<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 20-F

(Mark One)
   [ ]   REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE
         SECURITIES EXCHANGE ACT OF 1934

                                       OR

   [X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934
         FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003

                                       OR

   [ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT
         OF 1934
         FOR SUCH TRANSITION PERIOD FROM _______ TO _______

                         Commission file number: 0-26258

                                    NERA ASA
             (Exact name of Registrant as specified in its charter)

                                KINGDOM OF NORWAY

                 (Jurisdiction of incorporation or organization)

                          Kokstadveien 23, PO Box 7090
                              N-5020 Bergen, Norway
                                011 47 5522 5100

                    (Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

         Title of each class          Name of each exchange on which registered
                None                                Not Applicable

Securities registered or to be registered pursuant to Section 12(g) of the Act.

                    Ordinary Shares, nominal value NOK 2 each

                                (Title of Class)

        American Depositary Shares, each representing one ordinary share

                                (Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act:

                                      None

                                (Title of Class)

Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report: 123,529,371

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.

                                             Yes [X]         No [ ]

Indicate by check mark which financial statement item the registrant has elected
to follow:

                                             Item 17 [X]     Item 18 [ ]

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<S>                                                                                                     <C>
PART I       ........................................................................................   2
      ITEM 1.      IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS.............................   2
      ITEM 2.      OFFER STATISTICS AND EXPECTED TIMETABLE...........................................   2
      ITEM 3.      KEY INFORMATION...................................................................   2
      ITEM 4.      INFORMATION ON THE COMPANY........................................................   9
      ITEM 5.      OPERATING AND FINANCIAL REVIEW AND PROSPECTS......................................  32
      ITEM 6.      DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES........................................  49
      ITEM 7.      MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS.................................  57
      ITEM 8.      FINANCIAL INFORMATION.............................................................  58
      ITEM 9.      THE OFFER AND LISTING.............................................................  59
      ITEM 10.     ADDITIONAL INFORMATION............................................................  60
      ITEM 11.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK........................  68
      ITEM 12.     DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES............................  70
PART II      ........................................................................................  70
      ITEM 13.     DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES...................................  70
      ITEM 14.     MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITIES HOLDERS AND USE OF PROCEEDS....  70
      ITEM 15.     CONTROLS AND PROCEDURES...........................................................  70
      ITEM 16A.    AUDIT COMMITTEE FINANCIAL EXPERT..................................................  71
      ITEM 16B.    CODE OF ETHICS....................................................................  71
      ITEM 16C.    PRINCIPAL ACCOUNTANT FEES AND SERVICES............................................  71
      ITEM 16D.    EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES........................  72
      ITEM 16E.    PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS............  73
PART III     ........................................................................................  73
      ITEM 17.     FINANCIAL STATEMENTS..............................................................  73
      ITEM 18.     NOT APPLICABLE.................................................................... 109
      ITEM 19.     EXHIBITS.......................................................................... 109
</TABLE>

                                      -i-

<PAGE>

PART I

         ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

         Not applicable.

         ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

         Not applicable.

         ITEM 3. KEY INFORMATION

         This document contains certain forward-looking statements with respect
to our financial condition, results of operations and business and certain of
our plans and objectives with respect to these items. In particular, this
document contains forward-looking statements with respect to:

            -     management's objectives with respect to our current focus on
                  core business areas and the related changes in the structure
                  of our company,

            -     management's objectives with respect to cash generation and
                  expansion of some of our operations,

            -     reduced market demand for the telecommunications
                  infrastructure equipment we develop, manufacture, market and
                  sell,

            -     potential recovery of the telecommunications market and the
                  anticipated timing of this recovery,

            -     the continuing global economic downturn,

            -     the shift from low capacity ranges from two to 34 megabits per
                  second, or PDH technology, to high capacity ranges from 34 to
                  155 megabits per second, or SDH technology,

            -     opportunities to supply satellite terminals and land earth
                  station equipment for new satellite communications systems,

            -     levels of future research and development expenditure and the
                  development and introduction of new products,

            -     trends in market shares and product volumes,

            -     levels of research and development expenditure,

            -     margins,

            -     overall market trends,

            -     our liquidity and capital resources,

            -     risk management,

            -     foreign currency exchange rate risk, and

            -     interest rate sensitivity.

         By their nature, forward-looking statements involve risk and
uncertainty because they relate to events and depend upon circumstances that may
occur in the future. There are a number of factors that could cause our actual
results and developments to differ materially from those expressed or implied by
these forward-looking statements. These factors include, but are not limited to,
our ability to achieve our goals in connection with our current business
activities, to respond to market conditions, to continuously improve our cash
generation capability, to foresee demand for our products, to predict the
development of new satellite communications systems, to allocate the requisite
amounts of research and development expenditures, to determine the cost of
components, to be prepared to react to future exchange rates and interest rates
charges, and to conduct our manufacturing operations in an efficient manner.

                                       2
<PAGE>

         A.       SELECTED FINANCIAL DATA

         The following selected consolidated financial data have been derived
from our consolidated financial statements, which have been audited by Arthur
Andersen, independent accountants, for the years ended December 31, 1999, 2000
and 2001 and by Ernst & Young for the year ended December 31, 2002 and December
31, 2003. Effective May 1, 2002, and subsequent to completion of the audit of
our consolidated financial statements for the year ended December 31, 2001,
Arthur Andersen and Ernst & Young in Norway merged their activities. Effective
as of that date, Arthur Andersen in Norway became part of the international
organization of Ernst & Young. You should read the selected consolidated
financial data for each of the years presented in conjunction with, and they are
qualified in their entirety by reference to, the selected consolidated financial
statements, including the notes thereto, that are included in Item 17 below.
Nera Telecommunications Ltd. (known as NeraTel), our Singapore subsidiary, was
not consolidated in our financial statements from July 1999 to November 2001, as
we owned less than 50% of NeraTel during that period. Prior to July 1, 1999 and
starting again on December 1, 2001 when we increased our ownership of NeraTel
above 50%, NeraTel's results have been consolidated in our financial statements.
Due to the different accounting treatment of NeraTel during the periods
presented, our results for these periods are not comparable. For more
information about the effects of consolidation of NeraTel, please see note 8 to
the consolidated financial statements in Item 17 below.

         Unless otherwise indicated, our consolidated financial data are stated
on the basis of Norwegian GAAP, which varies in certain respects from U.S. GAAP.
The differences between Norwegian GAAP and U.S. GAAP that are significant to our
consolidated financial statements for 2001, 2002 and 2003 for the
reconciliations of net income/loss and shareholders' equity from Norwegian GAAP
to U.S. GAAP for 2002 and 2003 are explained in note 31 to the consolidated
financial statements in Item 17 below.

