve the internal process for forecasting and production planning.

Note 28 - Merger of Subsidiary

The subsidiary Precise Biometrics Solutions AB, corporate 556646-6529, has per September 27, 2012, merged into the Parent company, Precise Biometrics AB. From a corporate perspective, this means there has been an internal group restructuring, which means assets and liabilities have been transferred between two legal entities within the group. The Group's total equity is not affected. In the the Parent company though, there has been a result from the merger amounting to SEK 124 thousand.

Net sales and Operating results of the Subsidiary for the period prior to registration of the merger amounted to SEK 98 thousand and SEK 797 thousand respectively and represent the amounts recognized in the income statement of the Parent company.

No change occurred during 2013.

Subsidiary's assets and liabilities taken over by the Parent company of the Consolidated Value Method, are as follows:

	120630
ASSETS
Intangible assets	151,049
Tangible fixed assets	2,373,180
TOTAL ASSETS	2,524,229
EQUITY AND LIABILITIES
Equity	921,019
Current liabilities	1,603,210
TOTAL EQUITY AND LIABILITIES	2,524,229

Note 29 - Interest expenses

	Group
	2013	2012
Interest expenses Credit facility	1,536	4,090
Other interest expenses	35	100
	1,571	4,190

Note 30 - Significant changes after the end of the year

For information regarding significant changes after the end of the year see Administration report.

Treatment of result and Assurance from the Board

Proposed treatment of result

Parent company

The following assets remained at the disposal of the annual general meeting

Total	63,868,876
Loss for the year, SEK	-43,092,677
Share premium reserve, SEK	106,961,553

The Board proposes SEK 63,868,876 to be carried forward, through a reduction of the share premium reserve by SEK -43,092,677.

The Board proposes that no dividend is declared for the financial year 2013.

Assurance from the Board

The Board and the CEO assure that the consolidated financial statements have been prepared according to the international accounting standards IFRS as such they have been adopted by the EU and give fair representation of the Group's financial position and result. The annaul report has been prepared according to generally accepted accounting principles and gives a fair representation of the parent company's financial position and result.

The administration report for the Group and the Parent company gives a fair representation of the Group's and the Parent company's operations, financial positions and results. It also illustrates the major risks and uncertainities the Parent company and the Group companies face.

The balance sheet and income statement of the Parent company and of the Group will be prescribed the Annual General Meeting April 29, 2014 for assessment.

Lund, March 27, 2014

Lisa Thorsted Chairman of the Board

Eva Maria Matell Board member

Torgny Hellström Board member

Anders Harrysson Board member

Matts Lilja Board member

Torbjörn Clementz Board member

Håkan Persson President and CEO

Auditors report

To the annual meeting of the shareholders of Precise Biometrics AB (publ), corporate identity number 556545-6596

Report on the annual accounts and consolidated accounts

We have audited the annual accounts and consolidated accounts of Precise Biometrics AB (publ) for the year 2013, except for the corporate governance statement on pages 36-40. The annual accounts and consolidated accounts of the company are included in the printed version of this document on pages 30-93.

Responsibilities of the Board of Directors and the Managing Director for the annual accounts and consolidated accounts

The Board of Directors and the Managing Director are responsible for the preparation and fair presentation of these annual accounts in accordance with the Annual Accounts Act and of the consolidated accounts in accordance with International Financial Reporting Standards , as adopted by the EU, and the Annual Accounts Act, and for such internal control as the Board of Directors and the Managing Director determine is necessary to enable the preparation of annual accounts and consolidated accounts that are free from material misstatement, whether due to fraud or error.

Auditor's responsibility

Our responsibility is to express an opinion on these annual accounts and consolidated accounts based on our audit. We conducted our audit in accordance with International Standards on Auditing and generally accepted auditing standards in Sweden. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the annual accounts and consolidated accounts are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the annual accounts and consolidated accounts. The procedures selected depend on the auditor's judgement, including the assessment of the risks of material misstatement of the annual accounts and consolidated accounts, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the company's preparation and fair presentation of the annual accounts and consolidated accounts in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Board of Directors and the Managing Director, as well as evaluating the overall presentation of the annual accounts and consolidated accounts.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.

