Anoto Annual Report 2008

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CON T E N T S AN OTO GRO U P AT A GLANCE

1

2008 IN BRIEF

2

A WO RD FRO M T HE CEO

4

AP P L IC ATIO N AR EAS

6

THE SHARE

12

FIVE-YEAR SUMMARY

14

M ANAG EMEN T REPORT

16

IN COM E STATEMENT

19

B ALAN CE SHEET

20

CHANG E IN SHAREHOL DERS EQUIT Y

22

C ASH FL OW STAT EMENT

24

N OTES

25

AUDIT REP ORT

45

CO RP O RATE GOVERNANCE REP ORT 2008

46

B OARD O F DIRECTOR S

49

G ROUP M ANAGEMENT

50

AN NUAL G ENERAL MEETING

51

ANOTO GROUP AT A GLANCE “Connecting pen and paper to the digital world.”

Anoto Group AB has a world-leading technology in the area of digital pen and paper. This technology enables the rapid, reliable translation of handwritten text into digital form thereby streamlining paper-based processes.

The Group’s unique solutions are based on camera technology and real-time image processing. They combine the intuitive advantages of pen and paper with the many benefits of digital communication.

BUSINESS CONCEPT Anoto’s business concept may be summed up as ’connecting pen and paper to the digital world’ – in other words, enabling the processing of handwritten text.

BUSINESS MODEL Anoto uses a partner-driven business model. In collaboration with a global network of partners, the Group creates commercial solutions based on the Anoto technology platform. The solutions can be applied to a number of different sectors, including healthcare, banking and finance, transport and logistics, and education.

Because Anoto’s partners upgrade its offering and add their own expertise, applications for multiple markets are developed alongside each other. As the number of partners grows and their sales volumes expand, Anoto’s income also increases without requiring any additional expenditure. Anoto had approximately 350 partners at the end of the financial year, primarily in Europe, the United States and Japan.

APPLICATION AREAS Anoto is broken down into three application areas.

ANOTO PRODUCTS Anoto Products focuses on systems, products and services, primarily in the field of forms processing. Anoto employs an indirect business model and markets its products through partners, such as system integrators, software developers and IT consulting firms, all of

which offer customized solutions with Anoto Digital Pen and Paper technology to their corporate customers and field users. The basis of this offering is the digital pen, which Anoto controls and sells since the acquisition of the Hitachi Maxell Digital pen division, together with the former Anoto Forms’ solution platform.

Turnkey products, such as existing scanning and translation pens, as well as newly developed products including Anoto penPresenter and Anoto penDocuments, may also be marketed through other sales and distribution channels.

TECHNOLOGY & LICENSING Technology & Licensing develops and sells digital pen technology and digital pens on an OEM basis to marketleading customers. Customers develop their own product offers based on the technology components and pens provided by Anoto. Examples of customer products are learning toys, educational tools, visual communication equipment and personal productivity solutions. Several of these products are interactive, enabling real-time audio or visual feedback while writing or when touching interactive areas.

IMAGING TECHNOLOGY Imaging Technology develops and markets basic Anoto technology, such as ASICs (Application-Specific Integrated Circuit) and IP blocks. It supplies and licenses imaging technology modules, components and function blocks for integration with customer products or components, including mobile phones, accessories and components.

QUOTATION The Anoto Group AB has been listed since 2000 and trades on NASDAQ OMX Nordic Small Cap list under the ticker ANOT.

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2008 IN BRIEF IMPROVED SALES AND POSITIVE RESULTS

• The new strategy and organizational restructuring that was implemented at Anoto in 2006 is now starting to show positive results.

• Net sales rose by 26 per cent to MSEK 182 (145).

• The result after taxes totalled MSEK 33 (-8).

• Earnings per share were SEK 0.25 (-0.06) after full dilution.

• Cash flow was MSEK -32 (-49).

• Anoto introduced Anoto penPresenter, a program that enhances Microsoft PowerPoint® functionality, in cooperation with printer manufacturer OKI. • Anoto acquired Hitachi Maxell’s division of digital pens. The transaction included intangible rights, production equipment and existing inventory. In connection with the acquisition, Hitachi Maxell acquired 20 per cent of the shares in Anoto Nippon KK, a wholly-owned subsidiary of Anoto.

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• Anoto entered into an agreement with PolyVison®, a world-leading global manufacturer of visual communication products in areas as whiteboards and flipcharts. In January 2009 PolyVision® introduced its ēno™ product.

• Anoto acquired Covelus’ routing technology.

The technology is now incorporated in the platform-product Anoto Forms Solution (AFS).

• Anoto signed an agreement with Group Hamelin in France for the delivery of 30,000 pens to its product Papershow.

• Anoto divested a major part of its application area Imaging Technology to the British company ARM. The transaction included the subsidiary Logipard AB and the long term contracts covering deliveries of IP-blocks. The total contract value to Anoto was MSEK 76, of which MSEK 68 was paid in December 2008. The remaining amount will be settled by mid 2010. The net income of the sale was MSEK 71.

KEY RATIOS FOR THE GROUP (SEK thousand) Net sales

04

05

06

07

08

147 392

113 230

108 725

144 691

182 204

Other income Gross profit/loss

19 180

71 387

89 936

79 395

78 404

129 114

201 329

Operating profit/loss

-80 011

-79 775

-131 823

-9 665

39 707

Profit/loss after tax

-75 218

-13 884

-132 965

-7 549

32 699

Cash flow for the year

-74 293

169 554

-31 649

-48 540

-31 957

-0.64

-0.11

-1.03

-0.06

0.25

3.27

4.39

3.56

3.52

3.80

Earnings per share (SEK) Shareholders’ equity per share (SEK) Equity/assets ratio, % Average no. of employees

80

79

80

81

81

132

110

121

103

127

NET SALES (SEK THOUSAND)

EQUITY/ASSETS RATIO %

2008

2008

CASH FLOW FOR THE YEAR (SEK THOUSAND)

PROFIT/LOSS AFTER TAX (SEK THOUSAND)

2008

2008

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A WORD FROM THE CEO

CUSTOMER FOCUS BEARS FRUIT In late 2006 we made a decision to reshape the business from being a technology and licensing oriented company to putting our customers’ needs first. This decision resulted in a strategy of taking increased responsibility for our products and for claiming a bigger part of the value chain.

As the ink dries on Anoto’s 2008 annual report, we can look back on a period in which this decision has proved correct and the benefits have really started to show on the bottom line.

I’m pleased to say that the favourable trends we identified in our 2007 report have progressed as planned.

Over the past year, Anoto has been able to capitalize on the solid platform for growth that we built through 2007.

During the year we acquired the pen production from Maxell, launched our Anoto Forms Solution platform and developed a strong sales organization. We entered into a number of significant technology licensing partnerships in line with our new focus on delivering complete products that meet customer needs.

A key difference to the way we worked before is that we now assume the overall responsibility for developing pens and related technology, something that over time will tie partners and customers more closely to Anoto.

This new cooperation will bring us continuous revenue over the coming years. With the divestment of most of our non-core imaging business, we are now in an even better shape to focus on developing attractive products and supporting our partners.

Selling our Logipard IP-block business to ARM, one of the world’s leading semiconductor companies, made a positive contribution to our cash position, and the year ended at SEK 99 million.

FIRMER BUSINESS FOCUS The business strategy and organizational restructuring started at the end of 2006 is now truly bearing fruit.

Our improved performance can be traced back to our decision to change Anoto from being a highly technology-centric licensing business to one that is driving sales by meeting real customer needs through fully developed products.

As part of this transformation, Anoto strengthened its product portfolio significantly during 2008.

The acquisition of the Hitachi Maxell Digital pen division in mid-2008 has put Anoto in control of the production and marketing of our digital pens. We have a steady flow of orders for pens and licenses from all over the world. In addition, we are winning a growing number of larger orders, including contracts for 1000-plus pens or licenses. Sales of the Anoto Forms Solution platform have developed according to plan and the first customer installations are expected to start in 2009. During the year we also acquired routing technology from Covelus to enable our digital pen and paper technology to interact with different platforms and devices.

RECORD QUARTER ROUNDS OFF PROFITABLE YEAR Anoto finished 2008 with the best quarterly sales results in the company’s history. Net sales for the fourth quarter were up 25 per cent year-on-year, at SEK 56 million. Net sales for the full year came to SEK 182 million, also up 25 per cent on a year earlier.

During the year we developed the Anoto penPresenter and Anoto penDocuments products, designed to be simple for everyone to install and use. Anoto penPresenter is an add-in for Microsoft PowerPoint® that lets people put real-time sketches and notes into their slides as they present them. In essence Anoto penPresenter functions as a personal digital whiteboard.

With Anoto penDocuments people can make handwritten annotations on printed documents and have these implemented in the electronic version. Both products are being launched on the European market by our partner OKI, with other markets to follow later this year.

This, combined with our continued cost control focus, meant that we ended 2008 in profit. Net earnings after tax were SEK 33 million, compared with a net loss of SEK 8 million in 2007.

FLOURISHING PARTNERSHIPS Anoto is supplying partners and customers with a wider range of products than ever before – including digital pens, licenses and a software platform. What they

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all have in common is that they enable easier and faster implementations of Anoto technology solutions.

PaperShow product, as well as the launch of the ēno™ whiteboard by PolyVision in early January 2009.

All through 2008, and especially in the last quarter, we saw increasing business activity among our product partners.

During 2008 LeapFrog launched the Tag Reading System, a touch-and-talk reading system for children, while Livescribe launched the Pulse smartpen which links audio to what you write.

We have intensified our collaboration with major meeting-room solution partners. This initiative has resulted, for example, in follow-up pen orders from Hamelin for its

2008 also saw such key events as the deployment of Anoto technology by British Airways to help it keep to its flight schedule at London’s busy Heathrow airport.

Furthermore, our technology was used by the UN Food and Agricultural Organization in Africa to help prevent the outbreak of animal diseases.

Yet another interesting deployment of our technology was with Würth in Sweden – where digital pens have helped sales representatives increase their productivity.

C-Pen continues to sell at a steady pace and has established customers around the world.

BUILDING ON OUR GROWING REPUTATION The digital pen and paper market category is gaining significant traction, not least as a result of Anoto’s publicity efforts. In 2008, we continued to improve awareness of the Anoto brand through a proactive marketing and PR programme that has resulted in profiles in publications like the Financial Times and Le Figaro, along with numerous vertical sector trade media.

No-one is pretending that 2009 is going to be an easy time. However, by continuing to focus firmly on meeting customer needs with productivity-enhancing products, I believe Anoto is well positioned to build on the excellent results we achieved over the past year.

Anders Norling CEO Lund, Sweden, March 2009

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APPLICATION AREAS Anoto offers a unique, patented technology. As the company does not have any direct competitors in the field of Digital Pen and Paper, it mainly competes with other technologies, such as tablet PCs, PDAs and smartphones. Demand is being powered by increased knowledge and penetration in both new and existing markets as well as the need for cost-efficient and user-friendly solutions. According to a study by the University of Applied Sciences Hamburg (2008), the Anoto Digital Pen and Paper technology is being rated as consider-ably more user-friendly compared to the alternative technologies listed above.

ANOTO PRODUCTS Anoto Products focuses on systems, products and services, primarily in the field of forms processing.

Anoto employs an indirect business model and markets its products through partners, such as system integrators, software developers and IT consulting firms, all of which offer customized solutions with Anoto Digital Pen and Paper technology to their corporate customers and field users. The basis of this offering is the digital pen which Anoto controls and

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In terms of total cost of ownership (TCO) internal customer data shows that the Digital Pen and Paper technology has significant cost advantages when benchmarked according to the same method that was used to estimate TCO in a 2007 Gartner report on PDA’s and Smartphones.

Anoto has offices in Sweden, the United States and Japan and operates through partners in the Americas, Europe, South Africa, Australia and Asia-Pacific. Western Europe, Japan and the United States are the single largest geographical markets.

sells since the acquisition of the Hitachi Maxell Digital pen division, together with the Anoto Forms Solution platform. Turnkey products, such as existing scanning and translation pens, as well as newly developed products including Anoto penPresenter and Anoto penDocuments, may also be marketed through other sales and distribution channels.

The market for Anoto Digital Pen and Paper techno-

krona, and more are expected to follow. Altogether, 3,000 digital pens are being used by homecare personnel in Sweden.

logy includes virtually every segment of the community that uses pen and paper and needs to transmit data to digital media. Anoto focuses on a number of key areas to ensure ongoing expansion and profitability improvements, and proactively strives to increase the number of partners, particularly system integrators, in order to increase market reach. The most important end-customer markets are the healthcare and clinical trials sectors, but there are also a number of digital pen solutions for inspections and reporting, for example in real estate, insurance and government. Within healthcare digital pen and paper is used to simplify administrative routines and for documenting and assuring the quality of healthcare interventions. Among the benefits of the technology are more efficient paper-based processes, reduced risk of error, improved productivity and noticeable cost savings.

CASE STUDY STÄDTISCHE KLINIKEN MÖNCHENGLADBACH, GERMANY A recent deployment is that of the Städtische Kliniken Mönchengladbach, a municipal hospital in the northwest of Germany. The hospital is divided between two sites, with 600 beds for patient treatment and rehabilitation.

CASE STUDY SWEDISH GERIATRIC CARE The Swedish geriatric care is using Anoto Digital Pen and Paper to facilitate documentation, quality assurance and data transmission. The solution is now being used in more than 30 Swedish municipalities, for example Sundbyberg, Kristianstad, Lomma and Karls-

Whether they are being treated for broken bones or undergoing appendectomies or caesareans, patients often need to be treated under anaesthetic. Quick and accurate documentation of the entire anaesthetic process is critical, for medical and legal reasons. The core element of this documentation is the anaesthetic

The success in home care services has helped spread the technology to other areas of healthcare, such as breast cancer screening, physical examinations and bedsore prevention.The technology is also currently being deployed within emergency care and hospital environment.

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log, that keeps track of administrative data, such as patient details as well as information on medication, anaesthetic procedures and supplementary measures.

Traditionally, anaesthetics staff had to fill out the log forms with normal pen and this information then had to be entered manually into the hospital’s computer systems for further processing - a labour-intensive and time-consuming process, prone to errors. The hospital was looking for a technology solution to accelerate the documentation process and transfer handwritten information gathered during an anaesthetic procedure to the Hospital Information System (HIS) more efficiently.

In order to achieve this, a range of solutions, including tablet PCs and document scanners were evaluated.

As these technologies would have required an amendment of the documentation process, the hospital decided to choose a digital pen and paper solution.

The digital pens are part of a comprehensive intensive care system solution that Anoto partner and digital pen and paper specialists, Diagramm Halbach, designed especially for the Städtische Kliniken.

Digital pen and paper captures and converts the handwritten information in the anaesthetists’ logs into digital format, eliminating the need for separate registration post-surgery and resulting in less work for clinical and clerical staff. Among the range of benefits

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that have been identified, the clearest one is being able to continue the use of a pen and paper. Other benefits include faster and accurate information availability for other clinicians and accounting and research purposes.