<TABLE>
<CAPTION>
                                                                        YEAR ENDED DECEMBER 31,
                                               1999           2000          2001           2002           2003            2003
                                             --------       -------       --------       --------       --------      -----------
                                                NOK           NOK           NOK            NOK            NOK            U.S.$
                                                                                                                      (UNAUDITED)
                                                                             (IN MILLIONS)
<S>                                          <C>            <C>           <C>            <C>            <C>           <C>
OPERATING REVENUE
Sales.................................        2,765.7       2,549.8        2,893.3        2,444.8        2,252.7           337.9
Cost of materials.....................       -1,068.0        -966.6       -1,411.1       -1,285.6       -1,198.9          -179.9
Changes of inventory of work in
     Progress and finished goods......          -19.3         -37.3           54.8          -24.2           10.7             1.6
Payroll expense.......................         -657.3        -649.6         -722.8         -679.8         -617.2           -92.6
Depreciation..........................          -58.7         -66.9          -87.9          -83.5          -79.8           -12.0
Other operating expense...............         -786.0        -724.9         -894.4         -505.0         -392,9           -58.9
Operating income (loss) before
     Restructuring gain and loss......          176.4         104.5         -168.1         -133.3          -25.4            -3.8
Restructuring gain and loss...........          112.8            --         -264.0          -11.1          -28.3            -4.2
Operating income (loss)...............          289.2         104.5         -432.1         -144.4          -53.7            -8.1
Net financial items...................            7.6          88.8          -16.2          -17.8          -37.0            -5.6
Income (loss) before taxes............          296.8         193.3         -448.3         -162.2          -16.7            -2.5
Income (loss) tax expense.............          -89.2         -57.0           81.3           33.7          -13.0            -2.0
Net income (loss).....................          207.6         136.3         -367.0         -128.5          -29.7            -4.5
Profit/loss after minority interests..          207.6         136.3         -370.7         -145.0          -52.7            -7.9
Earnings per ordinary share (basic)...           2.16          1.22          -3.02          -1.19          -0.43           -0.06
Earnings per ordinary share (fully
     diluted).........................           2.15          1.22          -3.02          -1.19          -0.43           -0.06
Cash dividends declared per
     ordinary share...................            0.0          0.22             --             --             --              --

</TABLE>

                                       3

<PAGE>

<TABLE>
<CAPTION>
                                                                        YEAR ENDED DECEMBER 31,
                                               1999           2000          2001           2002           2003            2003
                                             --------       -------       --------       --------       --------      -----------
                                                NOK           NOK           NOK            NOK            NOK            U.S.$
                                                                                                                      (UNAUDITED)
                                                                             (IN MILLIONS)
<S>                                          <C>            <C>           <C>            <C>            <C>           <C>
Approximate amounts in accordance
with US GAAP

Net income/loss.......................          188.7         108.6         -340.0         -190.1         -106.7           -16.0
Basic earnings per share..............           1.96          0.97          -2.77          -1.56          -0.88           -0.13
Diluted earnings per share............           1.96          0.97          -2.77          -1.56          -0.88           -0.13

SELECTED CONSOLIDATED
BALANCE SHEET DATA
Amounts in accordance with Norwegian
GAAP

Cash and cash equivalents.............          481.5       1,320.3          899.5          795.8          830.1           124.5
Short term receivables................        1,038.4       1,171.7        1,156.8          803.9          796.9           119.5
Short term investments................            2.3            --             --             --             --              --
Inventories...........................          309.3         269.1          534.7          382.9          293.3            44.0
Long term receivables and others......          271.3         396.1          219.9          161.5          134.7            20.2
Intangible assets.....................           28.8         141.4          137.2          216.6          211.2            31.7
Property, plant and equipment, net....          141.2         178.6          268.1          199.1          158.8            23.8
Total assets..........................        2,272.8       3,477.2        3,216.2        2,559.8        2,425.0           363.8

Current liabilities...................          968.3       1,198.8        1,386.3          855.2          812.0           121.8
Long-term liabilities.................          335.0         301.4          101.8           92.0           93.5            14.0
Shareholders equity...................          969.5       1,977.0        1,728.1        1,612.6        1,519.5           227.9
Total liabilities and shareholders'
equity................................        2,272.8       3,477.2        3,216.2        2,559.8        2,425.0           363.8

Approximate amount in accordance with
US GAAP

Shareholders' equity..................          983.2       1,972.0        1,525.7        1,264.8        1,131.1           169.7
</TABLE>

         We publish our consolidated financial statements in Norwegian krone.
References herein to "U.S. dollars," "USD" and "$" are to U.S. dollars, and
references to "Norwegian krone" and "NOK" are to the currency of the Kingdom of
Norway. For the convenience of the reader, this annual report contains
translations of certain Norwegian krone amounts into U.S. dollars at the rate of
NOK 6.666 = $1 ($0.1500 = NOK 1), the noon buying rate in New York City for
cable transfers payable in foreign currencies as certified for customs purposes
by the Federal Reserve Bank of New York on December 31, 2003. On June 17, 2004,
such rate was NOK 6.93 = $1 ($0.14 = NOK 1). These translations should not be
construed as representations that the Norwegian krone amounts actually represent
such U.S. dollar amounts or could be converted into U.S. dollars at the rate
indicated or at any other rate. "Item 5. Operating and Financial Review and
Prospects -- Operating Results -- Currency Fluctuations" and "Item 11.
Quantitative and Qualitative Disclosures about Market Risk" include a discussion
of the effects of fluctuations in exchange rates on our financial results.

                                       4

<PAGE>

         The table below sets forth, for the periods and dates indicated,
certain information concerning the exchange rate for the Norwegian krone against
the U.S. dollar, based on the noon buying rate and expressed in Norwegian krone
per U.S. dollar. The average is computed using the noon buying rate on the last
business day of each month during the period indicated.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31               NORWEGIAN KRONE PER U.S. DOLLAR
----------------------      ------------------------------------------------
                            PERIOD-END       AVERAGE        HIGH        LOW
CALENDAR YEAR                  RATE           RATE
-------------                  ----          --------
<S>                         <C>              <C>            <C>         <C>
1999                           8.01            7.81         8.10        7.11
2000                           8.80            8.81         9.56        7.93
2001                           8.97            9.00         9.45        8.54
2002                           6.95            8.00         9.14        6.97
2003                           6.67            7.08         7.66        6.64
</TABLE>

         The table below shows the high and low noon buying rates for each month
during the six months prior to the date of this annual report.

<TABLE>
<CAPTION>
                                    NORWEGIAN KRONE PER U.S. DOLLAR
                            ------------------------------------------------
                            PERIOD-END
          MONTH                RATE                  HIGH               LOW
          ------               ----                  ----               ---
<S>                         <C>                      <C>               <C>
December 2003                  6.67                  6.83              6.65
January 2004                   7.02                  7.07              6.66
February 2004                  7.05                  7.07              6.84
March 2004                     6.86                  7.14              6.82
April 2004                     6.87                  7.00              6.82
May 2004                       6.73                  6.97              6.70
June 2004 (until June 17)      6.93                  6.92              6.65
</TABLE>

         On June 17, 2004, the noon buying rate of Norwegian krone per U.S.
dollar was NOK 6.93 = $1.00.

         Fluctuations in the exchange rate between the Norwegian krone and the
U.S. dollar will affect the U.S. dollar equivalent of the Norwegian krone price
of the shares traded on the Oslo Stock Exchange and, as a result, may affect the
market price, if any, of our American depositary shares in the United States
which we voluntarily delisted from Nasdaq on May 30, 2002. For more information,
please see "Item 9.C. -- Markets." Such fluctuations will also affect the U.S.
dollar amounts received by holders of American depositary shares on conversion
by The Bank of New York, which is the depositary, of any cash dividends paid in
Norwegian krone on the shares represented by the American depositary shares.
Information regarding currency fluctuations is provided in "Item 5. Operating
and Financial Review and Prospects -- Operating Results -- Currency
Fluctuations."

         B        CAPITALIZATION AND INDEBTEDNESS

         Not applicable.

         C.       REASONS FOR OFFER AND USE OF PROCEEDS

         Not applicable.

                                       5
<PAGE>

         D.       RISK FACTORS

         WE FACE STRONG COMPETITION FROM ALTERNATIVE PRODUCTS AND NEW SUPPLIERS
IN A SHRUNKEN MARKET AND OUR REVENUES WILL SUFFER SIGNIFICANTLY IF WE DO NOT
RESPOND EFFECTIVELY TO THESE COMPETITIVE PRESSURES.

