As 2004 started, Q-Free was like a vessel creaking at the seams. Critical scrutiny of all projects revealed that seve- ral of them were not financially

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ContentsThe PresidentÕs Corner5 The Q-Free Story7 Interviews12 Corporate Governance15 Board of DirectorsÕ Report 200421 Financial Statement30 Accounting Principles and Notes35 AuditorÕs Report51 Articles of Assosiation52 Address: Th. Owesens g. 35CNO-7044 Trondheim NorwayMail Address: P.O. Box 3974 Leangen NO-7443 Trondheim NorwayPhone+47 73 82 65 00Fax:+47 73 82 65 Q-Free ASA Technology that safeguards transport operatorsÕcash flow

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4The PresidentÕs Corner Q-Free customers are free Q-Free believes in free competition. We do not like technological lock-in strategies. It slows down product development. ThatÕs bad for the customers and bad for the business.ThatÕs why Q-Free uses open and standardized systems. Our customers are free to choose. If you love somebody set them free. Geir Ove Kjesbu, CEO

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5The PresidentÕs Corner : The PresidentÕs Corner As 2004 started, Q-Free was like a vessel creaking at the seams. Critical scrutiny of all projects revealed that seve- ral of them were not financially viable. As captain of the ship, I decided that the projects in question would have to be brought onto a sound foundation, or be terminated. We managed to navigate our way into calmer waters, to inspect every part of the ship and to prepare the crew for the way ahead. A few months later we weighed anc- hor and, navigating with a new strategy and a motivated crew, in the second quarter Q-Free was able to present a profit for the first time since its stock exchange listing in 2002. I have always had complete faith in the company. Its products are the best in the world in the area of road user charging and automatic fare collection. With 20 yearsÕ experience as a supplier of technology for electronic payment systems, the company thoroughly understands the absolute need for reliability. Our unique experience of the industry, combined with a distinct ability to be innovative and think in new directions, means that we are well placed to benefit from the growth that now characterises the market. Q-Free will continue to be a global supplier, setting the standard for payment systems in the transport sector. The turnaround in 2004 was in some respects difficult, but at the same time it was uncomplicated. It was difficult because we had to take tough action. It was uncomplicated because we simply changed focus, placing our technology in a more market-oriented perspective. Under the new strategy, Q-FreeÕs technology and pro- ducts will be sold through partners. This was a strategic move that produced immediate results. When IBM was awarded a contract from the Swedish authorities to set up a toll ring around Stockholm, Q-Free was chosen to provide the technology. We have the best product in what is called Multilane Free Flow systems, and our technology is currently being installed in projects in Sweden, Chile and Australia. It is a market that is opening up in several countries, and new business in 2004 included deliveries to Greece, Croatia and France, to name a few. Road user charging is an increasingly relevant topic in a growing number of countries. Political decisions are being taken where the financial and environmental cost of road projects will be recouped from the users of these roads through road user charging. Truck tolling is also a political theme in several European countries. For example, there are plans to introduce truck tolling in the UK and the Czech Republic in the period 2007-2008. Congestion Charging – the use of tolls to regulate traffic density – is once more on the agenda. London and Stockholm were first out, and a number of cities are set to follow suite. This offers a great potential to Q-Free. In the area of automatic fare collection, our market focus is on Scandinavia, but at the same time we are positio- ning ourselves for expansion in a larger international market. In 2004 and 2005 Q-Free invests heavily in a new generation of technology – a so-called “Open Platform” which makes it simple for the customer to integrate Q-FreeÕs products with its other systems. This solution has been well received in the market, and the company currently has five major electronic toll collection projects for delivery in 2005 and 2006. Our long-term strategy is to offer technology of this kind through global partners. The ship has been rigged and is now leaving calmwaters. It is constructed to withstand high waves and extreme forces. The crew are experienced, skilled and motivated, and the cargo consist of products in demand. We are expecting organic growth in the current year, but what we really want to see is a smile on the faces of our customers, our partners and our shareholders. We will achieve this by providing reliable products, optimal service and overall profitability. Geir Ove Kjesbu, CEO