Opinions

In our opinion, the annual accounts have been prepared in accordance with the Annual Accounts Act and present fairly, in all material respects, the financial position of the parent company as of 31 December 2013 and of its financial performance and its cash flows for the year then ended in accordance with the Annual Accounts Act. The consolidated accounts have been prepared in accordance with the Annual Accounts Act and present fairly, in all material respects, the financial position of the group as of 31 December 2013 and of their financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards, as adopted by the EU, and the Annual Accounts Act. Our opinions do not cover the corporate governance statement on pages 36-40. The statutory administration report is consistent with the other parts of the annual accounts and consolidated accounts.

We therefore recommend that the annual meeting of shareholders adopt the income statement and balance sheet for the parent company and the group.

Report on other legal and regulatory requirements

In addition to our audit of the annual accounts and consolidated accounts, we have also audited the proposed appropriations of the company's profit or loss and the administration of the Board of Directors and the Managing Director of Precise Biometrics AB (publ) for the year 2013. We have also conducted a statutory examination of the corporate governance statement.

Responsibilities of the Board of Directors and the Managing Director

The Board of Directors is responsible for the proposal for appropriations of the company's profit or loss, and the Board of Directors and the Managing Director are responsible for administration under the Companies Act and that the corporate governance statement on pages 36-40 has been prepared in accordance with the Annual Accounts Act.

Auditor's responsibility

Our responsibility is to express an opinion with reasonable assurance on the proposed appropriations of the company's profit or loss and on the administration based on our audit. We conducted the audit in accordance with generally accepted auditing standards in Sweden.

As a basis for our opinion on the Board of Directors' proposed appropriations of the company's profit or loss, we examined the Board of Directors' reasoned statement and a selection of supporting evidence in order to be able to assess whether the proposal is in accordance with the Companies Act.

As a basis for our opinion concerning discharge from liability, in addition to our audit of the annual accounts and consolidated accounts, we examined significant decisions, actions taken and circumstances of the company in order to determine whether any member of the Board of Directors or the Managing Director is liable to the company. We also examined whether any member of the Board of Directors or the Managing Director has, in any other way, acted in contravention of the Companies Act, the Annual Accounts Act or the Articles of Association.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinions.

Furthermore, we have read the corporate governance statement and based on that reading and our knowledge of the company and the group we believe that we have a sufficient basis for our opinions. This means that our statutory examination of the corporate governance statement is different and substantially less in scope than an audit conducted in accordance with International Standards on Auditing and generally accepted auditing standards in Sweden.

Opinions

We recommend to the annual meeting of shareholders that the loss be appropriated dealt with in accordance with the proposal in the statutory administration report and that the members of the Board of Directors and the Managing Director be discharged from liability for the financial year.

A corporate governance statement has been prepared, and its statutory content is consistent with the other parts of the annual accounts and consolidated accounts.

Malmö 31 March 2014 PricewaterhouseCoopers AB

Eva Carlsvi Authorized Public Accountant

Öhrlings PricewaterhouseCoopers AB, 556029-6740 Elected until the end of the General Annual Meeting 2013.

Eva Carlsvi Auditor in charge, born 1968

Authorised Public Accountant - Auditor of Precise Biometrics since April 2008

Financial Glossary

Average number of outstanding shares during the year

Number of shares at the beginning of the year plus the number of shares at the end of the year divided by two.

Balance sheet total

Value of all assets on the balance sheet date.

Capital employed

Balance sheet total minus non interest-bearing liabilities and provisions. The average capital employed has been calculated as opening equity plus closing equity divided by two.

Debt/equity ratio

Interest bearing liabilities divided by equity.

Direct dividend

Proposed dividend divided by share price on balance sheet date.

Dividend

Dividend per share during the year.

EBITDA

Operating profit/loss before depreciation and net financials.

Equity

Equity at the end of the year. The average equity has been calculated as opening equity plus closing equity divided by two.

Equity/assets ratio

Equity as at balance sheet date divided by total assets as at balance sheet date.

Equity per share

Equity at the end of the year divided by the number of shares at the end of the year.

Equity ratio

Equity and latent tax liabilities divided by closing balance.

Gross margin Gross profit/loss divided by net sales.

Interest cover ratio Profit/loss after net financials plus financial costs divided by financial costs.

Liquid ratio

Current assets less inventories divided by current liabilities

Number of shares Number of shares at year-end.