         Competition is strong among providers of telecommunications equipment
and systems and is increasing as a result of the reduction of the worldwide
telecommunications market, as well as the entry into the market of new suppliers
and telecommunications equipment and systems. Our products face substantial
competition from other telecommunications products and alternative
telecommunications transmission media in the international market in which we
operate. In addition, as a result of rapid technological development, the prices
for our products are under constant pressure. If we do not respond effectively
to these competitive pressures, our market share will erode or fail to increase,
and our revenues will suffer significantly. Many of our competitors have
significantly greater financial, marketing and operating resources than us, and
some have broader product lines.

         THE GLOBAL ECONOMIC DOWNTURN HAD, AND IS EXPECTED TO CONTINUE TO HAVE,
A MATERIAL ADVERSE EFFECT ON THE DEMAND FOR OUR PRODUCTS, OUR BUSINESS, RESULTS
OF OPERATIONS AND FINANCIAL CONDITION.

         Since 2001 there has been a significant downturn in economic conditions
in the world generally, exacerbated by the September 11 terrorist attacks on the
U.S., and in the telecommunications industry in particular. We have recognized
that the global economic downturn was deeper and has lasted longer than we had
previously expected. Many telecommunications companies have not achieved their
financial and operating goals and have been unable to obtain additional
financing to run their business and to acquire equipment from us and other
providers. Accordingly, many of these companies are seeking to reduce the level
of their expenditures and some have sought bankruptcy protection. The financial
difficulties experienced by the telecommunications industry may diminish our
ability to obtain additional capital and may require us to consider undertaking
further restructurings to reduce costs in addition to the restructuring we
already carried out in 2001, 2002 and 2003.

         In addition to the effect on any new orders, the global downturn may
also affect the amount of products we deliver to some of our existing customers,
as they may be having difficulty obtaining necessary capital resources required
to fund the expansion of their businesses. The current volatility of the
financial markets and economic conditions in the U.S. and internationally may
also intensify the uncertainty experienced by some of our customers, who may
find it increasingly difficult to predict demand for their products and
services. As a result, some customers may attempt to slow or postpone the
development of new technologies and products. These factors may adversely affect
demand for our products and services, including possible suspension of contracts
with us and the reluctance of potential customers to evaluate our products or
services. Also due to the difficult financing and economic conditions, some of
our customers may not be able to pay us for products that we have already
delivered. These factors together could have a material adverse effect on our
business, results of operations and financial condition.

         DUE TO THE CURRENT VOLATILITY OF THE TELECOMMUNICATIONS EQUIPMENT
MARKET, FUTURE DEMAND FOR OUR PRODUCTS IS DIFFICULT TO PREDICT AND, THEREFORE,
WE MAY NOT RESPOND TO SUCH DEMAND ACCURATELY.

         The market for telecommunications equipment, in which we operate, is
currently very volatile. This makes it difficult for us to predict future demand
for our products. As a result of this volatility, some equipment manufacturers
may have recently experienced periods of production overcapacity, oversupply,
reduced prices or lower net sales. At the beginning of 2001, we responded to
high demand for our products and overproduced, as it turned out during the
second half of that year, which resulted in our having excess stock and
experiencing downward pressure on prices for our products. We are now awaiting
increase in the demand for our products. However, due to the market volatility
it is difficult to predict the extent of changes in future demand and,
therefore, we may be unable to respond accurately to such changes.

         OUR WORKING CAPITAL NEEDS, FUTURE CAPITAL EXPENDITURES AND POTENTIAL
ACQUISITIONS MAY REQUIRE ADDITIONAL FINANCING, WHICH MAY BE DIFFICULT TO OBTAIN.

         We may require additional capital to fund our operations, achieve our
business strategy and sustain our business. We cannot offer any assurance that
our existing and anticipated sources of capital will be sufficient for

                                       6
<PAGE>

our needs, or that we will be able to access additional capital if needed. Our
future capital requirements will depend on competitive conditions, potential
acquisitions in a consolidating market, regulatory and technological
developments and equipment costs and other costs associated with the manufacture
of our products. In particular, the actual amounts and timing of our capital
requirements may vary significantly from our estimates. We may not be able to
obtain additional capital on terms that are favorable or even acceptable to us.
Any failure by us to raise such capital would require us to delay or abandon
some or all of our plans, which could materially adversely affect our business.

         THE LOSS OF KEY TECHNICAL AND SCIENTIFIC PERSONNEL COULD HAVE A
SIGNIFICANT NEGATIVE IMPACT ON OUR ABILITY TO OPERATE OUR BUSINESS.

         We rely on being at the forefront of technological developments in our
areas of expertise. In order to maintain this position, we must attract
personnel with high levels of expertise within our core business areas. Loss of
key technical and scientific personnel, especially in Norway, the United Kingdom
and Singapore, could result in the loss of vital expertise which would have a
negative effect on the development of new products, the improvement of existing
products, customer service and other areas of our operations.

         WE ARE DEPENDENT ON THE TIMELY DEVELOPMENT OF NEW PRODUCTS IN RESPONSE
TO RAPID TECHNOLOGICAL CHANGES AND IF WE FAIL TO DELIVER NEW PRODUCTS, OUR
ABILITY TO COMPETE WILL SUFFER, SIGNIFICANTLY AFFECTING OUR RESULTS OF
OPERATIONS.

         The technology underlying our products is subject to significant and
rapid changes. Because of the significant technological changes that have taken
place in the telecommunications industry and those that may occur in the future,
our business is dependent on whether we can design, develop, manufacture and
market competitive products in a timely manner. As a result, our activities
require significant expenditure on research and development, which has accounted
for approximately 10% and 8% of our sales, not including grants from the
Norwegian government, in 2002 and 2003, respectively. We have significantly
decreased our research and development expenditure in 2003, as compared to each
of 2002 and 2001, because more of our customers covered research and development
expenses as part of our projects during that period. Any prolonged delay,
technical impossibility of completion or substantial cost overruns in our
research and development efforts, as well as insufficient funding of research
and development activities, could impair our ability to introduce new products,
which could adversely affect our results of operations.

         The introduction of new technologies has resulted, and may in the
future result, in delays in the production of our products. Any prolonged delay
in our production processes could impair our ability to deliver our products in
a timely manner, which could adversely affect our results of operations.

         OUR PLANS TO EXPAND OUR BUSINESS AFTER THE END OF THE ECONOMIC DOWNTURN
MAY REQUIRE SIGNIFICANT MANAGEMENT RESOURCES THAT WOULD OTHERWISE BE USED IN OUR
OPERATIONS AND RESULT IN A DECREASE IN REVENUES.

         We plan to expand our business after the end of the economic downturn.
This expansion will require us to implement a variety of additional systems,
procedures and controls to manage higher inventory levels and working capital
requirements. We cannot assure you that any expansion that we undertake will be
successfully completed. In addition, expansion may cause a significant strain on
our management, financial and other resources. We cannot assure you that sales
will remain at, or increase above, the levels we had prior to the economic
downturn, or that our systems, procedures or controls will be adequate to
support our operations. If we are unable to manage expansion effectively, our
business and financial results could be adversely affected.

                                       7
<PAGE>

         WE ARE STILL DEPENDENT ON THE PRODUCTS WE PROVIDE TO USERS OF THE
INMARSAT SYSTEMS WHICH IS A MATURE MARKET WITH LIMITED GROWTH.

         Our mobile satellite communications products are designed to operate in
the INMARSAT systems, which currently offer the only global mobile satellite
communications network in full operation. This market is mature and offers few
opportunities for growth. We are in the process of developing user terminals for
the next generation INMARSAT service, but we do not expect that sub-market to
offer growth opportunities either. If we are unable to take advantage of the
limited growth opportunities of this segment of our business, or if we are not
successful in further development of our other business segments, our company
will not experience substantial growth.

         WE ARE DEPENDENT ON A NUMBER OF FACTORS AFFECTING OUR CUSTOMERS'
SATISFACTION WITH OUR PERFORMANCE. IF WE DO NOT MEET THEIR EXPECTATIONS, OUR
BUSINESS AND FINANCIAL RESULTS WILL SUFFER.