The digital pens have made the anaesthetics operation more productive by helping optimise workflows and making day-to-day routines more efficient – all while maintaining familiar ways of working.

CASE PHARMACEUTICAL INDUSTRY Anoto technology is also making an impact in the pharmaceutical industry, where international pharma companies like Novartis, Actelion Pharmaceuticals, Sanofi-Aventis and GlaxoSmithKline are using it successfully in a number of different areas. Within the pharmaceutical industry digital pen and paper is used for documentation of data in clinical trials, data entry for the distribution of drug samples and streamlining of ordering processes. For pharmaceutical companies, every successful effort to improve efficiency and quality in the clinical trials process directly contributes to continued competitiveness of the company and can be measured in actual revenue. Anoto Digital Pen and Paper technology helps to achieve this through benefits, such as easy deployment, ensured traceability of collected data and reduction of the time it takes for a drug to get to market, which may represent millions of euro in revenue.

PRODUCTS The development of customized platforms and products, such as Anoto Forms Solution, Anoto penPresenter and Anoto penDocuments enables both Anoto and its partners to facilitate the sales process and reduce time to market.

documents instantly. Anoto penDocuments digitally captures handwriting while writing. Documents can be saved, stored and distributed immediately, which means no more scanning, faxing or using couriers. For smaller businesses, simply requiring a method of keeping track of handwritten documents, this is an attractive offering.

The Anoto Forms Solution includes all components required to set up and use digital pen and paper in order to capture, transfer and incorporate handwritten information from paper forms into any back-end system - enabling rapid implementation and use of digital pen and paper in commercial services. Sales of the new Anoto Forms Solutions platform that was launched in 2008 has developed well and new partnerships are expected to start generating end-customer installations in 2009. As a result increased penetration of new and existing markets is predicted, as well as sales to larger customers in both private and public administration.

C TECHNOLOGIES C Technologies develops and markets the C-Pen, which scans and recognizes printed text for further internal processing or transmission to a computer.

The main customer benefit is the ease with which printed information and text can be transmitted to digital media. The two most common areas of use are electronic payment systems and generic capture, recognition and transmission of text. Linguistic applications for the consumer market have also been developed and the first version of C Dictionary was launched in mid-2008.

The Anoto penPresenter is a personal digital whiteboard that captures every word that is written. By simply projecting a blank PowerPoint速 slide, a digital whiteboard is created and, using Digital Pen and Paper, everything that is written is automatically captured.

PowerPoint presentations turn interactive by writing on the slides during a presentation.

The C-Pen is sold through both retail outlets and directly to businesses using the OEM model.

ANOTO PRODUCTS MSEK 2008 2007

Net sales 85 78

Gross profit 59 66

Anoto penDocuments is an entry-level product allowing the user to create electronic copies of handwritten

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TECHNOLOGY & LICENSING Technology & Licensing develops and sells digital pen technology and digital pens on an OEM basis to marketleading customers. The customers develop their own product offers based on the technology components and pens provided by Anoto. Examples of customer products are learning toys, educational tools, visual communication equipment and personal productivity solutions. Several of these products are interactive, enabling real-time audio or visual feedback while writing or when touching interactive areas.

Currently Anoto has two customers that develop their own pens using technology components from Anoto, LeapFrog and Livescribe, both based in the United States. During 2008 LeapFrog launched the Tag Reading System, a touch-and-talk reading system for children, while Livescribe launched the Pulse smartpen that links audio to what you write. Both products have built-in audio capabilities, enabling real-time audio feedback from paper. During 2009 LeapFrog will expand their Anoto based product portfolio and launch Tag Junior for toddlers.

In 2008 Anoto finalized the development of the new pen, DP301, which streams data in real-time to computers and mobile phones. With DP301, Anoto can address interactive application areas, initially within the educational and office market segments. DP301 is offered to customers on an OEM basis and is also included in Anoto penPresenter.

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During 2008, a number of partners launched innovative new products based on the Anoto technology.

Groupe Hamelin launched Papershow, an interactive paper digital writing product which enables people to project handwritten notes directly on the screen during meetings.

DNP started commercial sales of its interactive classroom product OpenNOTE to Japanese schools in November 2008.

Anoto signed an agreement with PolyVision in 2008 and worked to enable Anoto functionality with PolyVision e3 environmental ceramicsteel™- interactive whiteboards.

PolyVision launched the ēno™, a revolutionary new interactive whiteboard in January 2009. ēno™ by PolyVision is the first result of applying Anoto´s pattern technology in the area of visual communication products, such as whiteboards and flipcharts. A combination of the Anoto Bluetooth-enabled digital pen (DP301), an ēno™ interactive whiteboard and a simple projector will enable teachers to move from ink to the Internet or from markers to multimedia, in an instant and without the need for power or data cables.

The focus of Technology & Licensing in 2009 will be on close collaboration with existing customers in order to ensure the development and delivery of pens and technology as well as on supporting the establishment

and growth of products based on Anoto technology within different market areas. Technology & Licensing will continue to establish new partnerships with market-leading companies and identify new application areas for Anoto technology. Examples of potential new application areas are pen tablets, games and entertainment products.

IMAGING TECHNOLOGY Imaging Technology develops and markets basic Anoto technology, such as ASICs and IP blocks. It supplies and licenses imaging technology modules, components and function blocks for integration with customer products or components, including mobile phones, accessories and components.

Imaging Technology develops and markets video technology in two different product areas. The first area includes the development and (through partners) the manufacture of complete chips for digital surveillance cameras. The chips convert images to various video formats, such as MPEG4 and H264, for further distribution. The main customers are surveillance equipment manufacturers.

TECHNOLOGY & LICENSING MSEK 2008 2007

Net sales 37 34

Gross profit 24 23

The value of the transaction was MSEK 76, of which MSEK 68 was paid upon signing. The outstanding amount will be settled by mid 2010. The net result of the transaction was MSEK 71. According to the contract, Anoto has transferred most of its imaging technology business, including customer contracts and Anoto’s 80 per cent shareholding in Logipard, to ARM. Anoto is retaining the ASIC sales, which correspond to approximately 40 per cent of this year’s volume within the Imaging Technology application area.

IMAGING TECHNOLOGY MSEK 2008 2007

Net sales 60 34

Gross profit 45 21

Anoto sold its subsidiary Logipard AB and its existing contracts for video technology to ARM, the world’s leading semiconductor intellectual property supplier.

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THE SHARE The Anoto Group has been listed on the NASDAQ OMX Stockholm Stock Exchange (ticker: ANOT) since 16 June 2000. Today the share is listed on the Small Cap list of the NASDAQ OMX Nordic Exchange Stockholm. The share had previously traded on the New Market starting on15 March 2000. Anoto Group’s share capital of SEK 2,571,677 is allocated among 128,583,867 shares. Each share entitles the holder to one vote at general meetings and all shares provide equal rights to participation in the company’s assets and profits.

Full exercise of the options that have been subscribed for would result in subscription for no more than 585,000 new shares, increasing the company’s share capital by SEK 11,700 and diluting existing shares by 0,5 per cent. The issue prices for options are SEK 18.00.

ANALYSTS Anoto Group is covered by analysts at a number of banks and securities brokers, including Carnegie, Hagströmer & Qviberg and Redeye.

SHARE PRICE PERFORMANCE AND TRADING The price of the Anoto Group share declined by 81 per cent from SEK 9.65 to 1.81 during the year. During the same period, the Affärsvärlden General Index was down by 42 per cent and the Stockholm Stock Exchange IT Index lost 30 per cent. Anoto Group’s market capitalisation was SEK 232 million on 31 December 2008. On 25 March 2009, the share price was SEK 4,55 and the market capitalization was SEK 585 million.

PER-SHARE DATA 2008 No of shares 128 583 867 No of outstanding options 0 Average no of shares 128 583 867 Average number of outstanding options 0 Earnings per share (SEK) 0.25 Earnings per share incl options (SEK) 0.25 Cash flow per share for the year (SEK) 0.25 Cash Flow per share incl options (SEK) 0.25 Shareholders equity per share (SEK) 3.80 Shareholders equity per share incl options (SEK) 3.80

A total of 68,776,269 Anoto shares traded on the NASDAQ OMX Stockholm Stock Exchange in 2008, for a turnover rate of 54 per cent.

LARGEST SHAREHOLDERS DECEMBER 31, 2008 NAME % TOTAL

SHAREHOLDERS At the end of 2008, Anoto Group had 7,439 shareholders. Foreign shareholders controlled 62 %; the ten largest shareholders 54 per cent; and institutional and industrial investors 88 per cent of the shares.

DIVIDEND POLICY No dividend will be considered over the next few years. The company’s future dividend policy will reflect its earnings, financial position and financing needs.

Dividend proposals will be examined in the light of shareholder demands for a reasonable return and the company’s internal financing requirements.

OPTION PROGRAMMES The parent company currently has one outstanding stock option program with underlying warrants for employees. The 585,000 options that have been subscribed for expire on 31 March 2010.

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Essensor AS Norden Technology AS Swedbank Robur Fonder Tor Aksel Voldberg Michael Mathile Barclays Bank DnB NOR Bank Carnegie Norway Branch Banco Fonder Chister Fåhraeus

11.1% 7.4% 6.4% 5.1% 4.9% 4.8% 3.8% 3.8% 3.1% 2.7%

14 205 603 9 500 000 8 202 297 6 500 000 6 300 000 6 188 150 4 925 900 4 832 500 4 035 000 3 500 000

In January 2009, Michael Mathile increased his shareholding to 10.0% of total number of shares.

The share 50

40

30

20

10

0 2004

2005

Anoto share

2006

OMXSPI

2007

2008

2009

OMX SX45

40 000

35 000

30 000

25 000

20 000

15 000

10 000

5 000

0

2004

2005

2006

2007

2008

2009

No. of shares traded, Thousands

SHAREHOLDERS BY SIZE, DECEMBER 31, 2008 Holdings 1-1000 1001-10000 10001-100000 100001-

Total no.of shareholders

% av total shareholders

Hold collectlively number of shares

% of share capital

5 710 1 380 271 78

76.8 18.6 3.6 1.0

1 679 481 4 867 834 8 055 024 113 981 528

1.3 3.8 6.3 88.6

7 439

100

128 583 867

100

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FIVE-YEAR SUMMARY Summary of income statements (SEK thousand)

2004

2005

2006

2007

2008

Net sales Other income Gross profit/loss Amortization – intangible fixed assets Depreciation – property, plant and equipment Operating profit/loss Profit/loss on participations in Group companies Profit/loss on participations in associated companies Profit/loss on other receivables that are non-current assets Other financial items Profit/loss after financial items Tax Minority share in profits

147 392 – 89 936 -20 661 -7 825 -80 011 – 3 059

113 230 – 79 395 -22 680 -3 644 -79 775 70 457 –

108 725 – 78 404 -25 809 -1 709 -131 823 -769 –

144 691 19 180 129 114 -13 710 -2 201 -9 665 -252 –

1 861 -75 091 -127 –

-4 446 -13 764 -120 –

794 -131 798 -1 208 41

3 269 -6 647 -791 -110

182 204 71 387 201 328 -12 159 -3 011 39 706 0 – -2 431 -5 974 31 302 -853 2 250

Profit/loss after tax

-75 218

-13 884

-132 965

-7 549

32 699

2004-12-31

2005-12-31

2006-12-31

2007-12-31

2008-12-31

368 031 5 589 5 155 378 775 1 671 20 337 29 384 41 740

357 536 3 568 5 346 366 450 1 517 36 780 15 667 211 490 74 235

343 324 3 512 5 080 351 916 1 936 27 615 15 669 179 841 0

339 473 4 046 8 560 352 079 5 960 24 062 51 132 131 301 0

364 025 5 279 30 599 399 903 37 329 32 564 32 304 99 344 0

Summary of balance sheets (SEK thousand) Assets Intangible fixed assets Property, plant and equipment Financial fixed assets Total non-current assets Inventory Accounts receivable Other current assets Cash and bank balances, including current investments Non-current assets for divestment Total current assets

93 132

339 689

225 061

212 455

201 541

Total assets

471 907

706 139

576 977

564 534

601 444

Liabilities and shareholders’ equity Shareholders’ equity Minority shareholdings Provisions (Non-interest-bearing) Long-term liabilities (Non-interest-bearing) Current liabilities (Non-interest-bearing)

385 629 — 0 13 692 72 586

555 690 — 0 4 231 146 218

458 237 1 959 0 4 728 112 053

452 809 2 069 54 50 089 59 513

488 474 -160 0 41 891 71 239

86 278

150 449

118 740

111 725

112 970

471 907

706 139

576 977

564 534

601 444

Total liabilities Total liabilities and shareholders’ equity

Summary of cash flow statements (SEK thousand)

2004

2005

2006

2007

2008

Profit/loss after financial items Items that do not affect liquidity Change in working capital Cash flow from operating activities Cash flow from investing activities Total cash flow before financing activities Cash flow from financing activities

-75 091 8 787 -4 949 -71 253 -7 633 -78 886 4 593

-13 764 -39 559 60 251 6 928 -14 933 -8 005 177 669

-131 798 8 913 73 642 49 243 -14 190 -63 433 31 784

-6 647 16 243 -39 015 -29 419 -20 808 -50 227 1 687

31 302 28 337 -9 317 50 322 -40 257 10 065 -42 022

Cash flow for the year

-74 293

169 554

-31 649

-48 540

-31 957

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Key ratios Sales growth, % Gross margin, % Operating margin, % Profit margin, % Capital employed (SEK thousand) Return on capital employed, % Return on shareholders’ equity, % Proportion shareholders’ funds, % Equity/assets ratio, % Net debt/equity ratio, multiple Interest coverage ratio, multiple Earnings per share (SEK) Earnings per share after dilution (SEK) Cash flow per share for the year (SEK) Cash flow per share after dilution (SEK) Shareholders’ equity per share (SEK) Shareholders’ equity per share after dilution (SEK) Average no. of employees Sales per employee (SEK thousand) Payroll expenses, incl. social security contributions (SEK thousand) (of which, pension premiums)

2004

2005

2006

2007

2008

neg 61 neg neg 385 629 neg neg 80 82 -0.11 -2 264 -0.64 -0.64 -0.63 -0.63 3.27 3.15 132 1 117 112 906 14 006

neg 70 neg neg 555 690 neg neg 79 79 -0.38 -1 -0.11 -0.11 1.42 1.40 4.39 4.32 110 1 029 95 829 11 030

neg 72 neg neg 460 196 neg neg 80 80 -0.39 -29 -1.03 -1.03 -0.25 -0.25 3.56 3.56 121 1 029 121 822 10 925

33 76 neg neg 454 878 neg neg 81 81 -0.29 -3 -0.06 -0.06 -0.38 -0.38 3.52 3.52 103 1 405 88 184 10 588