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6: The Q-Free Story Mission: To Q-Free the world Tools: IQ & EQ*Mission status:5 million travellers Q-Freed so far Until now, Q-Free has supplied close to 5 million vehicles with tolling technology. That means more than 5 million less stressed, more easy going travellers. And reduced pollution to air and ground. A small contribution to a better world, but a contribution non the less.* Intelligence and Passion

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8: The Q-Free Story Q-Free believes that its current position as market leader in the DSRC based tolling market will position the com- pany to take a healthy share of upcoming projects and product sales. During 2005, truck tolling projects in the UK and in the Czech Republic will be concrete opportu- nities to supply important technology to nationwide tol- ling systems. In the next few years, similar opportunities may arise in France, Sweden, the Slovak Republic, Hungary and Poland. The London Congestion Charging system is set to be enlarged to include DSRC technology and this may create an opening for Q-Free. Amsterdam, Paris, Gothenburg, Copenhagen are cities that have already begun discussions on congestion charging, and more are sure to follow suit in Europe, Asia and the Americas. The markets for On Board Units (OBU) in established tolling markets present opportunities in Norway, France, Spain, Greece, Australia, Chile, Argentina, Mexico, China, and several other countries. The rising number of vehicles equipped with OBUs will subsequently bring an increasing market for service, maintenance and renewals that will sustain the underlying, steady revenue base of the company. Urban mobility as key to improved living conditions The worldÕs large cities are increasingly experiencing that congestion is reducing the quality of life for its citizens. Higher frequency of pollution related diseases, unreliable logistics and a general feeling of stress and discomfort are symptoms. Urban mobility issues have consequently come to the top of the agenda for many local authorities and the balance between private and public transport is at the core of the challenges. We believe that the future will see many urban mobility projects where this balance will be achieved through dynamic pricing of the different means of transport. We see a strong motivation to develop concepts and products that give clear incentives to travelers to choose transport means that optimize the balance between infrastructure utilization and environmental effects. One such product is a smart card enabled OBU, a so-called Òtwo piece tagÓ, which allows the traveler to use a smart card, i.e. a public transport card, to activate his on board unit to pay for road tolling and parking. Q-Free is launching this product in 2005. The automatic fare collection market The market for Automatic Fare Collection (AFC) is growing. The population explosion together with limited urban space, increased energy consumption, the need for pollution reduction, road safety and mobility for all are factors that in some way or other will make more and better public transport systems necessary, and hence increase the demand for more efficient AFC systems. Passengers are demanding an increasing degree of functionality from the system; seamless travel, best price models, multi-application smart cards, alternative methods of payment and real time information (RTI); this again creates a need for more advanced AFC systems.The AFC customers are either public entities or private concessionaires. The market spans from small local projects to large scale national projects, from bus projects only to inter-modal projects including all means of transportation. ¥The founder of Q-Free, Mr. Kai Bogen, retires from the company after 20 years. The vice president, Mr. Geir Ove Kjesbu, takes over as President and CEO. ¥Q-Free reports a profit warning after a thorough investigation of the financial situation. An extensive restructuring process is started. ¥Q-Free is awarded an electronic ticketing contract in Rogaland, Norway. Highlights 2004