         Every year, we enter into a number of major contracts, each of which
has many milestone requirements we must meet. If our customers experience delays
in our performance under these contracts, they can make contractual claims
against us and our project costs would be increased. We may also be subjected to
warranty claims with respect to repairs and upgrades relating to the high
technology products we manufacture. In addition, we are dependent on our regular
use of subcontractors for various projects. We are generally responsible for
ensuring that the subcontractors supply products or services timely and
correctly. While we attempt to use back-to-back contracts, as well as establish
long-term relationships with significant suppliers and identify alternative
supply sources, there is no assurance that these strategies will be successful.
Our failure or the failure of our subcontractors to deliver satisfactory
performance to the customers, as well as assertion against us of guarantee
claims relating to our products, may have a material adverse effect on our
business.

         WE ARE DEPENDENT PRIMARILY ON ONE MANUFACTURER IN THE SATELLITE
COMMUNICATIONS AREA, AND POSSIBLY IN THE TRANSMISSION NETWORKS AREA, AND THE
FAILURE OF THIS MANUFACTURER TO PERFORM WOULD RESULT IN A MATERIAL LOSS OF SALES
AND CUSTOMERS.

         We outsource the manufacturing of our satellite communications
terminals pursuant to long-term agreements primarily to Flextronics in Oslo,
Norway, and also to Kitron in Risor, Norway, as an alternative supplier. We also
use the same manufacturers in our transmission networks business when we do not
have sufficient manufacturing capacity ourselves. If Flextronics and Kitron do
not perform when required, we will have trouble meeting delivery schedules,
which could result in a material loss of sales and customers. In addition, in
such event, we would be required to find an alternative source of satellite
communications terminals and possibly of equipment used in our transmission
networks business, resulting in the incurrence of additional costs.

         WE ARE DEPENDENT ON A SINGLE MANUFACTURING FACILITY FOR MICROWAVE
TRANSMISSION EQUIPMENT. ANY SIGNIFICANT INTERRUPTION MAY LEAVE US WITHOUT A
READILY AVAILABLE SOURCE FOR OUR CUSTOM-DESIGNED COMPONENTS.

         Our manufacturing activities with respect to our microwave transmission
equipment and systems currently takes place in our production facility in
Bergen, Norway. A significant interruption of production at this facility could
result in our failure to meet delivery schedules which could result in the loss
of sales and customers. In addition, because the microwave transmission
components manufactured at our production facility are custom-designed for
assembly into our products, there is no readily available alternative source for
these components.

         WE MAY FACE DELAYS IN PAYMENTS ON LARGE CONTRACTS CAUSING US TO
RESTRICT THE USE OF OUR FUNDS TO COVER OUR OPERATIONAL EXPENSES.

         From time to time, we enter into contracts with our customers that
involve large purchase prices. The number of these contracts and the total
revenue that they generate, as a percentage of our total contracts and of our
total revenue, has decreased in two of the last three years but may increase
again in the future. Any delays in payment under these contracts could adversely
affect our cash flow positions and may, at that time, result in the need for
additional borrowings to fund current operations. In addition, any delays in, or
cost overruns relating to, our performance under these contracts may have
adverse period-on-period earnings effects and result in the incurrence of
contractual penalties.

                                       8
<PAGE>

         WE ARE DEPENDENT ON OUR SIGNIFICANT INTERNATIONAL OPERATIONS, WHICH
FACE UNIQUE OBSTACLES AND COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS.

         Sales of products delivered to customers outside of Norway represented
approximately 86.2% of our total sales in 2003 as compared to 88.7% of total
sales in 2002. We made a substantial portion of our sales in Europe, Asia and
America. Various international risks could negatively impact our international
operations, which could have a material adverse effect on our revenues, access
to capital and market position. Our international sales and manufacturing
operations are subject to the risks normally associated with international
operations, including:

            -     currency conversion risks and currency fluctuations,

            -     political instability, civil unrest and economic instability,

            -     imposition of tariffs,

            -     limitations, including taxes, on the repatriation of earnings,

            -     greater difficulty enforcing intellectual property rights and
                  weaker laws protecting such rights,

            -     complications in complying with laws in varying jurisdictions
                  and changes in governmental policies,

            -     concentration of credit risk of customers and Nera's own
                  credit risk, which may be increasing due to the present trend
                  of concentration around major units in the international
                  telecommunications industry,

            -     natural disasters and the greater difficulty and expense in
                  recovering therefrom, and

            -     transportation delays and interruptions.

         WE ARE EXPOSED TO CURRENCY FLUCTUATIONS WHICH INFLUENCE OUR COMPETITIVE
POSITION AND OUR REVENUES REGARDLESS OF THE MARKET ACCEPTANCE OF OUR PRODUCTS
AND THE SALES EFFORTS OF OUR EMPLOYEES AND BUSINESS PARTNERS.

         As an international group, we are exposed to major exchange
fluctuations between currencies. Changes in the relative strengths of different
currencies affect our competitive positions and our revenues. Our foreign
exchange policy is based on utilizing financial instruments to balance the
difference between accounts receivable and liabilities in foreign currencies,
however, no assurance can be given that this policy will ultimately be
successful. "Item 5. Operating and Financial Review and Prospects -- Operating
Results" and " -- Liquidity and Capital Resources" contains a description of the
effect of currency fluctuations on our financial results.

         ITEM 4. INFORMATION ON THE COMPANY

         A.       HISTORY AND DEVELOPMENT OF THE COMPANY

         We are a joint-stock company incorporated in the Kingdom of Norway on
September 1, 1987 under the Norwegian Companies Act. Our principal executive
offices are located at Kokstadveien 23, P.O. Box 7090 N-5020 Bergen, Norway, and
our telephone number is 011 47 5522 5100.

         While we have been in existence as a joint-stock company in Norway only
since 1987, we began producing radio-based wireless communication equipment more
than 50 years ago and have been a leader in this field for a significant portion
of our history. As the world of telecommunications equipment has changed, we
have changed as well to meet the challenges of the times. The following
description of our development over the last five years provides the latest
chapter in our history as background for the description of our current business
and our results of operations, which follow below.

                                       9
<PAGE>

         On April 1, 1998, we implemented a reorganization, pursuant to which we
became a holding company, Nera ASA, with four operating subsidiaries: Nera
Networks AS (comprising the transmission systems business area); Nera SatCom AS
(comprising the satellite communications business area); Nera Electronics AS
(comprising our production operations) and Nera Transmission Management Network
AS. Our Norwegian subsidiaries in the dedicated communications business area
(Contec, Infotema and Mobildata) remained independent subsidiaries and Datacomm,
Electrical/CATV and cables, the other businesses in this area remained in our
Southeast Asian operations. The 1998 reorganization was aimed at improving
financial controls within, and providing stronger strategic focus for, each of
those business areas. In December 1998, in line with our desire to focus on our
core business, we sold our transmission management network business, which
formerly provided integrated solutions for a wide range of telecommunications
systems, to Protek Network Management Ltd. (UK) for cash.