26 71 16 21 488 314 7 7 81 81 -0.20 5 0.25 0.25 0.25 0.25 3.80 3.80 127 1 435 106 075 13 337

DEFINITIONS PROPORTION SHAREHOLDERS’ FUNDS

SALES GROWTH

Shareholders’ equity, minority interests and deferred tax at the end of the year as a percentage of total assets

Increase in net sales as a percentage of net sales for the previous year

RETURN ON SHAREHOLDERS’ EQUITY Profit for the year as a percentage of average shareholders’ equity

Profit after tax divided by the weighted average number of shares during the year

RETURN ON CAPITAL EMPLOYED

INTEREST COVERAGE RATIO

Profit after net financial income/expense plus interest expense, divided with of average capital employed

Profit after net financial income/expense plus interest expense, as a percentage of interest expense

GROSS MARGIN

OPERATING MARGIN

Gross profit as a percentage of net sales. Gross profit is defined as net sales less cost of goods sold

Operating profit/loss after depreciation and amortization as a percentage of net sales

SHAREHOLDERS’ EQUITY PER SHARE

CAPITAL EMPLOYED

Shareholders’ equity divided by the weighted average number of shares during the year

Total assets less non-interest-bearing provisions and liabilities, including deferred tax liabilities

AVERAGE NUMBER OF EMPLOYEES

EQUITY/ASSETS RATIO

Average number of employees during the year

Shareholders’ equity including minority interests as a percentage of total assets

NET DEBT Interest-bearing liabilities less liquid assets and current investments

NET DEBT/EQUITY RATIO

EARNINGS PER SHARE

PROFIT MARGIN Profit after financial income/expense as a percentage of net sales

Net debt divided by shareholders’ equity, including minority interests

CASH FLOW PER SHARE FOR THE YEAR

SALES PER EMPLOYEE

Cash flow for the year divided by the weighted average number of shares during the year

Net sales divided by the average number of employees

A N OTO A N N UA L R E P O RT 2 0 0 8 | 1 5

MANAGEMENT REPORT The Board of Directors and CEO of Anoto Group AB (publ.), Corporate identity No. 556532-3929, hereby submit the annual accounts and consolidated accounts for the 1 January – 31 December 2008 financial year.

to bring solutions based on Anoto Digital Pen and Paper technology to the attention of both end-users and new partners. The Japanese market, which did not perform as expected during the first three quar ters, showed some signs of improvement in the last quarter, although major projects have been postponed until 2009.

GROUP STRUCTURE Anoto Group AB is the holding company in the Group and performs group-wide functions. The operational activities are performed by the subsidiaries Anoto AB, C Technologies AB, Anoto Inc and Anoto Maxell Ltd. Logipard AB, in which Anoto AB controlled 80 per cent of the shares, was sold on December 16, 2008.

Since the acquisition of the Hitachi Maxell digital pen division, Anoto controls and markets the digital pens.

There is a steady flow of orders for smaller volumes of pens and licenses from all over the world. In addition to these orders, an increased activity in the market for pens and licenses in larger volumes can be noted.

Sales of the new AFS platform that was launched last year has developed according to plan and is expected to star t generating end-customer installations in 2009.

ORGANIZATION Anoto Group is a Swedish high-tech company that has developed a unique technology for digital pen and paper, enabling rapid, reliable transmission of handwritten text to digital media. The organization is broken down into three application areas, i.e.

Anoto Products, Technology & Licensing and Imaging Technology. The entire business is based on digital camera technology and image processing in real-time.

ANOTO APPLICATION AREAS ANOTO PRODUCTS Anoto Products focuses on systems, products and services, primarily in the field of forms processing.

Anoto operates by an indirect business model and markets its products through partners, such as system integrators, software developers and IT consulting firms, all of which offer customized solutions with Anoto Digital Pen and Paper technology to their corporate customers and field users. The base for this offering is the digital pen which Anoto controls and sells since the acquisition of the Hitachi Maxell Digital pen division, together with the former Anoto Forms’ solution platform. Turnkey products, such as existing scanning and translation pens, as well as newly developed products including Anoto penPresenter and Anoto penDocuments, may also be marketed through other sales and distribution channels.

Anoto Products continues to show growth. European markets are developing well, with continued focus on applications within the healthcare and clinical trials sectors. The inflow of new partners is good and bodes well for the future. Increased media coverage is helping

1 6 | A N OTO A N N UA L R E P O RT 2 0 0 8

TECHNOLOGY & LICENSING Technology & Licensing develops and sells digital pen technology and digital pens on an OEM basis to market leading customers. The customers develop their own product offers based on the technology components and pens provided by Anoto. Several of these products are interactive, enabling real-time audio or visual feedback while writing or when touching interactive areas.

Examples of customer products are learning toys, educational tools, visual communication equipment and personal productivity solutions.

A major milestone this quarter has been the completion and introduction of the Anoto branded DP301 pen used by PolyVision for the product ēno™ being the result of developing Anoto technology in the direction of visual communication products, such as whiteboards and flipchar ts.

IMAGING TECHNOLOGY Imaging Technology develops and markets basic Anoto technology, such as ASICs and IP blocks.

The application area supplies and licenses imaging technology modules, components and function blocks for integration with customer products or components, including mobile phones, accessories and their components.

Anoto sold its subsidiary Logipard AB and its existing contracts for video technology to ARM, the world’s leading semiconductor intellectual proper ty supplier.

The value of the transaction was MSEK 76, of which MSEK 68 was paid upon signing. The outstanding

amount shall be settled within 18 months. The net result of the transaction was MSEK 71. Anoto is retaining the ASIC sales, which corresponds to approximately 40 per cent of this year’s volume within the Imaging Technology application area.

Sales developed well during 2008, although slightly below expectations due to unforeseen delays in the market introduction of mobile phones using Anoto technology.

SHARES AND SHAREHOLDERS The company had 128,583,867 shares as of year-end.

According to VPC AB statistics, there were 7,439 shareholders on 31 December 2007, representing a decrease of approximately 3 per cent over the past 12 months. The largest shareholders were Essensor AS (11.1 per cent of the votes and capital) and Norden Technology AS (7.4 per cent of the votes and capital).

EMPLOYEES The average number of employees within the Group increased from 103 to 127 in 2008. The Group had 105 employees at year-end. Logipard AB, which was sold in December 2008 had 15 employees.

REMARKS ON THE INCOME STATEMENT Net sales for the year increased by 26 per cent, from MSEK 145 to MSEK 182. Other income in 2008 amounted to MSEK 71 and refers to the sale of long term contracts within Imaging Technology and the subsidiary Logipard AB. A major par t of the transaction refers to the sale of shares in Logipard AB, which is exempted from taxation. The sale of contracts will reduce tax losses carried forward, but will not result in any taxation. Other income in 2007 of MSEK 19 refers to the sale of the Anoto US operations to Livescribe.

For ty per cent of the Group’s income is in USD and 49 per cent in EUR. During the year, the Group hedged 50 per cent of its currency net flows in USD and approximately 50 per cent of its currency flows in EUR (refer to the section on risk management).

The Group’s gross profit for the year rose to MSEK 201 (129), while its gross margin was 71 per cent (76).

The major reason for the lower margin can be explained by the increased sale of digital pens and components.

Overhead costs increased by 19 per cent, primarily due to the larger organization as a result of the acquisition of the Hitachi Maxell digital pen division,

an increased level of activity and the impact on currency fluctuations when converting costs of foreign subsidiaries into Swedish currency. The expansion of Logipard AB, sold in December 2008, represents a par t of the increase in overhead costs. The Group capitalises non-customer financed development expenses that meet IAS 38s criteria, a total of MSEK 20 (9) in 2008. The operating result for the year was MSEK 40 (-10).

REMARKS ON THE BALANCE SHEET AND CASH FLOW STATEMENT As the result of increased working capital in inventory of MSEK 31, accounts receivable and the increase of long term receivables on customer to MSEK 29, total assets increased by MSEK 37. The negative cash flow for the year was MSEK -32, reducing liquid assets to MSEK 99. The main reason for the negative cash flow is an increase in working capital and capital expenditures.

Current and long term liabilities increased from MSEK 109 to MSEK 112 . Out of the total liabilities, MSEK 50 represent prepaid royalty, for which Anoto has no obligation to repay or deliver any services.

The Group’s liquid assets, including current investments, decreased from MSEK 131 at the end of 2007 to MSEK 99 at the end of 2008.

Shareholders’ equity of MSEK 488 on 31 December, as opposed to MSEK 453 past year, represented an equity/assets ratio of 81 per cent (81).

Cash flow from operating activities was MSEK 50 (-29).

Due to the rise in sales coupled with the acquisition of the Hitachi Maxell digital pen division, working capital increased by MSEK 9, due to more inventory. Investing activities consumed MSEK 40 (21), of which MSEK 20 (9) was for capitalised development expenses during the year. Financing activities contributed MSEK -42 (2), mainly due to the conversion of certain accounts receivable into long term receivables (22 months maximum). Total cash flow for the year ended up at MSEK -32 (-49).

INVESTMENTS Net investments in 2008 for fixed assets totalled MSEK 36 (15).

RESEARCH AND DEVELOPMENT The Group’s R&D efforts are focused on upgrading and integration of electronic hardware and software for the development of digital pen and paper solutions.

The Group spent MSEK 69 (63), or 47 per cent (45) of its total operating costs, on R&D in 2008. The number

A N OTO A N N UA L R E P O RT 2 0 0 8 | 1 7

included MSEK 5 (8) for amortization of capitalized development expenses. Pursuant to its compliance with IAS 38, the Group capitalized MSEK 20 (9) in new development expenses during the year. Including capitalization, the Group’s total 2008 R&D costs totalled MSEK 84 (64).

Anoto has an extensive patent portfolio. At the end of 2008, the Group had 308 active patent applications and 217 patent approvals.

DISPUTES Anoto is currently not engaged in any disputes that are deemed to significantly affect its financial position.

ENVIRONMENT Anoto does not pursue any activities that require environmental permits. None of its units are environmentally cer tified.

RISK MANAGEMENT As the Group conducts the the main part of its sales internationally, a majority of the contracts are in EUR or USD. As a significant par t of the costs are in SEK and USD, margins and earnings are sensitive to currency fluctuations. The Anoto Group AB parent company handles all trading in financial instruments.

In 2008, approximately 40 per cent of the total income was related to USD and 49 per cent to EUR. Refer to Note 4 for a detailed description of the company’s risk management policies.

BOARD AND ITS RULES OF PROCEDURE The Anoto Group AB Board of Directors consists of seven ordinary members. Refer to page 48 of this annual repor t under the section entitled “Corporate Governance repor t” for a detailed account of the Board’s composition and working methods.

The 2008 Annual General Meeting authorized the Board to decide on one or more directed issues totalling no more than 12,000,000 shares prior to the next Annual General Meeting – as well as to depar t from the preferential rights of shareholders in order to enable the acquisitions of businesses or operations by paying wholly or par tially with shares.

GUIDELINES ON REMUNERATION FOR SENIOR EXECUTIVES Remuneration for the CEO and senior executives in 2008 appears in Note 10, “Salaries and other remuneration”. The Board has proposed to the

1 8 | A N OTO A N N UA L R E P O RT 2 0 0 8

Annual General Meeting that the guidelines on remuneration for senior executives remain unchanged in 2009.

SIGNIFICANT EVENTS AFTER YEAR-END The Livescribe Inc debt to Anoto of MSEK 20, 1 was settled in full in the middle of March 2009. The debt was the remaining payment from an agreement in early 2007 between Livescribe and Anoto, by which Anoto phased out its operation “Content and Applications” to Livescribe Inc. No fur ther significant events have occurred after the year-end.

OUTLOOK The restructuring programme together with the new strategy implemented in 2008 is beginning to pay off.

The uncer tainty in the overall global economy makes it extremely difficult to predict market trends.

Therefore, a market outlook for 2009 has been omitted in this repor t.

PROPOSED APPROPRIATION OF ACCUMULATED DEFICIT Proposed appropriation of accumulated deficit in the parent company (SEK: Accumulated deficit Loss for the year Total

0 –945 119 –945 119

The Board of Directors and CEO propose that the accumulated deficit of SEK -945,119 reduces the statutory reserve by the same amount.

With regard to the financial position of the Group and parent company, refer to the following accounts.

INCOME STATEMENT Group (SEK Thousands) Net sales Other income Cost of goods and services sold Gross profit/loss Selling expenses Administrative expenses Research & development costs Other operating income Other operating costs Operating profit/loss Profit/loss on shares in group companies Share of earnings in associated companies Interest income Interest and similar expenses Profil/loss after financial items Tax on profil/loss for the year Net Profit for the year

2008 182 204 71 387 -52 262 201 329

2007 144 691 19 180 -34 751 129 114

2008 30 044 30 044

2007 26 155 26 155

9,15 9, 10,11,15 9,15 13 14 12

-68 953 -18 620 -77 010 4 703 -1 742 39 707

-53 529 -21 716 -63 073 1 192 -1 653 -9 665

-6 919 -17 048 -4 299 40 1 818

-6 812 -15 135 -4 559 -352

16

-2 431 2 397 -8 371 31 302

-252

-

-3 700

4 782 -1 513 -6 648

1 148 -2 021 945

3 844 -136 -344

-853 30 449

-791 -7 439

945

-344

-2 250 32 699

110 -7 549

945

-344

0.25 0.25 128 583 867

-0.06 -0.06 128 583 867

0.01 0.01 128 583 867

0.00 0.00 128 583 867

128 583 867

128 883 867

128 583 867

128 583 867

17 18

19

Allocation of net profit for the year Profit/loss attributable to minority interests Profit/loss attributable to shareholders of Anoto Group AB Earnings per share (SEK) 1) Earnings per share after dilution (SEK) 2) No of shares, weighted average for the year No of shares, weighted average for the year, including outstanding warrants 3)

Parent company

Note 5 41 12

1)

Profi/Loss for the year attributable to shareholders of Anoto Group AB divided by average number of shares during the year.

2)

Profit/Loss for the year attributalble to shareholders of Anoto Group AB divided by sum of the weighted average number of shares during the year and the weihted average number of outstanding warrants whose exercise price was less than the closing share price for the year. Warrants give rise to a dilutive effect only when their conversion to shares generates poorer earnings per share (IAS 33, Earnings per share).

3)

Only warrants whose exercise price is less than the closing price for the year are included.