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9The Q-Free Story : Currently, a few large AFC suppliers with proprietary solutions dominate the AFC market in Europe, together with smaller local companies. The AFC customers are now increasingly demanding open system solutions with sufficient flexibility to adapt to the special circumstances of each customer. This is fully in line with the system philosophy of Q-Free. In a growing market, Q-Free is positioned to supply AFC solutions, from supplying modules to acting as the customerÕs main contractor and system integrator. The AFC solutions developed by Q-Free during the latest years are considered to be among the best of their kind. With the realization of the new generation of AFC soluti- ons, based on the use of a vehicle computer together with off-the-shelf equipment like touch LCD and a receipt printer, Q-Free has a state-of-the-art AFC solution that is prepared for further development. The typical lifetime of an AFC system is 10 years, and we now see that some customers are purchasing their second generation AFC system. As technological developments progress, it is important that the AFC system can adapt to this deve- lopment, which is fully possible with the introduction of a vehicle computer. The new generation of the Q-Free AFC system is currently under development and will shortly be in operation in 5 projects in Scandinavia; in the city of Ume„ and in the counties of Norrbotten, Rogaland, Troms and Hedmark/ Oppland. In total, these 5 projects involve the installation of equipment in more than 1 850 buses. Until now, there have been separate systems and equipment for the AFC and RTI in the vehicle. With the introduction of the new Q-Free vehicle system, there is no longer a need for separate systems as both AFC and RTI functionality can be handled by the same vehicle computer. Transport system operators choose Q-Free Q-Free is EuropeÕs leading supplier of electronic toll collection (ETC) systems and has delivered the national tolling systems for Norway and Portugal. These two countries have been among the pioneers in the European market for advanced, electronic tolling systems and in Norway Q-Free has had the opportunity to work closely with the National Road Authorities since the worldÕs firstETC system was installed at Ranheim outsideTr ondheim.For many years, Q-Free has been the preferred supplier to PortugalÕs largest tollway operator, Brisa, and this co-operation is continuing, although competitors are doing their utmost to edge their way into the Portuguese market.During 2004, the company developed close co-operationwith IBM and was able to secure the contract for all OBU and roadside equipment in the groundbreaking Stockholm congestion charging project. GreeceÕs nationalr oad authorities have initiated the development of a Greek ETC system that places Greece at the forefront of European interoperability efforts and Q-Free assisted with technology and products in trials and tests. Q-Free also secured an important contract with the Croatian National Highway Company in 2004. This achievement provides a sound basis for further business in the Balkan region, which is an emerging market for ETC related systems. ¥The Board of Directors approves an issue of 10 % to strengthen the financial situation before the restructuring process. ¥Q-Free reports its first profitable quarter since the IPO in April 2002.¥IBM is awarded the large toll collection contract in Stockholm with Q-Free as technology partner.

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Outside Europe, Q-Free made great progress in 2004. In Australia, the company won a multilane free flow system contract with Cross City Motorways in Sydney. In Chile, Q-Free supplied important parts of the road side technology to the Vespucio Sur concession in Santiago, again applying multilane free flow technology, and managed to win a large share of the market for OBUs with a total frame contract volume of half a million OBUs to two concessionaires. Within the AFC market, 2004 brought consolidation of the company’s position as one of the leading AFC supplies in Scandinavia. Q-Free has won new AFC contracts in Rogaland in Norway and in Ume„ and Norrbotten in Sweden. For these projects, together with the AFC projects in the counties of Troms, Hedmark and Oppland in Norway, Q-Free has introduced the next generation AFC solution which is based on the use of off-the-shelf products with standardized interfaces. The introduction of this new AFC solution has been well received in the market and makes Q-Free well positioned to enter AFC markets outside Scandinavia.The Q-Free Team Q-FreeÕs technology base has been developed in Trondheim, Norway, one of the major technology hubs of the world. Scandinavia is well known to be on the leading edge of communication technology development and Trondheim is home to NorwayÕs most important university of technology and science, NTNU. Building on this sound cultural base for technological development and innovation, Q-Free has grown to become the market leader in electronic tolling technology with subsidiaries in Portugal, Greece, Brazil, Australia, Malaysia and China. Although it is a relatively small company with 200 employees, Q-Free is a multi-cultural and multi-skill organization able to do business with a local flair in the markets where it operates. The company has team mem- bers who speak Norwegian, English, German, French, Italian, Spanish, Portuguese, Greek, Arabic, Persian, Mandarin, Cantonese, Malay and probably more. Some are Christians, some are Muslims, some are Buddhists, some are Atheists, some are engineers, some have PhDs or MBAÕs,some are software gurus, some think it is just as fine to be installing equipment ten meters above the ground on a freezing winterÕs day as on a blazing hot summer afternoon, some travel 150 days a year, some are more or less married to their computer, but they all have one thing in common – a commitment to Q-FreeÕs customers. Each and every team member knows that his or her contribution helps to ensure the reliability of business critical systems for the customer and that quality and reliability are the key words that keep customers coming back. Product Offering Q-FreeÕs customers are operators of transport systems and their business models are centered on the successful processing of huge amounts of micro transactions. System and product availability and reliability are conse- quently of utmost importance and it is no coincidence that these are among Q-FreeÕs strongest competitive advantages. In addition to securing the customerÕs revenue stream, the continuous and flawless handling of transactions minimizes negative user reactions. 10¥Q-Free is awarded the first OBU supply to Chile.¥IBMÕs competitor for the project in Stockholm complains about the resolution, but the project is started in September 2004. : The Q-Free Story Highlights 2004