         During 1999, as part of our comprehensive program of corporate
improvements and increased focus on our core activities, we reduced our
ownership interest in NeraTel, our Singapore subsidiary, divested our airtime
billing business, sold a portion of our production facilities and entered into
agreements to acquire two businesses in the United States from World Access with
activities in the areas of wireless local loop infrastructure and radio-link
transmission equipment. These acquisitions were made in 2000. On June 23, 1999,
NeraTel launched an initial public offering for its Singapore dollar listing on
the Mainboard of the Stock Exchange of Singapore Limited. NeraTel is a solutions
provider for the telecommunications and information technology industries with a
comprehensive product and service range covering satellite communications,
microwave radio transmissions, information technology networking infrastructure
and high value-added electronic contract manufacturing. 44,400,000 ordinary
shares were sold in the offering, representing 49.3% of NeraTel's share capital.
13,000,000 shares were sold to the public and the remaining 31,400,000 shares
were privately placed, of which 4,440,000 shares were reserved for NeraTel's
employees and business associates who contributed to our success. After the
initial public offering, we held 47.3% of the shares in NeraTel. The sale
resulted in proceeds to us of approximately NOK 150 million ($17.0 million) and
the gain on the sale was approximately NOK 106 million ($12.0 million). The
shares of NeraTel started trading on the Stock Exchange of Singapore on July 1,
1999. In addition, in December 1999 we sold our airtime billing business in
Merstham (United Kingdom) in return for approximately NOK 107 million ($11.92
million) and a 20% interest in the share capital of the acquiror (NOK 137
million ($15.27 million) in total). We sold CNH Communications de Venezuela as
well, for approximately NOK 19.4 million ($2.16 million). The financial impact
of this reorganization is described in "Item 5. Operating and Financial Review
and Prospects."

         The year 2000 brought developments in our broadband operations, a
public offering in Norway and outsourcing of some of our manufacturing capacity.
In April 2000, we acquired two businesses from World Access for a total amount
of $13.6 million with the goal of giving us a basis to develop
point-to-multipoint products for wireless broadband access, strengthening our
existing transmission networks business and giving us expertise on which to
establish a presence in North America.

         In May 2000, we issued 25 million shares in a public offering in Norway
with preemptive rights for existing shareholders and raised NOK 887.5 million
($100.7 million) (including underwriting discounts and expenses). The offering
was not made available to U.S. and Canadian shareholders or investors. We intend
to continue to use the proceeds of this offering to continue our operations
during these more challenging times and grow our business once an economic
recovery is evident. In July 2000, we sold our production facilities in Oslo to
Flextronics AS for approximately NOK 101.7 million ($11.33 million) and entered
into a strategic cooperation agreement with Flextronics with respect to the
production of electronics used in our satellite communications products.

         The year 2001 saw a declining world economy in general and the near
collapse of the telecommunications industry in particular. We saw the necessity
to take restructuring measures in the middle and at the end of the year. In June
2001, we restructured the wireless broadband access operations we had acquired
in 2000. Due to the adverse changes in the worldwide economic environment which,
among other things, delayed the development of the broadband market, we have
slowed down our efforts to develop point-to-multipoint products and penetrate
the U.S. market. However, this has not affected our long-term assessment of the
potential of the broadband market, in which the system design experience and
technology development acquired by us may prove invaluable. We moved our
satellite broadband activities to a separate subsidiary, called Nera Broadband
Satellite AS. As a result, our wireless broadband access business will be
targeted only to terrestrial activities, with a more focused approach to
operations and investment.

                                       10
<PAGE>

         In November 2001, we increased our ownership interest in NeraTel, our
Singapore subsidiary, from 47.3% to 50.18%. As a result of the acquisition of a
majority interest in this subsidiary, we changed our accounting practice for
NeraTel from consolidation according to the equity method to full consolidation
as a subsidiary.

         In December 2001, we undertook a restructuring in order to address the
continuation of weaker market conditions and our strategic challenges. The
effects of the measures taken in December 2001 continue in 2002. The
restructuring included lay-offs in the United States, Latin America and Norway
and reduction of some activities. Approximately 120 employees at our
transmission business area in Bergen received notice of temporary lay-offs
effective in January 2002. During the second half of 2001, activities at
production plants in Sao Paulo, Brazil, and Boston, U.S., have been reduced, and
broadband activities by our subsidiary NeraTel Inc. in Dallas, U.S. have been
closed down. Further, in March 2002 we sold some assets related to our Velocity
2000 broadband access product line developed in Dallas to SR Telecom Inc. in
Canada. The financial impact of this reorganization, including related
extraordinary provisions and write-downs in 2001, is described in "Item 5.
Operating and Financial Review and Prospects."

         In 2002 we decided that further restructuring was necessary as the
market conditions continued to be weak. As a result, we discontinued all
production within Nera, Ltd., our unit in Great Britain. The related
restructuring cost is described in Item 5 -- Operating and Financial Review and
Prospects and in Note 12 to the Financial Statements in item 17.

         In 2003 a restructuring of the supply chain in Nera Networks AS has
been carried out. This has resulted in dismissals and early retirement. Also in
2003 a restructuring of the Boston activities has been carried out. For more
information, please see Item 5 -- Operating and Financial Review and Prospects
and Note 12 to the Financial Statements in Item 17.

         In March 2003 Nera Telecommunications Ltd. (Singapore) terminated the
joint venture with TVMobile PTE Ltd. and disposed of its entire investment in
TVMobile comprising 8,000,000 ordinary shares of S$ 1.00 (NOK 4.15) each fully
paid-up capital of TVMobile. The cash consideration of S$1,500,000 represented a
capital gain of approx. NOK 6 million in the financial Statements of Nera in the
first quarter of 2003.

         Management of Nera expects to continue addressing market conditions
that remain weaker than its earlier estimates and to continue reducing product
costs during the remainder of 2004 and 2005 by entering into more favorable
purchase agreements and simplified technical solutions. Management has also
announced that it will assess the production locations, the global sales
structure and the level of development costs.

         B.       BUSINESS OVERVIEW

         INTRODUCTION

         We design, develop, manufacture, market and sell wireless
telecommunications equipment and systems. We have organized our business into
the following three segments:

            -     TRANSMISSION NETWORKS - This business area provides radio link
                  equipment and systems, antenna systems and turnkey
                  telecommunications transmission networks in the 2GHz to 38GHz
                  frequency and from the low capacity ranges (from two to 34
                  megabits per second also referred to as PDH) to the high
                  capacity (from 34 to 620 megabits per second, also referred to
                  as SDH) ranges. We sell primarily to original equipment
                  manufacturers such as Ericsson, Lucent, Nokia and Nortel
                  Networks and to public telecommunications providers and
                  private network operators. We have been in this business since
                  the early 1950s and we believe that we currently have an
                  approximate market share of 5% of the world's radio link
                  market, 1% of the PDH world market and approx. 15% of the SDH
                  world market. Transmission networks accounted for 52.8% of
                  sales in 2003, 54.9% in 2002 and 76.8% in 2001. As at December
                  31, 2003, transmission networks accounted for 55.5% of our
                  backlog. Our transmission networks backlog has been stable
                  during 2003.

            -     SATELLITE COMMUNICATIONS - This business area provides
                  satellite communication equipment to professionals and
                  consumers for use on the seas as an alternative to terrestrial
                  networks where

                                       11
<PAGE>

                  those networks do not meet the requirements of the user and in
                  remote locations where land-based wireless mobile
                  communications are not available. We have been in this
                  business since the early 1970s and are the market leader for
                  microwave radio relay systems, mobile satellite terminals, and
                  land earth stations used in the International Maritime
                  Satellite Organization's global satellite communications
                  system, generally referred to as INMARSAT. Satellite
                  communications accounted for 25.6% of sales in 2003, 25.2% in
                  2002 and 20.7% in 2001. In 2003, satellite communications
                  accounted for 24.4% of our backlog. During 2003, our satellite
                  communications backlog has declined.