A N OTO A N N UA L R E P O RT 2 0 0 8 | 1 9

BALANCE SHEET Group (SEK Thousands) ASSETS Non-current assets Intangible fixed assets Capitalized development expenditures Patents Goodwill Brands Other intangible assets Total intangible fixed assets

Note

2008-12-31

2007-12-31

Parent company 2008-12-31 2007-12-31

20 21 24 22 23

26 580 28 866 302 496 334 5 749 364 025

11 504 28 938 298 674 357 339 473

675 36 711

764 40 804

25

5 279 5 279

4 046 4 046

356 356

366 366

26 27 28 29

1 640 28 959 30 599

4 071 3 371 1 118 8 560

267 194 77 505 344 699

267 194 77 505 344 699

399 903

352 079

345 766

345 869

37 329

5 960

-

-

32 564 16 777 15 527 64 868

24 062 9 534 41 598 75 194

63 116 040 1 118 2 091 119 312

40 928 1 587 2 038 44 553

Current investments Short-term securities

36 185

74 229

-

64 335

Cash and bank balances

63 159

57 072

897

3 561

Total current assets

201 541

212 455

120 209

112 449

TOTAL ASSETS

601 444

564 534

465 975

458 318

Property, plant and equipment Equipment and tools Total property, plant and equipment Financial fixed assets Shares in group companies Shares in associated companies Other long-term securities Other long-term recievables Receivables - group companies Total financial fixed assets Total non-current assets Current assets Inventory Finished goods and goods for sale Current receivables Accounts receivable Receivables from subsidiaries Other recievables Prepaid expenses and accrued income Total current receivables

2 0 | A N OTO A N N UA L R E P O RT 2 0 0 8

30

31

Group (SEK Thousands)

Note

LIABILITIES AND SHAREHOLDERS EQUITY Shareholders equity Share capital Other capital contributed Statutory reserve Share premium reserve Other reserves Accumulated loss including loss for the year Profit/loss for the year Equity attributible to the shareholders of Anoto Group AB Equity attributible to minority interests Long-term liabilities/Provisions Provisions for taxes Other provisions Other liabilities Total long-term liabilities/Provisions

34

2008-12-31

2007-12-31

Parent company 2008-12-31 2007-12-31

2 572 448 508 -152 37 546 -

2 572 448 508 -3 063 4 792 -

2 572 419 610 28 555 945

2 572 419 953 28 555 -343

488 474

452 809

451 682

450 737

-160

2 069

0

0

41 891 41 891

54 50 089 50 143

0

0

800 12 034 813 12 400 23 979 21 213 71 239

1 573 9 835 835 21 665 8 643 16 962 59 513

983 7 318 5 992 14 293

1 377 1 655 4 549 7 581

601 444

564 534

465 975

458 318

8 542 4 721

6 196 7 025

Current liabilities Provisions restructuring Provisions for product warranties Accounts payable Liabilities to subsidiaries Tax liabilities Advance payments from customers Other liabilities Accrued expenses and prepaid income Total current liabilities

32 33

35

TOTAL LIABILITIES AND SHAREHOLDERS EQUITY Pledged assets Contingent liabilities

38 39

-

-

A N OTO A N N UA L R E P O RT 2 0 0 8 | 2 1

CHANGES IN SHAREHOLDERS EQUITY

(SEK Thousands)

Share capital

GROUP EQUITY Shareholders equity January 1, 2007

Other capital contributed 2)

Reserves 1)

Shareholders equity contributable to Profit for the shareholders of the year Anoto Group AB

Total Minority shareholders interest equity kapital

2 572

560 655

-1 418

-103 572

458 237

1 959

460 196

Translation differences for the year 1) Reduction of share premium reserve Total changes in shareholders equity reported directly against equity, excluding transactions with shareholders

-

-112 147

-1 645 -

112 147

-1 645 0

-

-1 645 0

0

-112 147

-1 645

112 147

-1 645

0

-1 645

Profit for the year

-

-

-

-7 549

-7 549

110

-7 439

2 572

-112 147 448 508

-1 645 -3 063

104 598 3 765 4 791

-9 194 3 765 452 808

110 2 069

-9 084 3 765 454 877

Total changes in shareholders equity excluding transactions with shareholders Adjustment costs for options Shareholders equity December 31, 2007 Translation differences for the year 1) Total changes in shareholders equity reported directly against equity, excluding transactions with shareholders

-

-

2 911

-

2 911

21

2 932

0

0

2 911

0

2 911

21

2 932

Profit for the year

-

-

-

32 699

32 699

-2 250

30 449

2 572

448 508

2 911 -152

32 699 56 37 546

35 610 56 488 474

-2 229 -160

33 381 56 488 314

Total changes in shareholders equity excluding transactions with shareholders Adjustment costs for options Shareholders equity December 31, 2008 1)

From translation of Financial reporting from foreign subsidiaries.

Accumulated exchange rate difference at beginning of the year Exchange rated differences for the year Accumulated exchange rate differences at year end

2)

2008

2007

-3 063

-1 418

2 911

-1 645

-152

-3 063

Includes parent company statutory reserve and premium reserve from share issues.

For changes in these items references are made to Changes in parent company equity below.

2 2 | A N OTO A N N UA L R E P O RT 2 0 0 8

(SEK Thousands)

Share capital

Statutory reserve

Share premium reserve

Profit

Total equity

PARENT COMPANY’S EQUITY Adjustment costs for options

2 572

532 100

28 555

-112 147

451 080

Appropriation of previous year´s loss Loss for the year Shareholders equity December 31, 2007

2 572

-112 147 419 953

28 555

112 147 -343 -343

-343 450 737

Appropriation of previous year´s loss Profit for the year Shareholders equity December 31, 2008

-

-343

-

2 572

419 610

28 555

343 945 945

945 451 682

No. of shares 128 583 867 128 583 867

Par value/ share SEK 0.02 SEK 0.02

No. of shares 128 583 867 128 583 867

Par value/ share SEK 0.02 SEK 0.02

The change in number of shares and their par value, see below.

All shares are fully paid and entitles the holder to an equal per centage of dividend.

Increase in no. of shares Registered opening balance January 1, 2007 Registered closing balance December 31, 2007 Increase in no. of shares Registered opening balance January 1, 2008 Registered closing balance December 31, 2008

A N OTO A N N UA L R E P O RT 2 0 0 8 | 2 3

CASH FLOW ANALYSIS Group (SEK Thousands) OPERATING ACTIVITIES Profit after financial items Change in provisions Depreciation and amortization on assets Disposal of assets Cost for options Share of earings in associated companies Profit on shares in subsidiaries Sale of business Interest income Interest costs Tax paid Cash flow from operating activities before change in working capital

Note

15, 20-25 20-25

16 41 17 18 19

Cash flow from change in working capital Change in operating receivables Change in inventory Change in operating liabilities Total change in working capital Cash flow from operating activities Capital expenditure Capitalized development expenditures Patents Brands Goodwill Other intangible assets Equipment & tools Shares in group companies 1) Shares in associated companies Cash flow from net capital expenditures Total cash flow before financing activities Financing activities Interest income Interest expenses Change in long term liabilities Change in long term receivables Translation differences Cash flow from financing activities Cash flow for the year Liquid assets at beginning of the year Liquid assets at end of the year

1)

Unconditional shareholders contribution to Anoto AB.

2 4 | A N OTO A N N UA L R E P O RT 2 0 0 8

20 21 22 23 25 26 27

17 19

2008

2007

Parent company 2008

2007

31 302 -907 15 170 6 313 56 2 584 -2 397 8 371 -853

-6 647 -4 330 15 912 4 703 3 766 252 -4 782 1 513 -791

945 235 -1 148 2 021 -6

-344 224 3 700 -3 844 136 -

59 639

9 596

2 047

-128

10 326 -31 369 11 726

-31 910 -4 024 -3 081

-74 759 6 712

-40 938 -34 205

-9 317 50 322

-39 015 -29 419

-68 047 -66 000

-75 143 -75 271

-20 134 -5 747 -7 -3 822 -6 439 -4 108 -40 257 10 065

-9 366 -5 163 -58 -2 365 -3 856 -20 808 -50 227

-25 -105 -130 -66 130

-86 -23 -302 -3 700 -4 111 -79 382

2 397 -8 371 -8 198 -27 841 -9 -42 022 -31 957

4 782 -1 513 -6 -1 576 1 687 -48 540

1 148 -2 021 -873 -67 003

3 844 -136 3 708 -75 674

131 301 99 344

179 841 131 301

67 896 893

143 570 67 896

NOTES

(SEK thousand unless otherwise indicated)

Note 1 | General accounting policies The consolidated accounts of Anoto Group AB (Anoto) have been prepared in compliance with the Swedish Annual Accounts Act, International Financial Accounting Standards (IFRS), interpretations from International Financial Reporting Committee (IFRIC) as accepted by EU and the Swedish Financial Reporting Board recommendation RFR 1.1 ”complementary accounting standards for group accounting. The parent company’s annual accounts have been prepared in compliance with the Swedish Annual Accounts Act (ÅRL) and the Swedish Financial Reporting Board recommendation RFR 2.1, Accounting for

Legal Entities. The consolidated and annual accounts, which are specified in thousands of Swedish kronor, refer to1 January - 31 December for income statement items and 31 December for balance sheet items.

The annual report and consolidated accounts have been approved for distribution by the Board on 31 March 2009. The Group income statement and balance sheet will be subject to approval by the Annual General Meeting on 14 May 2009.

Note 2 | Anoto’s accounting policies THE GROUP Other than the revaluation of certain financial instruments, the consolidated accounts are based on historical cost. The accounting policies applied by the Group are described below.

Consolidated accounts The consolidated accounts cover Anoto Group AB (publ), the parent company, and the companies in which direct or indirect holdings at year-end represented more than 50 per cent of the votes, i.e., the parent company had a controlling interest. The consolidated accounts have been prepared in accordance with the purchase method. The historical cost is the sum of the fair values of assets paid, accrued or overtaken liabilities, as well as for the equity instruments that Anoto has issued in exchange for the controlling interest in the acquired unit, along with all costs directly attributable to the acquisition.

The historical cost is allocated among the unit’s identifiable assets, contingent and other liabilities that meet the criteria for accounting in accordance with IFRS 3, Business Combinations, reported at fair value. If the historical cost exceeds net acquired assets and liabilities in accordance with the above, the difference is reported as goodwill.

Deferred tax is calculated as 28 per cent of the difference between the fair values of assets and liabilities reported and tax residual values insofar as the

Country

Currency

United States Japan

USD JPY (100)

difference is not part of untaxed reserves. Group equity includes the Group’s par ticipation in shareholders’ equity earned by group companies after acquisition, as well as minority shareholdings in the equity of group companies.

All intra-Group transactions are eliminated in the consolidated accounts.

Intra Group transactions include internal sales, profits and balances, as well as shareholders’ contributions to group companies and impairment losses on participations in group companies.

A functional currency is assigned to each foreign subsidiary.

The foreign subsidiaries that have a different functional currency than Anoto’s functional currency (the Swedish krona) are recalculated at the exchange rate on the balance sheet date for all balance sheet items and at the average exchange rate for all income statement items.

The translation differences that arise stem from the difference between the average exchange rates in the income statement and the exchange rates on the balance sheet date, as well as the translation of net assets at a different exchange rate as of year-end than as of the beginning of the year. Translation differences are not reported in the income statement, but as a provision within shareholders’ equity.

Exchange rates At recalculation of foreign subsidiaries uses these exchange rates.

Average exchange rate 2008 2007 6,5808 6,4023

Associated companies Associated companies are those in which the Group controls 20-50 per cent of the votes or otherwise exerts significant influence over operating and financial management. Associated companies are reported based on equity accounting.

In accordance with equity accounting, investments in associated companies are reported in the balance sheet at historical cost, adjusted for changes in the Group’s participation in the associated company’s net assets. The Group’s share of the associated company’s profit/loss is reported in the consolidated income statement. The Group’s share of the associated company’s profit/loss after financial income/expense is included in theprofit/loss on participations in associated companies item, whereas the Group’s share of the associated company’s tax expense is included in the tax on profit/lossfor the year item.

Revenue recognition Revenue is received from product sales, licenses, royalties and development projects. Revenue from product sales is recognised when essentially all risks and

6,7607 5,7437

On balance sheet date 2008 2007 7,7525 8,6000

6,4675 5,7200

rights associated with ownership have been transferred to the purchaser, normally at the time of delivery.

Revenue from non fixed-term licenses is directly reported as of the invoice date.

For instance, license revenue may involve a certain degree of exclusivity or contributions for, or access to, a platform.

Royalties are reported during the same month as the partner makes the actual sale.cost.

Revenue attributable to development projects, Non Refundable Engineering (NRE), is recognised in the same period as the service is rendered. The extent to which each development project has been completed is normally based on a quarterly analysis. The project’s estimates are updated with the costs until the current date in order to determine the per centage of the total estimated costs that have accrued. An anticipated loss on a project is reported immediately as a cost.

A N OTO A N N UA L R E P O RT 2 0 0 8 | 2 5

Goodwill Goodwill, which is reported in connection with the acquisition of subsidiaries in accordance with the above, is initially reported as an asset at historical cost.

Goodwill is not amor tized but subject to an impairment test annually or whenever needed by calculating the recoverable amount of the corresponding cash-generating unit. The recoverable amount is defined as the asset’s net realisable value or value in use, whichever is higher. The impairment test allocates goodwill among the cash-generating units that are expected to benefit from acquisition synergies. An impairment loss is recognized if the the value of the unit reported by the Group exceeds the recoverable amount. The impairment loss is charged to earnings for the year.

Intangible fixed assets The Group complies with IAS 38, Intangible Assets. In accordance with IAS 38, expenditures for the development of new products are reported as assets only if the assets are highly likely to generate future financial gains for the company.

Product development must have reached the commercialization stage before the expenditures are reported as assets. All expenditures are carried as expenses on a current basis up until that point. Amortization schedules begin as of the market launch of each product. The amortization schedule is based on the product’s useful life of 3-5 years.

External expenditures for patents and brands are capitalized in the balance sheet with ten-year amortisation schedules.

Property, plant and equipment Property, plant and equipment consisting of equipment, computer equipment and computer programs is reported at accumulated depreciation according to plan and any impairment losses.

Depreciation and amortization according to plan Depreciation and amortization according to plan are based on the historical costs and estimated economic useful lives of the assets in view of the following depreciation and amortization periods: - Patents - Capitalized development expenditures - Equipment - Computer equipment and programs - Capital expenditure on rented assets

10 years 3-5 years 5 years 3 years 1) 2-5 years 2)

1)

Capitalized computer programs refer to CAD programs that are essential to the ongoing product development effort.

2)

Depreciations varies between 2 -5 years depending on lease terms.

Impairment losses If there is an indication that a Group asset has decreased in value, its recoverable amount is determined. The recoverable amount is defined as the asset’s net realizable value or value in use, whichever is higher. When determining the value in use, the present value of the future cash flows that the asset is expected to give rise to during its useful life is estimated. An impairment loss is recognized if the Group’s reported value exceeds the recoverable amount, and the impairment loss is charged to earnings for the year.

Leases Lease contracts are classified as either financial or operational leases. In a financial lease, the financial risks and benefits related to ownership are essentially transferred to the lessee. If that is not the case, it is an operational lease. The Anoto Group has no significant financial lease contracts. Cost for operational leases are distributed evenly over the lease period.