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11The Q-Free Story : Q-FreeÕs current product portfolio comprises in-vehicleunitsthat generate and transmit payment transactions toinfrastructure , and management software to process the transactions. The company thus provides and has core competence in all technology and products necessary to catch, generate and process payment transactions in high volume transport systems. Q-Free participates actively in the international standardization work and promotes open and standardized systems to allow free competition. The company supplies products according to European standards supporting national specifications such as the Norwegian AutoPASS specification, the Portuguese tolling specification (Via Verde), the French TIS specification and the Pista application specification. The PISTA specification has been promoted successfully by the EU after a very well managed european initiative. Within the RUC market, the core products are On Board Units (ÒtagsÓ) that communicate with readers placed on fixed infrastructure along the road. At the end of 2004, Q-Free had supplied close to 5 million OBUs and equipped close to 4000 lanes with readers and auxiliary equipment. Following testing projects and trials, Q-Free is launching a new line of OBUÕs that combined with smartcard wills bring a wide range of opportunities to generate mobility services revenues for transport opera- tors. The smartcard can be configured for use in public transport, parking, fuelling and other services normally performed with a smart card. When inserted into the vehicle mounted OBU other functions like toll payment, access control are enabled. In a way, the OBU will work as a ÒloudspeakerÓ to allow the card to communicate with readers at a distance. Q-Free expects that this range of products will attract great interest from transport operators looking to offer integrated services to an already established customer base.Historically, payment of road tolls meant stopping the vehicle and handing over money to an operator before being allowed to proceed. The evolution of ETC made it possible to speed up the process of toll payment considerably. Q-Free has played a decisive role in taking the development another step further with the introduction of the Multi Lane Free Flow (MLFF) system whereby vehi- cles are tolled without the need to pass through specific toll plazas or lanes and without reducing their speed. What tomorrow brings To know what is the core of a companyÕs being, its core knowledge and skills, is the key to understanding which role can be taken in a changing business environment. And the business environment is changing as the ITS industry moves from being technology driven to being business driven. In particular, Q-Free believes that the road user charging market is in a period of rapid transition to a situation where transport operators will regard the technology as a Òblack boxÓ, i.e. something that just works. Q-Free is ready for this changed environment and has focused on its own core knowledge to provide state-of-the-art products and systems that will fit the customersÕ expectations. In the next few years, our customers will continue to buy from Q-Free because they know they can rely on the technology, systems and products to safeguard their revenue stream from transport systems. And travelers who use our customersÕ systems will truly become easy going people.¥Q-Free receives additional orders from IBM concerning the contract in Stockholm. ¥As a part of the restructuring process, Q-Free decides to merge the subsidiaries in Norway with the mother company Q-Free ASA.

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