            -     WIRELESS BROADBAND ACCESS - We expanded into this business
                  area in the first quarter of 2000 by acquiring a company that
                  was developing the Velocity 2000 radio link equipment for
                  point-to-multipoint wireless transmission, referred to as a
                  local multipoint distribution systems, or LMDS. To date, this
                  business area has not contributed materially to our sales
                  (2.8%), and the reduction in our wireless activities resulted
                  in restructuring charges in 2001. We expect the remainder of
                  our terrestrial wireless broadband access operations to become
                  part of our transmission networks business area in the future.
                  Due to current slowdown in the broadband market, we
                  restructured our broadband operations by moving the satellite
                  activities to Nera Broadband Satellite AS, our subsidiary.
                  Broadband communications via satellite provide efficient
                  access to the entire spectrum of broadband services, including
                  those areas which are not connected to the cable networks due
                  to their location or because they are sparsely populated.
                  Nera's satellite broadband solutions are based on the highly
                  cost-effective DVB-RCS (Digital Video Broadcasting - Return
                  Channel via Satellite) standard, which is gaining an
                  increasingly stronger foothold as the global standard for
                  two-way broadband communications via satellite.

         In addition to these main three business segments, we also own a 50.18%
interest in NeraTel, a public company in Singapore. NeraTel contributed 29.8% to
our sales in 2003, of which 14.5% is reported under the business areas
Transmission Networks and Satellite Communications described above. The
remaining 15.3% represents Contract Manufacturing and IT-business. We increased
our ownership interest in NeraTel on November 28, 2001 and, as a result,
NeraTel's sales of the month of December, 2001 were the only sales included in
our income statement for the year 2001. Following a discussion of our strategy,
we describe each of our three business areas, NeraTel, our suppliers, our
customers, product warranty and service, backlog, sales, marketing and
distribution, intellectual property, competition and the regulation we are
subject to.

         STRATEGY

         Until the end of the economic downturn, we intend to preserve and
develop our core expertise and our capital. Through our restructuring efforts we
are cutting costs and improving our operations, our marketing and our product
range. Once the economic conditions improve, our strategic objective is to
expand our operations in selected areas of the telecommunications market, for
which we anticipate increased global demand and in which we believe that our
experience and capabilities in the design, development, manufacturing and
marketing of telecommunications equipment, systems and services give us a
competitive advantage compared to existing or potential competitors. We believe
that our core area of technological expertise is the transmission and processing
of microwave signals and that our core areas of experience are in the design,
development, manufacture and marketing of wireless telecommunications equipment
and systems, areas in which we and our predecessors have operated since 1947.

         Effective March 27, 2002, we sold some assets related to our Velocity
2000 broadband access product line developed in Dallas, U.S. to SR Telecom Inc.
in Canada. This transaction follows a halting of further testing of Velocity
products in late September 2001 and the related discontinuation of activities of
our subsidiary NeraTel Inc. in Dallas as a result of continued adverse market
conditions in the broadband market in the U.S.

         In April 2002 we implemented changes to our organizational structure to
improve focus on our customers' needs and to better manage our market and
product development, production and supply. Our operations are now divided into
three regions, Europe/Middle East/Africa, Asia Pacific and Americas. The units
covering these three operations are dedicated to our specific markets and
customers, while contributing to our global activities. We also formed new
operative units for Client Management/Product Portfolio, Supply Chain Management
and Technology

                                       12
<PAGE>

Management, which allows us to better coordinate our activities, exploit market
opportunities through global customers and use research and development
investments more efficiently. Nera's executive committee now comprises the chief
executive officer, regional directors, unit directors, and directors of staff
functions.

         We market our equipment and systems worldwide from our facilities in
Norway and through our network of subsidiaries, sales offices, local agents and
distributors. During 2003, we have experienced a stabilization in the demand for
our products as compared to 2002. In 2003, sales of products delivered to
customers outside of Norway represented approximately 86.4% of our total sales.
Our important markets outside Norway include Asia (principally Philippines,
Malaysia, Thailand, Indonesia and Singapore) with 35.8%, continental Europe
(principally France, Italy, Poland, Russia, Sweden and Germany) with 21.2%,
North America and South America with 19.7% and the United Kingdom, with 5.4% of
sales.

         The markets in which we operate are characterized by deregulation and
rapid technological change. The increasing convergence of information technology
and telecommunications creates attractive growth opportunities for us based on
the expertise and market knowledge we have built up over many years, provided
the general economic environment is positive. Both the pace of technical change
and the increased willingness of companies and individuals to make use of the
opportunities technology offers are creating an increase in the demand for
transmission capacity and efficient access to its use, although that increase is
not as rapid as was once expected. While the telecommunications industry has
experienced a slowdown internationally since 2001, this does not change our
long-term view of this industry and the opportunities it presents to us.

         TRANSMISSION NETWORKS

         We design, develop, manufacture, market and sell selected
telecommunications transmission equipment and systems, consisting of high and
low capacity microwave radio transmission (also known as radio link or radio
relay) equipment and systems, turnkey telecommunications transmission networks
and antenna systems, for use in public, private, military and other cellular
telecommunications networks.

                                       13
<PAGE>

                        [PHOTO OF TRANSMISSION NETWORKS]

         Transmission networks provides radio link equipment and systems,
turnkey telecommunications networks and antenna systems. The two main elements
that define transmission networks characteristics are their capacity and
frequency. The various combinations (high capacity-high frequency, high
capacity-low frequency, low capacity -low frequency and low capacity-high
frequency) all have specific advantages in various environments and focus on
different market segments with specific products. Capacity primarily indicates
the volume of signals the products can handle. Products in the high capacity
range have the ability to transmit and receive more signals (Mb/s) than products
in the low capacity range. Products with high capacity are therefore often used
in networks, such as those between major cities. Frequency refers to wave length
and indicates primarily how long a distance signals can travel before they must
reach the next receiver-transmitter antennae to be regenerated and be sent on to
the following antennae. Low frequency signals can travel greater distances than
high frequency signals and are therefore often used in long haul transmission
networks, such as those in desolate areas. High frequency products offer the
best solutions in urban areas, where the required distance to transmit signals
is not as long but the requirement for capacity is high.

                                       14
<PAGE>

                         [PHOTO OF NERA RADIO PRODUCTS]

         As radio relay technology assumes new roles in telecommunications
networks, we have benefited from new opportunities for our transmission
equipment and systems. Deregulation has led to the implementation of new
transmission networks in a number of countries, and new geographic areas have
opened for market expansion in both developed and emerging economies. At the
same time, new network operators have been formed to meet the demand for new
services such as cellular telecommunications, paging and Internet and data
transmission. Many of these operators are choosing microwave radio as an
important part of their networks, both to extend the network coverage and to
serve as a back-up system for networks using other transmission media.

         Revenues generated from the transmission networks business area were
approximately NOK 1,189 million ($ 178 million) (52.8% of total sales) in 2003,
NOK 1,343 million ($193 million) (54.9% of total sales) in 2002 and NOK 2,222
million ($247 million) (76.8% of total sales) in 2001.

     -   MICROWAVE RADIO PRODUCTS. We develop, produce and sell high- and
low-capacity microwave radio equipment used in terrestrial telecommunications
networks carrying voice communication, facsimile, data and radar information, as
well as radio and television program transmissions. We manufacture digital radio
links incorporating devices such as modulators, demodulators, receivers,
transmitters, power supplies, branching units, signal encoders and decoders and
supervisory systems. Our microwave radio relay and access radio systems operate
at frequencies between 1.7 and 38 Ghz and have capacities of between two
megabits per second (providing 30 telephone channels) and 155 megabits per
second (providing 2,000 telephone channels).

         The most common standard for digital transmission networks is PDH. Our
traditional PDH equipment is primarily low-capacity transmission equipment
operating at eight or 34 megabits per second. We also market modular PDH
transmission equipment operating at integral multiples of two megabits per
second.