Receivables and liabilities in foreign currencies Receivables and liabilities in foreign currencies are reported at the exchange rate on the balance sheet date, and unrealised exchange gains and losses are included in earnings. Exchange gains/losses on operating receivables and liabilities are reported as other operating income/expenses. Exchange rate differences on financial receivables and liabilities are reported as financial items.

2 6 | A N OTO A N N UA L R E P O RT 2 0 0 8

Financial instruments The Group’s financial instruments consist mostly of accounts receivable, liquid assets, accounts payable and financial derivative instruments in the form of currency forward contracts.

Liquid assets Liquid assets consist of cash and bank balances, as well as current investments.

A current investment is classified as a liquid asset if it can easily be converted to cash at a known amount and it is exposed to only a negligible risk of value fluctuations.

Long-term receivables and accounts receivable Long-term receivables and accounts receivable are montary asstes which are not derivatives, that have defined payment plans or identifyable payments and which are not listed on an active market place. These assets are valued at historical cost. Accounts receivable are reported net after deduction of doubtful accounts receivable.

Accounts payable Accounts payable are reported at the amount the company plans to pay the supplier in order to liquidate the debt.

Currency forward contracts and hedge accounting The Group uses currency forward contracts to hedge the net flow of foreign currencies up to 12 months. The size of each contract is based on rolling liquidity forecasts for following periods. The Group continually orders contracts in line with recieved payments in foreign currenzies. The primary purpose of hedging is to shield the Group from major changes in cross rates. Hedging does not meet the criteria of IAS 39, Financial Instruments: Disclosure and Presentation, for hedge accounting. Thus, changes in the value of all currency forward contracts are reported in the income statement as financial income/expense.

Inventory Inventory, consisting of finished products and critical components, is reported at historical cost (in accordance with FIFO) or net realizable value, whichever is lower.

Pensions and compensations to employees All pension commitments have been taken over by insurance companies and classified as defined contribution pension plans. Pension premiums are carried as expenses in the period that employees rendered the associated services.

As part of incentive programmes, the Group has issued stock options and warrants to employees. The fair value of employee stock options on the distribution date are reported as a cost in the income statement. The fair value is calculated in accordance with the Black-Scholes Model. The total costs are allocated during the period in which the options are earned. The cost is reported under administrative expenses.

Taxes All tax deemed payable on repor ted earnings is repor ted in the income statement. The tax has been calculated in accordance with each country’s tax regulations and included in the tax on profit/loss for the year item.

The Group’s total tax in the income statement consists of current tax on taxable earnings for the period and deferred tax. The Group’s tax consists primarily of current tax on taxable earnings of foreign subsidiaries for the period.

The Group uses the balance sheet method to calculate deferred tax assets and liabilities. In accordance with the balance sheet method, the calculation is based on tax rates as of the balance sheet date as applied to temporary differences between the reported and tax value of an asset or liability, as well as tax loss carry-forwards. Deferred tax assets are reported in the balance sheet only in amounts that can presumably be utilized within the foreseeable future.

Reporting cash flow The cash flow statements are prepared in accordance with the indirect method, i.e., profit/loss after financial items is adjusted for transactions that have not given rise to payments or disbursements during the period, as well as for any income and expenses attributable to the cash flow of investing activities.

Provisions A provision is repor ted when there is a commitment as the result of an event, it is probable that an outflow of resources will be required to settle the commitment and an amount can be reliably estimated. The following provisions are repor ted in the balance sheet: restructuring, product warranties, taxes and other.

Contingent liabilities Contingent liabilities are reported if there is a possible commitment that is confirmed only by multiple uncertain future events and it is unlikely that an outflow of resources will be required or that the size of the commitment will not be calculable with sufficient precision.

Disclosures about related parties For disclosures about the company’s transactions with related parties, refer to Note 10 ”Remuneration for senior executives” and Note 42 ”Related party transactions. There were no other transactions with related parties.

Segment reporting Anoto have no primary or secondary segments. The actual performance of the activities are measured on the Group as a whole.

Changed Accounting principles Changes in accounting principles in accordance with IFRIC 11 ( IFRS - Trading in its own shares), IFRIC 12 ( Service Concession Agreements), IFRIC 14 ( IAS The limit of an Defined Benefit Asset) have had no impact on the financial reporting of the Group during 2008.

New IFRS and interpretaions valid from 2009 ( not yet in force) Changes in IFRS 2( Sharerelated compensations), IFRS 3 (Business acqusitions), IAS 32 ( Finance instuments), IFRIC 13 ( customer loyalty schemes), IFRIC (Divestments of real estate), IFRIC 16 (heging of investments in foreign business), IFRIC 17 ( payment of assets as dividend to its shareholders) are deemed to have no impact on the financial reporting of the Group during 2009.

Changes in IAS 1 (Layout of the structure of the financial reporting) is deemed to have impact on financial reports of the Group from 2009.

PARENT COMPANY For details of the parent company’s accounting policies, refer to the Group’s accounting policies above. The section below is limited to the parent company’s deviations from the Group’s policies.

Leases In accordance with RR 32, the parent company’s financial lease contracts are reported as operational lease contracts.

Financial instruments The parent company does not apply the presentation rules of IAS 39. The parent company reports financial fixed assets at historical cost less any impairment losses and financial current assets at the lower of cost or net realizable value.

Holdings in subsidiaries and associated companies Holdings in group and associated companies are reported at historical cost. If the reported value of the investment exceeds the recoverable amount (refer to section above on impairment losses), an impairment loss is recognised.

Shareholders’ contributions Shareholders’ contributions are reported as an increase in the participations in group companies item, after which an impairment test is performed on the value of the shares.

A N OTO A N N UA L R E P O RT 2 0 0 8 | 2 7

Note 3 | Assessments when applying the Group’s accounting policies and the main sources of uncertain estimates

Critical assessments when applying the company’s accounting policies When applying the Group’s accounting policies (as described in Note 3), management has made the following assessments that have the most significant impact on the amounts that appear in the financial reports.

Key sources of uncertainty in the estimates The information below concerns key assumptions about the future and other key sources of uncertainty in the estimates on the balance sheet date that entail significant risk of substantial adjustments to reported assets/liabilities for the next financial year.

Impairment tests for goodwill When testing for impairment losses, the value in use is calculated for the cashgenerating unit to which goodwill has been allocated. The value in use is based on the estimated future cash flows that the cash-generating unit is expected to give rise to. The reported value for goodwill is 302 MSEK as of the balance sheet date. For additional information about impairment losses, refer to Note 24.

Impairment tests for capitalized development expenditures When testing for impairment losses, the remaining value in use is calculated for the cash generating of the technology or the products for which capitalized development expenditures has been allocated. The value in use is based on the estimated future cash flow that the relevant technology expects to give rise to.

Note 4 | Risk management by the Group The Anoto Board of Directors has adopted a financial policy for: – Simplifying and harmonising the Group’s financial activities – Defining rules for the financial risks that are accepted by the Board – Adopting guidelines for the Group to operate independently – Delegating management of financial risks to the CFO The areas of the financial policy that most affect Anoto’s management of risks are liquidity and currency.

Liquidity policy In accordance with the Finance policy of the Group the cash need of the Group is continuously updated.These cash flow analyses gives information about cash planning, deposits, interest periods etc. In accordance with the liquidity policy, available cash shall consist of cash and negotiable securities with an official credit rating equivalent to Moodys P1.

Currency exposure and currency policy Transaction exposure Transaction exposure arises when income and expenses are in different currencies.

Anoto has large exposure to the USD, EURO and JPY because most of its invoicing is in those currencies. In accordance with its 2008 currency policy, Anoto invested U.S. dollars in currency accounts equivalent to the expected net flow in U.S. dollars over the next 12 months. Expected net flows in EURO for following 6 months period are hedged by means of forward contracts.

Net flows by currency 2008 120 80 40 0 -40 -80 -120

Sensitivity analysis The impact on profit/loss before tax of a 5% change in exchange rates is: USD/SEK ’+/- 0.8 million EUR/SEK ’+/- 1.4 million JPY/SEK ’+/- 1,6 million

2 8 | A N OTO A N N UA L R E P O RT 2 0 0 8

Other risk areas Other areas covered by the financial policy are: – interest rate risks Anoto has no external borrowing, as the result of which there are no interest rate risks – financing risks – guarantees and contingent liabilities Other risk management Credit risk The management of credit risks can be broken down into commercial risks and financial risks. The provisions set aside for bad debt losses as of the balance sheet date have not identified any commercial credit risks. The financial credit risk is managed as part of the Group’s finance policy refer to liquidity policy above.

Insurance risk The Group’s insurance coverage is reviewed annually with respect to traditional business insurance policies for property, liability, travel, etc. Anoto’s insurance policy for patent disputes expired in 2005 and has not beenrenewable on reasonable terms. However, claims filed before the policy expired are still covered. The company plans to take out an insurance policy for patent disputes as soon as it can do so on reasonable commercial terms.

Patent risks, etc.

Anoto continually expands its patent portfolio by applying for patents on innovations linked to Anoto technology in order to supplement previous patent applications and patents granted. Anoto cannot guarantee that all patent applications will be approved or that our intellectual property rights will not be called into question, declared null and void or circumvented. Third parties have claimed, and may do so in the future as well, that Anoto infringes their intellectual property rights. Defending Anoto against such assertions can be costly in terms of time, money and other resources. Legal disputes can compel Anoto to pay damages or other compensation, modify its products and technology or enter into license agreements. Anoto cannot guarantee that such licenses will be available at all or on reasonable terms.

Liquidity risk Anotos liquid assets, as cash and bank deposits, amounted at the end of 2008 to MSEK 99. The Group has neither any interest bearing Liabilities nor pledged Accounts Receivables, Inventory or Fixed assets. The Board of Anoto foresee that the operations during 2009 can be financed by existing liquid assets without any borrowings from banks or other credit institutes. The unstable credit market and the limited availability of funds is deemed to have no impact on Anoto. We have no opnion which impact this limitation will have for Anotos customers.

Note 5 | Net sales Group sales per application area and market in 2008:

Group 2008 77 507 39 537 40 123 7 642 5 260 12 135 182 204

Sweden Rest of EU USA Japan Rest of Asia Rest of the world Total

2007 38 435 26 230 15 453 52 881 7 241 4 451 144 691

Group sales per application area and market in 2007:

Group 2008 43 982 19 216 28 871 27 495 57 099 5 541 182 204

Royalty NRE 1) Licenses Components Pen sales Other Total 1)

2007 20 016 37 938 45 843 15 756 18 328 6 810 144 691

Revenues from software/hardware development of customers products.

Parent company sales to subsidiaries totals 30.044 (26.234) as compensation for intra-Group services.

These revenues have been eliminated in the consolidated accounts and is thereby not included in the totals above.

Note 6 | Average number of employees

Parent company 1) Rest of Sweden USA Japan Total 1)

No. of employees 11 101 7 8 127

2008 Of which men 5 79 4 5 93

No. of employees 10 83 4 6 103

2007

2008 Of which men 6 5 11

No. of employees 7 6 13

Of which men 6 5 11

Total absence

2007 Of which more than 60 days

*)

*)

2.79 %

36.07 %

Of which men 5 70 3 4 82

All employees of the parent company are employeed in Sweden.

Note 7 | Board of Directors and management split, by gender

Board of Directors 1) Management Total 2)

No. of employees 7 6 13

1)

Parent company.

2)

Including boardmembers of the parent company and management in group companies.

2007

Note 8 | Sickness absence, Swedish companies

AGE CATEGORY Under 30 30 - 50 Above 50 Women Men Total *

Total absence 1.13 % 2.66 %

2008 Of which more than 60 days 0.00 % 34.08 %

*)

*)

*)

*)

6.43 % 1.12 % 2.37 %

47.58 % 0.00 % 30.39 %

5.21 % 1.81 % 2.50 %

78.44 % 0.00 % 33.18 %

Not reported due to an exemption in the legislation to which disclosures may not be made if the number of employees in a group is less than 10 or if the information is attributable to a single individual. Group refers to both gender and age category.

A N OTO A N N UA L R E P O RT 2 0 0 8 | 2 9

Note 9 | Salaries and renumerations Group

Parent company 2008

2008

2007

4 355 5 899 61 851 72 105

5 230 6 676 48 482 60 388

4 355 2 767 5 388 12 510

5 230 2 846 3 676 11 752

1 412 1 912 17 309 20 633

1 394 2 164 13 650 17 208

1 412 897 1 747 4 056

1 394 923 1 238 3 555

913 1 530 10 894 13 337

686 1 463 8 439 10 588

913 636 183 1 732

686 628 432 1 746

Total salaries and renumerations

106 075

88 184

18 298

17 053

Sweden Japan United States Total

94 639 5 765 5 671 106 075

80 406 4 015 3 763 88 184

18 298 18 298

17 053 17 053

14 109 12 346 61 729 88 184

4 483 11 034 2 781 18 298

4 775 9 720 2 558 17 053

SALARIES Board of Directors and CEO Other senior executives 1) Other employees

PAYROLL OVERHEAD Board of Directors and CEO Other senior executives 1) Other employees

PENSION EXPENSES Board of Directors and CEO Other senior executives 1) Other employees

Salaries and other remunerations are included in the balance sheet’s headlines as follows Selling expenses 44 445 Administrative expenses 11 986 Development expenses 49 643 Total 106 075 1)

2007

The Group has 6 (6) and the parent company has 4 (4) senior executives.

The CEO is subject to a mutual period of notice of six months. He retains his salary and benefits during the period of notice. If the CEO’s employment is terminated by the company in a manner that lacks an objective basis pursuant to Section 7 of the Security of Employment Act (1982:80), he is entitled to severance pay equivalent to 12 times the monthly salary in effect on the termination date.

The period of notice for other senior executives varies from six to nine months if the company terminates their employment.

No agreements have been entered into for pension commitments or the equivalent for either Board members or senior executives above and beyond that which is covered by notes. Apart from a salary during the period of notice, no senior executive other than the CEO receives financial compensation. The CEO’s and senior management employment contracts includes a bonus based on terms adopted by the Board of Directors and limited to no more than 50 % of his fixed monthly salary.

The retirement age for the CEO and other senior executives is 65. The pension premium is 35 % of the pensionable salary for the CEO and 15-19 % for other senior executives.

Guidelines for compensation to the Executives of the Company (Annual General meeting 2008) The compensation level and structure shall be at market level. The total compensation shall be a balanced mix of fixed salaries, variable compensation, retirement and health plans, any other benefits and terms for dismissal and severance payments. The compensation may also comprise stock related long term incentive programs.

The variable compensation varies for the respective executive and shall primarily be related to Anoto´s result and operative goals and may at the most be 50 % of the fixed salary. However, the variable compensation for the CEO may be at most 75 % of the fixed salary.