Operating margin Operating profit/loss divided by net sales.

P/E ratio

Stock price at the end of the year divided by profit/loss per share.

Profit/loss per share

Profit/loss after net financials divided by average number of shares. The calculation has been made in accordance with IAS 33 Net profit/loss per share. Under IAS 33, recalculation after dilution may not produce a better profit/loss per share compared with before dilution.

Return on capital employed

Profit/loss after net financials plus financial costs divided by average capital employed.

Return on equity

Profit/loss for the year divided by average equity.

Share price

The last price paid during the period.

Working capital

Current assets less current liabilities.

Board of Directors

Lisa Thorsted

Chairman of the Board

BORN 1967

EDUCATION Master of Science in Economics and Business Administration, Copenhagen Business School, Denmark.

CURRENT POSITION Managing Director Global Corporate Client, ISS World Services A/S.

BOARD MEMBER SINCE 2006

PREVIOUS ASSIGNMENTS IN LAST FIVE YEARS

Group Vice President, Regional CFO Eastern Europe, ISS A/S. Vice President, CCO, SAS Scandinavian Airlines Denmark A/S

OTHER ASSIGNMENTS Board Member of subsidiaries at ISS Global A/S and ISS World Services A/S.

SHARES IN PRECISE BIOMETRICS 102,557 shares 56,834 shares (spouse)

Torgny Hellström

Board Member

BORN 1958

-

-

EDUCATION

Master of Law at Stockholm University, IBM Executive Education with Thunderbird (University of Phoenix)

CURRENT POSITION Founder and Senior Management Consultant at Ruddex International AB

BOARD MEMBER SINCE 2013

PREVIOUS ASSIGNMENTS IN LAST FIVE YEARS CEO and other management positions at Anoto Group AB (NASDAQ OMX Nordic)

OTHER ASSIGNMENTS

SHARES IN PRECISE BIOMETRICS

Eva Maria Matell

Board Member

BORN 1958

EDUCATION Graduate Engineer, Industrial Economics, International Marketing, Linköping University.

CURRENT POSITION General Manager at Cintos Consulting

BOARD MEMBER SINCE 2007

PREVIOUS ASSIGNMENTS IN LAST FIVE YEARS Managing Director at Kaspersky Lab AB, Sales and Marketing Director XponCard AB.

OTHER ASSIGNMENTS

SHARES IN PRECISE BIOMETRICS 31,939

Anders Harrysson

Board Member

BORN 1959

-

-

-

EDUCATION

MSc in Physics at Linköping University, Sweden. MSc and Senior Thesis in Electrical Engineering at Stanford Graduate School, Dept of Electrical Engineering, Stanford University, USA

CURRENT POSITION

BOARD MEMBER SINCE 2013

PREVIOUS ASSIGNMENTS IN LAST FIVE YEARS

CEO at Birdstep Technology ASA Vice President North Europe at Sun Microsystems

OTHER ASSIGNMENTS

Board Member at NetInsight AB, Chairman of the Board at Aditro Group AB, Chairman of the Board at Ewalie AB

SHARES IN PRECISE BIOMETRICS

Torbjörn Clementz

Board Member

BORN 1961

EDUCATION Bachelor of Science in Business Administration and Economics at University of Växjö.

CURRENT POSITION CFO and Vice President, BE Group AB.

BOARD MEMBER SINCE 2009

PREVIOUS ASSIGNMENTS IN LAST FIVE YEARS -

OTHER ASSIGNMENTS

Board Member in subsidiaries within BE Group. Board Member of Sports and Rehab Clinic at Ängelholm AB. Board Member of Euro Football Partners AB

SHARES IN PRECISE BIOMETRICS 59,555

Matts Lilja

Board Member

BORN 1965

-

-

EDUCATION Engineer College Graduate

CURRENT POSITION CEO at Ammeraal Beltech AB

BOARD MEMBER SINCE 2013

PREVIOUS ASSIGNMENTS IN LAST FIVE YEARS CEO at Opax A/S and Opax AB

OTHER ASSIGNMENTS

SHARES IN PRECISE BIOMETRICS

Management

Håkan Persson

President and CEO

BORN 1961

--

EMPLOYED SINCE 2013

OTHER ASSIGNMENTS

PREVIOUS ASSIGNMENTS IN THE PAST FIVE YEARS

Interim Manager at Enea, CEO at Scalado AB, Country Manager IBM Software Group, Director System Sales IBM Rational, President Market Division EMEA Telelogic AB