         In 1988, SDH was adopted as the new standard for digital transmission
networks by the International Telecommunications Union, known as the ITU, and
SDH products have become the predominant systems used for high capacity
transfers. We believe we are a leading supplier of radio relay equipment
worldwide for SDH transmission networks. Our STM-1 terminal, which has a
capacity of 155 megabits per second at frequencies between four and 38 GHz, can
serve as the transmission element for radio-based SDH networks. In April 2002,
we

                                       15
<PAGE>

have entered into an agreement with Nokia, pursuant to which we can use its PDH
radio and Nokia, in turn, can use some of our products developed at our Boston
site. This enhances our existing partnership with Nokia, which had previously
encompassed only SDH products. While we expect PDH systems to maintain a
significant market share during the next few years because they are more suited
to low-capacity transmission, we expect that there will be a continued shift to
SDH systems due to their increased capacity as compared to PDH systems.

         In response to the expected shift toward SDH products, we have
developed SDH radios in frequency bands of 6, 7, 8, 11, 13, 15, 18, 23, 26 and
38 Ghz, marketed under the "CityLink" name. We have developed equipment in
accordance with FCC (North American) standards and have obtained FCC approval
for some of the frequencies used with this equipment. CityLink is now also
marketed in a SONET version, the FCC equivalent to SDH. In June 2001, we have
expanded the CityLink family of products to include products with 28 Mhz
bandwidth, and we are now working on all versions of the new product family,
third generation CityLink, expected to be completed by the second half of 2002.
The new products are used in connection with the construction and increasing
popularity in the Nordic countries and some other parts of Europe of new
networks, such as GSM, General Packet Radio Service (wireless data
communications at speeds up to 115 Kbps) and Universal Mobile Telecommunications
System (third generation mobile telephony standard in Europe, or 3-G). These
products are based on the most modern SDH/SONET microwave radio for wireless
infrastructure. The new Nera CityLink also uses multiple modulation schemes, so
that one can accommodate STM-1 or 155 Mbit in 28, 40 and 50/56 MHz channel
plans, and is designed for access systems directly linked to the LAN networks.
We plan to gradually replace the rest of the product range by new generations of
equipment. SDH technology is also expected to be used for systems, which are
currently built using PDH technology.

         Through our expertise in the area of SDH technology, we intend to
develop a competitive advantage over other suppliers of radio link products in
the coming years. We also intend to play an active role in the process of
consolidation, which is expected to take place in this market over the next few
years. In addition, as 3-G systems are further developed, we will aim to be a
preferred partner of major operators and system integrators, as we can offer
greater efficiency for developing infrastructure networks and increasing
capacity of mobile networks base stations. Finally, we are following the early
stages of development of digital broadcasting networks. We gained invaluable
experience through our recent development of a terrestrial, digital TV network
in Australia for NTL, and we hope to apply this expertise in similar projects in
the future. There can be no assurance that these developments will occur, or
that they will be positive for our business.

         To supply customers with complete telecommunications systems, we
purchase certain equipment from several other suppliers, such as Ericsson
(Sweden), Nokia (Finland), Marconi (the United Kingdom) and ECI Telecom
(Israel). Equipment obtained from outside suppliers typically includes add-drop
multiplexers, digital cross-connects, various interface equipment and other
system elements. These elements are incorporated in our microwave radio products
at our facilities in Bergen, Norway, or at the facilities of Kitron ASA, with
whom we have a long-term cooperation agreement.

         We sell our transmissions systems to telecommunications operators,
cellular network operators and, to a lesser extent, to dedicated network users
such as oil and gas companies, power utilities, railroads and military
organizations. Contracts range in value from approximately NOK one million up to
approximately NOK 250 million. Because of the project-oriented nature of many of
our radio link equipment and systems contracts, our largest customers may change
from year to year.

         Our largest customers for transmissions systems in terms of contract
amount over the past three years have been NODECA (Norway), NTL (Australia),
Globe Telecom (Philippines), IUSACELL (Mexico), and Ericsson (Jamaica). In
addition, we have an original equipment manufacturers agreement with Lucent
Technologies, Nokia and Ericsson for the supply of SDH microwave radio
transmission systems for Lucent's transmission projects worldwide. We hope to be
able to capitalize on a possible trend indicated by these system integrators
toward outsourcing the responsibility of development of larger sections of
mobile networks. The sale of radio links has roughly the same geographical
spread as our total sales, but with a somewhat larger share in Latin America.
For more information regarding our sales by geographical destination, please see
"-Sales, marketing and distribution."

                                       16
<PAGE>

         Our microwave radio transmission equipment incorporates microwave
transistors, which can only be obtained from a small number of suppliers. We
maintain substantial inventories of microwave transistors and seek to maintain
long-term contracts with our principal suppliers whenever practicable.

         Manufacturing of our transmission networks equipment mainly takes place
at one plant at Kokstad, outside of Bergen, which mainly produces high-capacity
SDH radio transmitters and receivers. In addition to high-capacity radios, our
plant produces mechanical equipment, circuit boards, antennae up to 3.5 meters
in diameter and some military products. The largest customer for this plant is
the transmission networks business area. The Kokstad facility also engages in
manufacturing for a few third-party customers. At present, there are 345
employees at the Kokstad plant. When our manufacturing needs exceed the plant's
capacity, we outsource some of the production to Flextronics in Oslo, Norway,
and also to Kitron in Risor, Norway, as an alternative supplier. In 2000, we
entered into an agreement with Flextronics for the assembly of a number of our
transmission networks products. In 2001, we have entered into a similar
agreement with Kitron relating to our transmission networks business.

         The manufacturing operations at our production facility range from
complete assembly of a particular product by one individual or a small group of
individuals to semi-automated assembly lines for volume production of certain
pieces of equipment. We make extensive use of surface-mounted devices in the
assembly of printed circuit boards. Because many of our products include
precision electronic components requiring close tolerances, we conduct test and
inspection procedures throughout the manufacturing and assembly process. Final
test procedures include quality control inspections, temperature and burn-in
tests and factory acceptance tests on assembled equipment to simulate actual
system configuration.

     -   TURNKEY TELECOMMUNICATIONS TRANSMISSION NETWORKS. We are a turnkey
supplier of telecommunications transmissions networks, which comprise varying
combinations of radio relays, antennas, feeders, towers, fiber optic terminals
and cables, multiplexers and cross-connect equipment. We design, develop,
manufacture, sell and install complete telecommunications networks and
operations, administration and maintenance management systems. For most turnkey
projects, we conduct the necessary surveying work and produce transmitters,
receivers, waveguides, racks and antenna systems, which together typically
represent approximately one-half of the value of the turnkey projects. We
acquire the remainder of the equipment and facilities, such as towers, shelters,
diesel generators, battery banks, solar cells and add-drop multiplexers, from
subcontractors.

         We supply turnkey telecommunications transmission networks, principally
to telecommunications providers and utilities in the Indian subcontinent, the
Middle East, Southeast Asia, Latin America and Africa. Our two most important
turnkey projects in 2003 were in the Philippines and Jamaica.

         When supplying turnkey transmission systems, we obtain certain
equipment and facilities, such as towers, shelters, diesel generators, battery
banks, solar cells and add-drop multiplexers, from subcontractors.

     -   ANTENNA SYSTEMS. We also design and manufacture antennas (principally
dish aerials) to meet specific demands imposed by various operating environments
and by the radio relay equipment being employed. We produce a variety of
antennas in sizes up to six meters in diameter for all recommended frequency
bands. We sell our antennas both in conjunction with our other transmission
equipment and on a stand-alone basis.

         We manufacture our antenna systems with components from our suppliers.
Power supplies, masts and installation materials are purchased from approved
suppliers, usually local regional producers, by competitive tender. In 2003, our
principal customers for antenna systems were the microwave radio products and
antenna systems divisions of our transmission networks business area, Terra.com
(Sweden) and FMV (Sweden).