The retirement plan shall be competitive. The CEO shall have a pension premium based retirement plan of 35 % of the fixed salary.

The other executives shall have pension premium based retirement plans corresponding to the (Swedish) ITP plan.

Other benefits, like health plans and company cars, shall be competitive.

Executives shall have a mutual notice period of six months. Under certain conditions, some Executives may have an additional three months notice period in case Anoto gives notice. The CEO shall have a mutual notice period of six months and a severance payment of twelve months salary in case Anoto terminates the employment without juste cause.

3 0 | A N OTO A N N UA L R E P O RT 2 0 0 8

Note 10 | Remunerations to Board of Directors and CEO BOARD OF DIRECTORS AND CEO, 2008 Anders Norling Christer Fåhraeus Märtha Josefsson Stein Revelsby Håkan Ericsson Bernard Gander Yoshioka Hiroshi Hans Otterling Total 1) 1)

Bonus 0

Pension premiums 913 913

Other remunerations 0

Total 3 768 175 175 175 175 175 175 450 5 268

Options awarded for the year -

Value of options -

Bonus 756 756

Pension premiums 560 560

Other remunerations 0

Total 4 290 175 175 175 175 175 175 450 5 790

Options awarded for the year -

Value of options -

Total compensation may originate from different group companies.

BOARD OF DIRECTORS AND CEO, 2007 Anders Norling Christer Fåhraeus Märtha Josefsson Lars Jarnryd Stein Revelsby Håkan Ericsson Bernard Gander Hans Otterling Total 1) 1)

Salaries/Remunerations 2 855 175 175 175 175 175 175 450 4 355

Salaries/Remunerations 2974 175 175 175 175 175 175 450 4 474

Total compensation may originate from different group companies.

MANAGEMENT 2008 Group Management Total

Salaries/Remunerations 5 899 5 899

Bonus -

Pension premiums 1 530 1 530

Other remunerations -

Total 7 429 7 429

Options awarded for the year -

Value of options -

Management 2007 Group Management Total

Salaries/Remunerations 5 816 5 816

Bonus 1 018 1 018

Pension premiums 1 463 1 463

Other remunerations -

Total 8 297 8 297

Options awarded for the year 200 000 -

Value of options 204 -

A N OTO A N N UA L R E P O RT 2 0 0 8 | 3 1

Note 11 | Audit fees Audit fees are charged to earnings for the year as follows; Group

Parent company 2008

2008

2007

Auditing Deloitte AB KPMG AB

2007

350

375 -

350

140 -

Other assignments Total

252 602

161 536

252 602

34 174

An auditing assignment involves examining the annual accounts and accounting records, as well as the management of the company by the Board of Directors and CEO, other tasks that the company’s auditor is obligated to perform, and advisory services and other assistance occasioned by observations made during said examination or performance of said tasks. Other assignments refer to everything else.

Note 12 | Operating costs by type Group Raw materials and supplies Change in inventories Personnel cost Depreciation Other external costs Other operating costs Total

2008 -20 893 -31 369 -106 075 -15 170 -43 338 -1 742 -218 587

2007 -38 781 4 024 -88 184 -15 912 -34 943 -1 653 -175 449

Parent company 2008 -

2007 -

2007 128 686 338 41 1 193

Parent company 2008 40 40

2007 -

2007 -1 011 -642 -1 653

Parent company 2008 -

2007 -

Note 13 | Other operating income Group Exchange gains EU contribution Profit/loss on sale of fixed assets Other Total

2008 3 625 357 721 4 703

Note 14 | Other operating expense Group Exchange losses Other Total

2008 -1 742 -1 742

Note 15 | Depreciation and amortization Depreciation of property, plant and equipment, and amortization of intangible fixed assets, are included in the individual items of the income statement as follows: Group Parent company 2008 2007 2008 2007 Selling expenses Administrative expenses -4 975 -3 755 Development expenses -411 -308 -235 -222 Total -9 784 -11 849 Total -15 170 -15 912 -235 -222

3 2 | A N OTO A N N UA L R E P O RT 2 0 0 8

Note 16 | Profit /loss on participations in group companies Group Impairment loss on shares in Anoto AB 1) Impairment loss on shares in Anoto Communications KK 1) Impairment loss on shares in Anoto Hong Kong Ltd 1) Total

2008 0

2007 -122 -130 -252

1)

Unconditional shareholders contribution to the subsidiary Anoto AB. The shareholders contribution was made to cover the subsidiary’s loss for the year and restore its equity to the levelof share capital.

2)

The impairment loss at an amount corresponding the groups share in the equity.

3)

The impairment loss in connection with winding-down of Anoto Hong Kong Ltd.

Parent company 2008 2007 -3 700 0 -3 700

Note 17 | Interest income Group Interest on current investments Interest on bank deposits Total

2008 1 079 1 318 2 397

2007 3 707 1 075 4 782

Parent company 2008 2007 1 017 3 564 131 280 1 148 3 844

Note 18 | Interest and similar expense Group Loss on currency forward contracts Other Total

2008 -5 398 -2 973 -8 371

2007 -150 -1 363 -1 513

Parent company 2008 -1 979 -42 -2 021

2007 -136 -136

A N OTO A N N UA L R E P O RT 2 0 0 8 | 3 3

Note 19 | Taxes Group Current tax 1) Total 1)

2007 -791 -791

Parent company 2008 -

2007 -

2008 31 302 -8 764

2007 -6 648 1 861

Parent company 2008 945 -265

2007 -344 96

-1 559 -347 -932 12 992 -1 737

-2 915 -275 26 -67 347

-220 8 -

-1036 -205 6 -

-506 -853

232 -791

477 0

1 139 0

2008 -853 -853

Primary foreign subsidiaries.

Correlation between tax expense for the year and reported profit/loss before tax: Group Reported profit/loss before tax Tax in accordance with current tax rate of 28 % Tax impact of non-deductible expenses Intra-group adjustments that disregard deferred tax Impairment loss on shares in subsidiaries Other non-deductible expenses Other adjustments Tax impact of non-taxable income Adjustment for tax rates in foreign group companies Increase/decrease of tax deficits without corresponding capitalization Tax reported

Tax deficit Group Opening balance Tax deficit of the year Adjustment due to changed taxation Closung tax deficit Nominal amount, tax asset

2008 -446 564 -2 532 -449 096 125 747

2007 -448 780 1 809 407 -446 564 125 038

There are no temporary differences.

The nominal value of tax assets (28 %) in accordance with the above have been reported at 0 in the balance sheet.

Due to the fact that the group still reports a loss, the nominal value of tax assets is not reported in the balance sheet.

Tax deficits above refers to the Swedish companies, and are not limited in time.

Further tax deficits in Anoto Maxell, Japan accounts to approx MSEK 7.

3 4 | A N OTO A N N UA L R E P O RT 2 0 0 8

Parent company 2008 2007 -30 085 -34 561 1 703 4 069 -322 407 -28 704 -30 085 8 037 8 424

Note 20 | Capitalized development expenditures Group ACCUMULATED HISTORICAL COSTS Opening accumulated historical costs Acquisitions for the year Disposals for the year Closing accumulated historical costs ACCUMULATED AMORTIZATIONS ACCORDING TO PLAN Opening accumulated amortizations Amortizations for the year according to plan Disposals for the year Closing amortizations according to plan Closing residual value

Parent company 2008

2008

2007

119 256 20 134

115 893 9 366 -6 003 119 256

24 218 24 218

24 218 24 218

-112 810

-100 927 -8 125 1 300 -107 752

-24 218 -24 218

-24 218 -24 218

26 580

11 504

-

-

139 390

-107 752 -5 058

2007

Note 21 | Patents Group ACCUMULATED HISTORICAL COSTS Opening accumulated historical costs Acquisitions for the year Disposals for the year Closing accumulated historical costs ACCUMULATED AMORTIZATIONS ACCORDING TO PLAN Opening accumulated amortizations Amortizations for the year according to plan Disposals for the year Closing amortizations according to plan Closing residual value

Parent company 2008

2008

2007

2007

67 137 5 901 -154 72 884

61 974 5 163

13 886 25

67 137

13 911

13 800 86 13 886

-38 199 -5 838 19 -44 018

-32 646 -5 553 -38 199

-13 122 -114 -13 236

-13 008 -114 -13 122

28 866

28 938

675

764

Patents are subject to improvment test annually or whenever indicated. Refer to Note 24 Goodwill.

A N OTO A N N UA L R E P O RT 2 0 0 8 | 3 5

Note 22 | Brands Group Accumulated historical costs Opening accumulated historical costs Adjustment of Opening balance Acquisitions for the year Sale of business Closing accumulated historical costs Accumulated amortizations according to plan Opening accumulated amortizations Adjustment of Opening balance Amortizations for the year according to plan Sale of business Closing amortizations according to plan Closing residual value

Parent company 2008

2008

2007

2007

507 30 -23 514

505 -56 58 507

47 47

80 -56 23 47

-150 -34 4 -180

-149 56 -57 -150

-7 -4 -11

-58 56 -5 -7

334

357

36

40

Note 23 | Other intangible assets Group Opening accumulated historical costs Adjustment of Opening balance Acquisitions for the year Closing accumulated historical costs Opening accumulated amortizations Adjustment of Opening balance Amortizations for the year according to plan Closing amortizations according to plan Closing residual value

3 6 | A N OTO A N N UA L R E P O RT 2 0 0 8

Parent company 2008

2008

2007

2007

6 439 6 439

0

0

0

-690 -690

0

0

0

5 749

0

0

0

Note 24 | Goodwill Group 2008

2007

ACCUMULATED HISTORICAL COSTS Opening accumulated historical costs Acquisitions for the year Disposals for the year Closing accumulated historical costs

381 301 3 822 385 123

381 301 381 301

ACCUMULATED AMORTIZATIONS ACCORDING TO PLAN Opening accumulated amortizations Amortizations for the year according to plan Disposals for the year Closing amortizations according to plan

-82 627 -82 627

-82 627 -82 627

Closing residual value

302 496

298 674

Anoto technology and products are sold by all sales companies within the group, i.e. the group has only one branch of business. The focus of management reporting is the level of sales within the different application areas. These application areas are not independent cash generating units and the impairment testing of intangible assets is performed based on cash flow projections from group totals.

Impairment testing of goodwill is performed annually or when an indication of decline in value occurs. The recoverable value for group business is defined based on calculations of value in use.

The value in use for goodwill attributable to Anoto is based on discounted cash flows for 10 years. A period longer than 5 years has been used because the company’s products are at the beginning of a commercial phase. Cash flows for the first year are based on the budget adopted by the Board of Directors. For the subsequent period, the increase in cash flows has been estimated per application area. The annual rate of growth, which has been determined on the basis of informations and forecasts from Partners and own assessments which varies per application area and over time. Price reductions of 0-15 % have been assumed.

The calculation of the value in use for Anoto has used a 15% pre-tax discount rate of interest based on the company’s weighted average cost of capital (WACC).

The assumption that has the greatest impact on the impairment test as growth of the application area Anoto Products. If Forms Solutions were to grow 30 % less than forecast per year during the calculation period, an impairment loss would be recognized.

Note 25 | Equipment and tools Group ACCUMULATED HISTORICAL COSTS Opening accumulated historical costs Acquisitions for the year Sale of business Disposals for the year Translation difference Closing accumulated historical costs ACCUMULATED DEPRECIATIONS ACCORDING TO PLAN Opening accumulated depreciations Depreciations for the year according to plan Sale of business Disposals for the year Translation difference Closing depreciations according to plan Closing residual value

Parent company 2008

2008

2007

2007

15 755 5 459 -1 775 -80 1 012 20 371

13 514 2 365 -124 15 755

940 109 1 049

638 302 940

-11 709 -3 550 119 48 -15 092

-10 002 -1 742 35 -11 709

-574 -119 -693

-470 -104 -574

5 279

4 046

356

366

A N OTO A N N UA L R E P O RT 2 0 0 8 | 3 7

Note 26 | Participation in group companies Parent company 2008 PARENT COMPANY Opening balance Opening shareholders contribution Shareholders contribution for the year 1) Opening accumulated impairment losses Impairment losses for the year 2) Total 1)

Shareholders contribution to Anoto AB.

2)

Writedown of shares in Anoto AB.

Company Anoto AB Anoto Licensiering AB Anoto Administration AB

267 194 464 603 -464 603 267 194

Reg.nr.

556320-2646 556665-4306 556591-2481

Domicile Lund Lund Malmรถ

Total no. of participation 5 000 1 000 1 000

% of capital and votes 89.0 % 1) 89.0 % 1) 100.0 %

2007

267 194 460 903 3 700 -460 903 -3 700 267 194

Shareholders equity 43 238 97 2 302

Carrying amount 267 005 89 100 267 194

The Anoto Group contains sub-groups consisting of the following companies: Anoto, Inc., USA Anoto Maxell Ltd, Japan FAB Licensiering AB, Sweden 1)

The remaining 11 % are held by Anoto Administration.

Note 27 | Participation in associated companies Group GROUP Opening balance Acquisition for the year 1) Share of profits in associated company Reclassification 2) Total 1)

During 2007 has 20 % of the shares in i Anoto Taiwan Corporation been acquired.

2)

Anoto AB has acquired additional 40 % of the shares in Anoto Communications KK. The shareholding has been reclassified to group company.

Company Anoto Taiwan Corporation

3 8 | A N OTO A N N UA L R E P O RT 2 0 0 8

Reg.nr.

28316992

Domicile Taiwan

Total no. of participation 10 000 000

% of capital and votes 20.0 %

2008

2007

4 071 -2 431 1 640

215 4 071 -215 4 071

Shareholders equity 8 200

Carrying amount 1 640

Note 28 | Other long term investments Group GROUP Opening balance 1) Writedown Total 1)

2008

2007

3 371 -3 371 0

3 743 -372 3 371

Shares in Destiny Wireless.

Note 29 | Other long term receviables Group GROUP Opening balance Reclassification 1) Other changes 2) Total 1)

Reclassification of receivable on Livescribe into a long-term interest bearing recievable.

2)

Including 10 % of the purchse price from the sale of Imaging Technology to ARM Ltd.

2008

2007

1 118 19 381 8 460 28 959

1 122 -4 1 118

Note 30 | Ageing accounts receivable 2008 Not due Due 1 - 30 days Due 31 - 60 days Due 61 - 90 days Due more than 90 days Total

Gross 15 463 10 154 1 537 1 893 5 412 34 459

2007 Net 15 463 10 154 1 537 1 893 3 517 32 564

Gross 17 125 1 679 954 2 670 2 455 24 883

Net 17 125 1 679 954 2 670 1 634 24 062

Assessment of the need of provisions of Accounts receivable due more than 90 days, are made on an individual basis.