EDUCATION

BSc in Business and Administration, International Program, School of Economics and Management at Lund University

HOLDINGS

Patrik Lindeberg

COO

-

BORN 1973

-

EMPLOYED SINCE 2007

OTHER ASSIGNMENTS

PREVIOUS ASSIGNMENTS IN THE PAST FIVE YEARS Board member in Precise Biometrics Solutions.

EDUCATION MSc E.E. at Lund University, Sweden.

HOLDINGS 400,000 share warrants.

Patrik Norberg

CFO

BORN 1968

EMPLOYED SINCE 2008

OTHER ASSIGNMENTS --

PREVIOUS ASSIGNMENTS IN THE PAST FIVE YEARS -

EDUCATION BSc in Business & Administration, School of Economics and Management at Lund University.

HOLDINGS 120,000 shares, 300,000 share warrants.

Anna Herdenberg

Corporate Counsel

BORN 1965

-

EMPLOYED SINCE 2008

OTHER ASSIGNMENTS

PREVIOUS ASSIGNMENTS IN THE PAST FIVE YEARS -

EDUCATION Master of Law at Lund University

HOLDINGS 55,000 shares (spouse) 150,000 share warrants

Annual General Meeting

The Annual Meeting for shareholders in Precise Biometrics AB (publ) will be held on Tuesday April 29, 2014 at 4 pm at the Precise Biometrics headquarters in Lund, Scheelevägen 30.

Shareholders wishing to participate in the annual shareholders' meeting must be registered in the share register kept by Euroclear Sweden AB on Wednesday April 23, 2014 and also report their participation to Precise Biometrics AB no later than Wednesday April 23, 2013 at 4 pm.

Registration in the stock register

Shareholders who have their shares registered through a bank or in the name of an authorized agent shall temporarily register their stock in their own name in the stock register kept by Euroclear Sweden AB on Wednesday April 23, 2014 in order to participate in the meeting.

Stockholders must inform their agents with sufficient notice prior to this date.

Registering to attend the annual shareholders' meeting

Shareholders must notify their intention to attend the annual shareholders' meeting by Wednesday April 23, 2014 at 4 pm at the latest. Shareholders may submit applications by phone, fax, mail or email.

• Tel. + 46 46 31 11 12
• Fax: +46 46 31 11 01
• Email: investor@precisebiometrics.com
• Mail: "Precise Biometrics Annual Shareholders' Meeting", Box 798, 220 07 Lund, Sweden

Applications must include:

• Name
• Social security number/Corp ID
• Address
• Phone number
• Number of shares
• Assistants, if appropriate

Representatives

Shareholders who are represented by agents shall give such agents powers of attorney. If powers of attorney are issued by legal entities, a copy of the registration certificate (or if such a document does not exist, a similar document) for the legal entity must be enclosed. The document may not be older than one year.

These documents must be in the possession of Precise Biometrics no later than Wednesday April 23, 2014.

Shareholder contact

Patrik Norberg, CFO in Precise Biometrics Telephone +46 46 31 11 47 Email patrik.norberg@precisebiometrics.com

Distribution of annual report

The Company's annual report will not be distributed to the shareholders, as there will be no hard copy of the report. The annual financial statements will be available in both Swedish and English on the Company's website at www.precisebiometrics.com The entire document can be printed out from the website.

Financial calender

Interim Report January - March	April 29 2014
Interim Report January - June	Juli 16 2014
Interim Report January - September	Oktober 21 2014
Year-end resport January-December	Februari 5 2015

Financial reports are published in Swedish and English at www.precisebiometrics.com The reports can also be requisitioned by calling +46 46 31 11 00.

Contact

Precise Biometrics AB

Box 798 220 07 Lund Sweden

Phone: + 46 46 31 11 00 Fax: + 46 46 31 11 01 E-mail: investor@precisebiometrics.com

Shareholder contact Patrik Norberg, CFO

Phone: + 46 46 31 11 47 E-mail: patrik.norberg@precisebiometrics.com