Note 31 | Prepaid expenses and accrued income Group PARENT COMPANY AND GROUP Prepaid rent Prepaid leasing fees Accrued interest income Accrued income Revaluation currency forward contracts Other Total

2008

2007

1 370 236 12 10 741 3 168 15 527

1 280 160 378 37 038 370 2 372 41 598

Parent company 2008

2007

1 370 152 569 2 091

1 180 3 378 477 2 038

A N OTO A N N UA L R E P O RT 2 0 0 8 | 3 9

Note 32 | Provisons for restructuring Group Provisions for rental charges Opening balance Amounts utilized New provisions Unutilized reversed amounts Provisions for personnel costs Opening balance Amounts utilized New provisions Unutilized reversed amounts Total provisions for restructuring Opening balance Amounts utilized New provisions Unutilized reversed amounts Total

Parent company 2008

2008

2007

2007

-

-

-

-

-

1 476 -1 476 -

-

-

-

1 476 -1 476 0

-

-

Note 33 | Provisions for product warranty commitments Group Opening balance Amounts utilized New provisions Unutilized reversed amounts Total

2008 1 573 -21 748 -1 500 800

2007 1 529 44 1 573

Parent company 2008 -

2007 -

2007 4 151 -4 151 -

Parent company 2008 -

2007 -

2007 4 391 1 557 2 211 2 391 6 412 16 962

Parent company 2008 2007 472 355 239 179 511 338 4 150 1 312 620 2 365 5 992 4 549

Note 34 | Other provisions Group Opening balance Amounts utilized New provisions Unutilized reversed amounts Total

2008 -

Note 35 | Accrued expenses and deferred income Group Holiday pay libility Payroll overhead libility Pension costs overhead liability Accrued salaries and remunerations Revaluation forward exchange contracts Other Total

4 0 | A N OTO A N N UA L R E P O RT 2 0 0 8

2008 3 911 1 342 2 363 5 452 3 892 4 253 21 213

Note 36 | Share-based payments to employees As part of an incentive programme, the parent company and some sudsibiaries have issued various kinds of options since 1998.

The current programmes are as follows:

Optionprogramme Programme 1

No. of options 585 000 585 000

Shares/ options 1

No. of options 585 000 585 000

Issue price SEK 18.00

Subscription Fully excercised period until contributes MSEK 10-03-31 10.5

1)

Employee stock option programme 2007.

1)

The annual meeting , May 15, 2007 decided to issue 500,000 employee stock options and 500,000 warrants. The employee stock options were hedged by issuing of 650,000 warrants, which also included the payroll overhead. At the end of the year 440,000 had been awarded to employees and 145,000 had been awarded to a subsidiary to hedge against payroll overhead.

The options which are tied to employment may be exercised from 1 September to 31 March 2010.

The fair value of each option issued is calculated in accordance with the BlackScholes model.

Full excercise of all programmes would result in total dilution of about 0,5 % as of 31 December 2008.

No programmes were deemed to have a value as of 31 December 2008. The dilution exposure and option program deemed to have no value may have changed until the date on which this annual report was distributed.

Change in outstanding option programmes during the year.

2008

Outstanding options at the begining of the period Awarded during the period Forfeited during the period Redeemed during the period Expired during the period Outstanding at the end of the period Redeemable at the end of the period *)

2007 Weighted issue price 24.41 24.36 18.00

No. of options 3 515 500 -2 930 500 585 000 0

No. of options 7 415 002 585 000 -3 125 242 -1 359 260 3 515 500 0

Weighted issue price 24.41 18 19.6 31.35 23.22

No redemption has taken place during 2007 or 2008.

Note 37 | Significant leasing expenses The amounts associated with equipment at the company´s disposal through leases are negligable.

The Group´s committment for leased premesis totals to TSEK 7 718 for 2009 and TSEK 12 371 for 2010 - 2012.

Note 38 | Pledged assets Group PARENT COMPANY AND GROUP Blocked bank deposits

2008

2007

8 542

6 196

Parent company 2008 -

2007 -

Note 39 | Contingent liabiliites Group PARENT COMPANY AND GROUP Contingent liabilites group companies Contingent liabilites other Total

2008

2007

4 721 4 721

7 025 7 025

Parent company 2008 -

2007 -

A N OTO A N N UA L R E P O RT 2 0 0 8 | 4 1

Note 40 | Financial instruments

Financial assets valued acc to fair value option GROUP 2008 Investments Long term receivables Accounts receivable Other receivables Current investments and securities Liquid assets Assets Other long term liabilities Accounts payable Other liabilities Unsettled loss on forward contracts Liabilities

Other long term liabilities Accounts payable Other liabilities Unsettled loss on forward contracts Liabilities

Total book value

Fair value

1 640 7 640 63 159 72 439

21 319 32 564 53 883

36 185 36 185

16 777 16 777

1 640 28 959 32 564 16 777 36 185 63 159 179 284

1 640 28 959 32 564 16 777 36 185 63 159 179 284

-

-

-

41 891 12 034 20 087 3 892 74 012

41 891 12 034 20 087 3 892 74 012

41 891 12 034 20 087 3 892 74 012

Total book value

Fair value

Financial assets valued acc to fair value option GROUP 2007 Investments Long term receivables Accounts receivable Other receivables Current investments and securities Liquid assets Assets

Financial assets revalued via income statement Loans and Investments accounts held until Other assets receivable maturity & liabilities

Financial assets revalued via income statement Loans and acInvestments counts held until Other assets receivable maturity & liabilities

8 798 57 072 65 870

1 118 23 910 25 028

74 229 74 229

9 296 9 296

8 798 1 118 23 910 9 296 74 229 57 072 174 423

8 798 1 118 23 910 9 296 74 229 57 072 174 423

-

-

-

50 089 9 385 8 491 787 68 752

50 089 9 385 8 491 787 68 752

50 089 9 385 8 491 787 68 752

The principal rule as of 2005 is that financial instruments are reported at fair value. Anoto Group policy is to hedge the net flow of Euro for six months at a time by means of forward contracts in Euro. Forward contracts are reported on the balance sheet closing date at fair value.

Forward contracts totaled EUR 8,000 thousand and USD 1,000 thousand at end of 2008.

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Note 41 | Sale of business GROUP In December 2008 Anoto sold it´s shares in Logipard AB together with parts of Anoto´s activities within Imaging Technology to ARM Ltd. Profit from sale of business, added back in cash flow statement Selling price Writedown of intangible assets in group accounts Selling costs

-76 400 2 784 2 229 -71 387

Cash flow from sale of business Effect on group liquid assets Selling price Retained part of selling price *) Selling costs Liquid assets in Logipard AB at time of sale

76 400 -7 640 -2 229 -200 66 331

Of which change in long term receivables *)

7 640

Total operating activiteis

2 584

*)

90 % of selling price paid at signing of contract, remaining 10 % to be paid during 2010.

Net assets in Logipard AB at time of sale: 2008-12-15 1 922 1 499 6 301 608 200 -3 238 -1 070 -2 741 3 481

Intangible fixed assets Equipment Accounts receivable Other recievables Liquid assets Advances from customers Accounts payable Other current liabilities Net assets

Note 42 | Related parties Summary of related party transactions.

GROUP There has been no transactions with a net effect in group accounts.

PARENT COMPANY Related party Group company Group company

Selling of goods Purchasing of goods and services and services 2008 2007

30 044 26 155

-

Receivable on related Other party on 31 December 41 366 -

162 885 91 475

Liability to related party on 31 December -

For transactions with Board and Executives, see note 9.

A N OTO A N N UA L R E P O RT 2 0 0 8 | 4 3

Note 43 | Events after 31 December, 2008 Livescribe Inc’s debt to Anoto of MSEK 20,1 was settled in mid-March 2009.

The debt was the remaining payment from the agreement early 2007 between Livescribe and Anoto, when Anoto phased out its operation “Content and Applications” to Livescribe Inc.

Lund, 31 March 2009

Mär tha Josefsson

Hans Otterling Chairman

Christer Fåhraeus

Håkan Eriksson

Bernard Gander

Hiroshi Yoshioka

Stein Revelsby

Anders Norling CEO

Our auditor’s repor t was submitted on 31 March 2009 KPMG AB

Eva Melzig Henriksson Authorized Public Accountant

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AUDIT REPORT To the annual meeting of the shareholders of Anoto Group AB (publ) Corporate identity number 556532-3929 We have audited the annual accounts, the consolidated accounts, the accounting records and the administration of the board of directors and the managing director of Anoto Group AB (publ) for the year 2008. The annual accounts and the consolidated accounts of the company are included in the printed version of this document on pages 16-45. The board of directors and the managing director are responsible for these accounts and the administration of the company as well as for the application of the Annual Accounts Act when preparing the annual accounts and the application of international financial repor ting standards IFRSs as adopted by the EU and the Annual Accounts Act when preparing the consolidated accounts. Our responsibility is to express an opinion on the annual accounts, the consolidated accounts and the administration based on our audit.

We conducted our audit in accordance with generally accepted auditing standards in Sweden. Those standards require that we plan and perform the audit to obtain reasonable assurance that the annual accounts and the consolidated accounts are free of material misstatement. An audit includes examining, on a test basis, evidence suppor ting the amounts and disclosures in the accounts.

An audit also includes assessing the accounting principles used and their application by the board of directors and the managing director and significant estimates made by the board of directors and the managing director when preparing the annual accounts and the consolidated accounts as well as evaluating the overall presentation of information in the annual accounts and the consolidated accounts. As a basis for our opinion concerning discharge from liability, we examined significant decisions, actions taken and circumstances of the company in order to be able to determine the liability, if any, to the company of any board member or the managing director. We also examined whether any board

member or the managing director has, in any other way, acted in contravention of the Companies Act, the Annual Accounts Act or the Ar ticles of Association. We believe that our audit provides a reasonable basis for our opinion set out below.

The annual accounts have been prepared in accordance with the Annual Accounts Act and give a true and fair view of the company’s financial position and results of operations in accordance with generally accepted accounting principles in Sweden. The consolidated accounts have been prepared in accordance with international financial repor ting standards IFRSs as adopted by the EU and the Annual Accounts Act and give a true and fair view of the group’s financial position and results of operations. The statutory administration repor t is consistent with the other par ts of the annual accounts and the consolidated accounts.

We recommend to the annual meeting of shareholders that the income statements and balance sheets of the parent company and the group be adopted, that the loss of the parent company be dealt with in accordance with the proposal in the statutory administration repor t and that the members of the board of directors and the managing director be discharged from liability for the financial year.

MalmĂś March 31, 2009 KPMG AB

Eva Melzig Henriksson Authorized Public Accountant

A N OTO A N N UA L R E P O RT 2 0 0 8 | 4 5

CORPORATE GOVERNANCE REPORT 2008 Anoto Group AB (publ) is governed by its Articles of Association and the Swedish Companies Act. Since Anoto is listed on NASDAQ OMX Stockholm, Anoto also applies NASDAQ OMX Stockholm’s Rule Book for Issuers.

able in both Swedish and English. The Annual General Meeting is held in Swedish. To date, the composition of shareholders in Anoto has not given reasons to translate the Annual General Meeting into English.

Since July 1, 2008, Anoto applies the Swedish Code of Corporate Governance (”the Code”) which requires that a Corporate Governance Report be prepared.This is the first Corporate Governance Report from Anoto. The report has not been reviewed by the Company’s auditor and does not constitute a part of the formal annual report.

ANNUAL GENERAL MEETING 2008 The Annual General Meeting (AGM) in 2008 took place in Lund on May 15, 2008. Hans Otterling, Christer Fåhraeus, Märtha Josefsson, Stein Revelsby, Bernard Gander and Hiroshi Yoshioka were present from the Board of Directors. Present were also Anoto’s external auditors as well as the nominated external auditors to be elected for 2008 – 2012 and the Chairman of the Nomination Committee.

CORPORATE GOVERNANCE STRUCTURE Anoto is governed and controlled by several bodies.

The shareholders exercise their voting rights at General Meetings of the Shareholders by electing the Board of Directors and external auditors and making decisions on other issues like the adoption of the annual report and stipulating how to appoint the Nomination Committee.

The Nomination Committee nominates candidates to the Board of Directors, Chairman of the Board and external auditors.

A Nomination Committee is required by the Code, but not the Companies Act. The Board is responsible for the appointment of the CEO, the developing of long-term strategy, and controlling and evaluating Anoto’s day-to-day operations. Some duties of the Board are partly exercised by the Compensation Committee and the Audit Committee.

The CEO is in charge of and responsible for the daily operations and the management of Anoto in accordance with instructions and guidelines from the Board of Directors.

External auditors appointed by the shareholders at the Annual General Meeting examine the Company’s annual report and accounts as well as the management by the Board of Directors and the CEO. MEETINGS WITH SHAREHOLDERS The Annual General Meeting is the corporate body where the shareholders in Anoto can exercise their rights by electing the Board of Directors and deciding on all other issues voted on at Annual General Meetings in accordance with the Companies Act and the Articles of Association.

The Annual General Meeting is held in Lund, normally in the first half of May. The notice of the Annual General Meeting, together with the agenda, is published on Anoto’s website and the Swedish newspaper Dagens Nyheter, and Post och Inrikes Tidningar (the Swedish Official Gazette). As a courtesy, the date and place for the Annual General Meeting together with information on how to obtain the agenda is published in the Swedish newspaper Sydsvenska Dagbladet.

All information material for the Annual General Meeting is avail-

4 6 | 2 0 0 8 A N OTO A N N UA L R E P O RT

The Annual General Meeting made the following decisions: • The annual report was presented, and the consolidated income statements and balance sheets were adopted.The Board Members and CEO were discharged from liability. No dividends were to be paid.

• In accordance with the Nomination Committee’s proposal, Board Members Hans Otterling, Christer Fåhraeus, Märtha Josefsson, Stein Revelsby, Bernard Gander, Håkan Eriksson and Hiroshi Yoshioka were re-elected Board Members until the end of the next Annual General Meeting. Hans Otterling was re-elected Chairman of the Board.

• KPMG Bohlins AB was elected auditor until the end of the Annual General Meeting 2012. The auditors were to be reimbursed according to invoice.

• The Nomination Committee’s proposal on how to appoint members of the Nomination Committee, as well as the assignment for the Nomination Committee, was approved.

• The Board of Directors was authorized to, on one or several occasions prior to the next Annual General Meeting, resolve on an issue of a maximum of 12,000,000 new shares with provisions for non-cash payment or payment against set-off of claims or else on conditions enabling the waiving of shareholders’ preferential rights.

• The guidelines for compensation to the CEO and other executives of the Company were adopted in accordance with the proposal by the Board of Directors.

• The proposal presented by the Board of Directors to adopt an incentive program for key employees covering stock options was approved.

ANOTO’S ANNUAL GENERAL MEETING 2009 Anoto’s Annual General Meeting 2009 will take place on May 14, 2009 in Lund.

NOMINATION COMMITTEE The Annual General Meeting 2008 resolved, in accordance with the proposal presented by the Nomination Committee, that the Chairman of the Board of Directors be assigned to contact

three of the Company’s major shareholders, according to the list of shareholders at the end of September 2008, and ask them to appoint one representative each no later than six months prior to the Annual General Meeting 2009 to, together with him, form the Nomination Committee until a new Nomination Committee has been appointed. The Nomination Committee shall appoint a Chairman. The Chairman of the Board shall not be the Chairman of the Nomination Committee. The majority of the Nomination Committee members shall not be Board Members of Anoto.

The Nomination Committee formed for the Annual General Meeting 2009 was announced October 29, 2008 as folllows: Jan Andersson representing Swedbank Robur Fonder (Chairman of the Nomination Committee), Stein O. Revelsby representing Norden Technology AS, Audun W. Iversen representing Tor Aksel Voldberg, and Hans Otterling, Chairman of the Board. The Nomination Committee was in January 2009 extended with Leif Eriksröd representing Essensor AS, after Essensor AS having announced increased ownership in Anoto.

The Nomination Committee shall prepare and present to the Annual General Meeting 2009 proposals for the following issues: 1.

2.

3.

4.

5.

Chairman at the Annual General Meeting Chairman and other Members of the Board Fees to the Board of Directors Fees to the Auditors The Nomination Committee in respect of the Annual General Meeting 2010

The Nomination Committee’s proposal for Board Members shall be presented in the notice for the Annual General Meeting 2009 as well as on the company’s website.

THE BOARD OF DIRECTORS The Board of Directors, which also appoints the CEO, is ultimately responsible for the organization of Anoto and the management of its operations. According to Anoto’s Articles of Association, the Board shall consist of not less than three and not more than eight directors with not more than five deputies. For information about the Board Members and their remuneration, please refer to page 49 in the Annual Report. All Board Members are independent of Anoto’s management. They are also independent of Anoto and the larger shareholders in Anoto.

RULES OF PROCEDURES The Board of Directors has adopted Rules of Procedures that outlines the work procedures and tasks for the Board, the Audit Committee and the Nomination Committee. However, the Rules of Procedure do not in any way change or alter the responsibility of the Board or individual Board Member according to applicable laws and NASDAQ OMX Stockholm’s Rule Book for Issuers. The Rules of Procedures are reviewed and adopted at least once a year.

WORK OF THE BOARD OF DIRECTORS IN 2008 The Board of Directors consists of seven members elected by

the Annual General Meeting on May 15, 2008. Hans Otterling has served as Chairman of the Board. The CEO and CFO take part in board meetings. The Company’s General Counsel is the Board’s secretary. When appropriate, other employees of the company participate in reporting capacities concerning their particular areas of expertise.

The Board continuously evaluates the performance of Anoto, the CEO and Anoto’s Management.

Eleven of the fourteen meetings in 2008 were part of the Board’s annual schedule. In addition to the Board’s ongoing effort to issue directives and monitor the company’s activities – including the budget, state of the market and strategic direction – the main issues discussed at the meetings were as follows: • February: Review of quarterly and annual accounts with the Company’s auditor • May: Review of quarterly accounts and meeting of the Board members following election at the Annual General Meeting • June: The strategy for Anoto • August: Review of quarterly accounts and discussion of Company’s direction • November: Review of quarterly accounts and discussion of Company’s direction • December: Adoption of 2009 budget Documentation is normally distributed approximately one week prior to a meeting. The CEO submits a monthly written report to the Board. The Board has two Committees – an audit Committee and a Compensation Committee – that prepare items for the Board to take up and in certain cases reach decisions delegated to them by the Board.

The Board Members attendance at Board Meetings and Committee Meetings is set forth below as follows: Board Number of Number of Number of Member: Board Meetings: Audit Committee Compensation Meetings: Committee Meetings: Hans Otterling 14/14 1/1 Christer Fåhraeus 13/14 2/2 Märtha Josefsson 13/14 2/2 Stein Revelsby 13/14 2/2 Bernard Gander 10/14 1/1 Håkan Eriksson 5/14 1/1 Hiroshi Yoshioka 5/14

AUDIT COMMITTEE The Audit Committee – which consists of Märtha Josefsson (Chairman), Christer Fåhraeus and Stein Revelsby – deals with audits, their focus and their scheduling. The Committee also receives reports from Anoto’s auditor. The Committee held two meetings in 2008. At the meetings, the auditor presented the schedule for the annual audit, discussed risk assessments and reported on reviews that had been completed.

A N OTO A N N UA L R E P O RT 2 0 0 8 | 4 7

Meetings held by the Committee are reported to the Board by the Chairman of the Audit Committee at the Board Meeting following the Committee meeting.

COMPENSATION COMMITTEE The Compensation Committee – which consists of Håkan Eriksson (Chairman), Hans Otterling and Bernard Gander – handles remuneration for the CEO and management, as well as incentive programs. The Committee held one meeting in 2008.

Meetings held by the Committee are reported to the Board by the Chairman of the Compensation Committee at the Board Meeting following the Committee meeting.

The 2008 Annual General Meeting adopted guidelines for compensation to senior executives.

CEO AND MANAGEMENT The Management Team consist of six persons, see Annual Report page 50, with the CEO in charge. The CEO and Management Team manage and control Anoto’s daily operations.

INTERNAL CONTROL The Board of Directors is responsible for the internal control under the Swedish Companies Act and the Swedish Code of Corporate Governance. This section on internal control is focused on the internal control of the financial reporting. Given the size of Anoto, the Board has determined that there is no need for an internal audit department or function, and that Anoto’s finance department sufficiently can carry out the internal control in cooperation with the external auditors.

CONTROL ENVIRONMENT The corporate culture of Anoto encourages initiatives while assuming responsibility for meeting the defined strategic objectives of Anoto. The culture is based on trust, confidence and personal responsibility. Each employee at Anoto has a job description setting out tasks, responsibilities and authorizations.

Anoto has an “open door policy” and all employees can discuss any issue, concern or matter directly with the CEO or a member of the Management Team.

The CEO has adopted guidelines and policies for specific areas that the employees are required to follow.

Anoto has implemented a Code of Conduct that is applicable to Anoto and its suppliers. The Code of Conduct describes Anoto’s requirements with respect to ethical behavior, child labor and the environment.

A detailed delegation plan has been drawn up with well-defined levels of attestation and decision levels. This is applied throughout Anoto.

RISK ASSESSMENT Risk assessments are performed in order to identify, map and measure the root causes for risks. The most important risk factors for the internal control of the financial reporting are identified

4 8 | 2 0 0 8 A N OTO A N N UA L R E P O RT

at Group and Company level, as well as at regional level. The risk assessments also include the risk for inappropriate actions and fraud. The outcome of the risk assessments result in actions and tasks that support the internal control of the financial reporting.

CONTROL ACTIVITES The Board has implemented a system for control and risk management based on the Board’s Rules of Procedure - that also include instructions for the CEO and reports that are to be made to the Board - and the Finance Policy. These rules constitute the framework for the internal control.

Anoto’s processes and systems for ensuring effective internal controls are designed with the intention of managing and limiting the risks of material errors in the reporting of financial data, thus ensuring that both strategic and operational decisions are based on accurate financial information.

The operational work of controlling the day-to-day activities is carried out by the CEO and the Management Team. An authorization manual governs the requirements for authorizations to decision-making. In addition, there are several operational meeting forums like management meetings and steering committees that address specific control issues in the operational activities and effectively steer Anoto towards the defined strategic objectives.

MONITORING There are general as well as detailed control activities, aimed at preventing, discovering and correcting faults and deviations. The control organization is evaluated by the CFO on an ongoing basis with the aim of ensuring quality and efficiency. The CFO actively participates in the recruitment process of all qualified controllers.

The CEO and the CFO continuously keep the Board informed of the Group’s financial position, performance and any areas of risk. Anoto’s external auditors attend at least two Board meetings per year, at which the auditors provide their assessment and observations on the business processes, accounts and reports.

The Chairman of the Board and the Chairman of the Audit Committee are also in regular contact with the auditors.

The Board continuously monitors Anoto’s financial performance by comprehensive reports, as well as information from the CFO at all Board Meetings. Regular follow-up, together with a high level of transparency of the reporting material and financial processes ensures compliance with the Company’s Finance Policy, thus identifying any deficiencies in the internal control system.

A monthly management report is prepared for each application and geographic area, and is subject to follow up with line management. The internal control also includes detailed annual budgets split on application areas, geographic areas and cost-centers.

Forecasts are delivered three times a year, May, August and November. The forecasting follows the same organizational set-up as the annual budget. In December, the Board adopts the budget for the following year.

In addition to the budgeting and forecasting, Anoto’s Management Team continuously works with overall three-year strategic scenarios.

BOARD OF DIRECTORS

HANS OTTERLING

MÄRTHA JOSEFSSON

HIROSHI YOSHIOKA

BERNARD GANDER

Chairman of the Board Born 1961 Board member since May 2006 Other positions: Chairman of the board of EpiServer AB. Deputy board member of Climatewell AB. Director of the board of the Swedish Private Equity & Venture Capital Association.

Shareholding: 100 000 shares in Anoto Group.

Education: Master of Business Administration, University of Massachusetts, School of Management, Amherst, MA, USA and Stockholm School of Economics, Stockholm, Sweden.

Member of the Board Born 1947 Member since 2004 Other positions: Chairman of the board of Lärarfonder AB, and member of the boards of Fabege AB, Second National Pension Fund, Investment AB Öresund, Luxonen S.A., Skandia Fonder AB, Upsala Nya Tidning AB and Opus Group.

Shareholding: 0 shares in Anoto Group AB. Education: B.A. in Economics, University of Uppsala, Sweden.

Member of the Board Born 1952 Member since May 2007 Other positions: Senior Vice President, Corporate Executive and President of TV Business Group within Sony Corporation.

Shareholding: 0 shares in Anoto Group AB. Education: Bachelor of Engineering. Graduated Kyoto University.

Member of the Board Born 1959 Board member since May 2006 Shareholding: 2000 shares in Anoto Group AB. Education: MBA Finance and International Business from University of San Francisco. Bachelor in Electrical Engineering from Fribourg School of Engineering.

HÅKAN ERIKSSON

STEIN O. REVELSBY

CHRISTER FÅHRAEUS

Member of the Board Born 1961 Member since May 2006 Other Positions: Boardmember Vestas AS. Shareholding: 0 shares in Anoto Group AB. Education: Master of Science, Electrical Engineering, Linköping University. Honorary PhD, Linköping University.

Member of the Board Born 1962 Board member since 2005 Other Positions: Chairman & CEO of Norden Technology AS. Norden Technology AS owns 9.5 million shares in Anoto Group AB. Boardmember GammaMedica-Ideas Inc., Industrial Advisor to Capman plc.

Education: MBE, Norwegian School of Management.

Company Founder, Member of the Board Born 1965 Board member since 1996 Other positions: Chairman of the boards of Agellis Group AB, Respiratorius AB and Flatfrog Laboratories AB, CEO of EQL Pharma AB. Member of the boards of Cellavision AB, Monkfish Instruments AB, Flatfrog Laboratories AB, Fårö Capital AB and EQL Pharma.

Shareholding: 3 500 000 shares in Anoto Group AB. Education: MS Bioengineering, BS, PhD h.c.

A N OTO A N N UA L R E P O RT 2 0 0 8 | 4 9

GROUP MANAGEMENT

ANDERS NORLING

ANDERS WIDESJÖ

LARS HERMANSEN

CEO, Anoto Group AB Born 1951 Employed since 2006 Shareholding: 250 000 shares in Anoto Group AB. Education: Master of Science in Industrial Engineering, Linköping University.

CFO, Anoto Group AB Born 1951 Employed since 2008 Shareholding: 30 000 shares in Anoto Group AB. Education: MBA, Gothenburg University.

EVP Sales & Marketing, Anoto Group AB Born 1958 Employed since 2006 Shareholding: 50 000 employee stock options in Anoto Group AB. Education: Master of Economics, Stockholm University.

EBBA ÅSLY FÅHRAEUS

MAGNUS HOLLSTRÖM

TORGNY HELLSTRÖM

VP Sales & Marketing, Anoto Group AB Born 1963 Employed since 2000 Shareholding: 50 000 employee stock options and 35 900 shares in Anoto Group AB. Education: Master of Science in Business and Economics, Stockholm School of Economics.

EVP Technology Licensing, Anoto Group AB Born 1969 Employed since 2001 Shareholding: 10 000 employee stock options and 57 833 shares in Anoto Group.

Education: Master of Science in Electrical Engineering, Lund University of Technology.

Senior Vice President & General Counsel, Anoto Group AB Born 1958 Employed since 2004 Shareholding: 50 000 employee stock options and 20 000 shares in Anoto Group AB. Education: LL.M., Stockholm University.

5 0 | 2 0 0 8 A N OTO A N N UA L R E P O RT

ANNUAL GENERAL MEETING Anoto’s Annual General Meeting will be held on 14 May 2009 at the Anoto premises at Emdalavägen 18 in Lund, Sweden. Any shareholder wishing to participate in the meeting must notify the company in one of the following ways: * Phone: +46 46 540 1200, Fax: +46 46 540 1202 * E-mail to AGM.2009@anoto.com * In writing to Emdalavägen 18, SE-223 69 Lund, Sweden The notification must reach the company by 12:00 noon on Wednesday, 8 May. To be entitled to participate, the shareholder must also be entered in the VPC AB share register by 8 May. Any shareholder who has registered his or her shares under a trustee must temporarily register them in his or her own name with VPC AB by Wednesday, 8 May. When submitting the notification, please state your name, personal identity or corporate identity number, address, phone number and number of registered shares.

If you are participating by proxy, you must submit the authorisation to the company prior to the meeting.

FINANCIAL REPORTING Anoto Group’s financial reports are released in Swedish and English. The easiest way to obtain the reports is by downloading them from www.anoto.com, e-mailing a request to AGM.2009@anoto.com or phoning +46 46 540 1200.

Following is the schedule of Anoto Group’s financial reports for its 2009 financial year.

January-March interim report January-June interim report January-September interim report 2009 year-end report 2009 annual report 2009 Annual General Meeting

7 May 2009 31 July 2009 4 November 2009 4 February 2010 April 2010 May 2010

Anoto Group AB Emdalav채gen 18 SE-223 69 LUND Sweden Phone +46 46 540 1200 Fax +46 46 540 1202 New adress from July 1st 2009: Traktorv채gen 11 SE-226 60 LUND Anoto Inc. 200 Friberg Parkway, Suite 3003 Westborough, MA 01581 United States Phone +1-508-983-9550 Fax +1-508-983-9551 Anoto-Maxell K.K. 7F Dai-3 Nishi Aoyama Bldg.

1-8-1 Shibuya, Shibuya-ku Tokyo Japan 150-0002 Phone +81 (0)3-5774-1212 Fax +81 (0)3-5774-1211 C Technologies Traktorv채gen 11 SE-226 60 LUND Sweden Phone +46 46 540 1200 Fax +46 46 540 1202

www.anoto.com