         Future Prospects

         2003 was a weak year for telecom equipment vendors in general and for
Nera's Transmission business as well. Partly, this was due to weak macroeconomic
development (e.g. recession in Latin America). In addition, the large in
debtedness of many large telecom operators worldwide - Europe and US operators
in particular - contributed to a decline in telecom capital spending. The
investment tightening was justified in view of the reduction in mobile
subscriber growth that we witnessed during the year - and in view of the fact
that the technology for next-

                                       17

<PAGE>

generation mobile systems was not yet available. The mobile market growth has
been the dominant factor behind telecom infrastructure market growth in the
recent years. Some regions were less affected by the downturn in 2003. Parts of
Eastern Europe experienced a strong growth in mobile subscribers - which
contributed to continued growth in mobile infrastructure in this region. The
same is true for parts of Asia-Pacific - primarily South East Asia.

         The liberalisation of the telecommunications market implemented in
Europe and in the US in the 1990s is now under way in other regions. The
traditional monopolists in a number of Asian and Middle Eastern countries are
now facing competition. Consequently, we anticipate continued growth in the
development of the infrastructure for telecommunications in certain areas, even
though there is little evidence of a significant growth in the overall demand
for our transmission products in the near future. We believe the transmission
market is approaching a more stable period. However, due to many factors which
influence new growth, not least macroeconomic factors, it is uncertain when
growth will come and how strong it will be.

         SATELLITE COMMUNICATIONS

         We design, develop, manufacture, market and sell mobile satellite
terminals (comprising marine and land mobile earth stations) and land earth
stations for satellite communications networks, principally INMARSAT. We supply
a full range of land earth stations and we are the supplier producing the widest
range of terminals for the INMARSAT system.

                    [PHOTO OF MOBILE SATELLITE COMMUNICATION]

         We also market our mobile satellite terminals and land earth stations
for various regional satellite systems. INMARSAT services include the following:

                                       18
<PAGE>

            -     the original INMARSAT A analog system, which provides maritime
                  and land mobile voice, data facsimile and telex links,

            -     the INMARSAT B system, a digital replacement for INMARSAT A
                  providing voice, data, facsimile and telex capabilities,

            -     the INMARSAT C analog system, which provides data and telex
                  links,

            -     the INMARSAT M system, a digital service providing voice,
                  facsimile and data capabilities for users of smaller
                  ship-borne and land mobile terminals,

            -     the INMARSAT Aero system, which provides global in-flight
                  telecommunications services for commercial airlines, and

            -     the INMARSAT Mini-M service, which is designed to allow the
                  operation of laptop-sized satellite terminals.

         INMARSAT's A, B, C, M and Aero systems operate through a network of
geostationary satellites owned and operated by INMARSAT since the late 1970s.
The INMARSAT Mini-M operates through a generation of geostationary satellites
launched in 1996. These satellites provide increased capacity through the use of
spot-beam technology, which concentrates signal power and provides increased
sensitivity at the earth's surface, thus enabling telecommunications
transmissions to be relayed from smaller and less powerful terminals. The
INMARSAT Mini-M system makes use of this new technology, including INMARSAT's
global area network digital service, which makes satellite communications with
laptop-sized equipment possible at ISDN-speed.

         We are also involved in continued developments within the INMARSAT
system to provide lighter and smaller terminals for high-speed data transfer via
mobile terminals. We have carried out research and a number of studies in this
area and we believe that we are well positioned to become a supplier of this
type of terminal. Our efforts in this area were recognized in April 2002, when
we entered into an agreement with INMARSAT to develop terminals for the next
generation INMARSAT satellite. The agreement contemplates our design,
development and production of light weight and advanced high data rate terminals
for the new INMARSAT Broadband Global Area Network, or BGAN. The new terminals
are expected to meet users' need for ease of use and increased data capacity at
speeds up to 422/110 kbit/s. We expect to launch the INMARSAT-4 satellites
during 2005, and we anticipate that the BGAN network to be compatible with the
earthbound UMTS/IMT-2000 (3G) networks currently being built. However, no
assurances can be given that we will be able to develop or successfully launch
these products.

         During the second half of 2001, we restructured our satellite
operations, including personnel reduction and adjustment of the rate and scope
of product developments to market conditions. We expect that this restructuring
will enable satellite communications to compete better in our markets. The
financial impact of this restructuring is described in "Item 5. Operating and
Financial Review and Prospects."

         Our sales from satellite communications amounted to approximately NOK
577 million ($87 million) (25.6% of total sales) in 2003, NOK 617 million ($77
million) (25.2% of total sales) in 2002, and NOK 599 million ($66 million)
(20.7% of total sales) in 2001. Satellite terminals and land earth stations
represented approximately 75% and 25% of satellite communications sales in 2003.

    -    Satellite Terminals.  We design, develop, manufacture, market and sell
earth stations and land mobile earth stations (generally known as satellite
terminals or satellite telephones) for the INMARSAT M, Mini-M and M4 global area
network digital services. We discontinued our activities for IMMARSAT A and C
analog in 2000. Airborne satellite terminals for the INMARSAT Aero system are
not included in our delivery program in view of the specialized avionics
technology required to integrate the satellite terminals into an aircraft's
design.
<PAGE>

[PHOTO OF EVOLUTION OF SATELLITE TERMINALS]

      A satellite terminal is a compact transceiver of one or a few channels
linking individual ships or land mobile users to the INMARSAT satellite
communications network. Satellite terminals may be equipped with optional
features such as voice encryption, facsimile, circuit mode data, high-speed data
and credit card operation each of which permits the user to gain access to one
of the INMARSAT systems. Size, weight and service capability are the most
important design criteria for our satellite terminals. We market our satellite
terminals in over 70 countries.

      The WorldPhone is our INMARSAT Mini-M satellite terminal. The WorldPhone
utilizes the Mini-M systems spot-beam technology to target users operating
mostly outside the range of terrestrial and cellular networks. We began
commercial production of this product in early 1997 in response to orders for
over 3,000 WorldPhones received by the end of 1996, and we sold approximately
2,000 units in 2003. While WorldPhone is a mature product for us, we expect it
to remain part of our product offering also during 2004 and 2005. The WorldPhone
Marine offers telecommunications via the Mini-M system that uses spot-beam
technology to cover the major ocean regions. Based on INMARSAT registration
data, we are one of the market leaders in terms of sales volume for INMARSAT
Mini-M satellite terminals.

      Our INMARSAT B products include marine, fixed and portable applications
for digital voice, data, facsimile and telex capabilities, such as the Marine
Saturn Bm which powers communications between a ship and the outside world via
INMARSAT B. Our INMARSAT B terminals offer bit rates of up to 16 kilobits per
second (voice) and 64 kilobit per second (data). We commenced sales of INMARSAT
B products in 1994.

      Our World Communicator is a terminal for the INMARSAT Global Area Network
digital service that we have been selling since the second quarter of 2000. In
2003 we sold 2,520 units as compared to 2,040 units in 2002.

                                       20

<PAGE>

      Our INMARSAT M products include fixed applications for digital voice,
facsimile and data capabilities for users of smaller ship-borne and land mobile
terminals, such as our Marine Saturn Mm, which provides comprehensive marine
communications services for vessels not obliged to meet full International
Maritime Organization, or IMO, carriage requirements via INMARSAT M.

      In 2003 Nera completed its Inmarsat Fleet portfolio and is now able to
ofer mobile communications products which have been adapted to suit all types of
vessels. The Fleet products provide advanced data communications via the MPDS
(Mobile Packet Data Service), which will be vitally important for reducing the
costs incurred in respect of satellite communications.

      In 2003, the marine market accounted for approximately 44% of our
satellite terminal sales. The owners of larger commercial vessels and navy
fleets are our principal customers, for which we also supply, assemble and
install complete ship-borne telecommunications systems.

      Land mobile and portable terminals accounted for approximately 56% of our
total satellite terminal sales in 2003, as compared to approximately 44% of our
total satellite terminal sales in 2002 and 52% in 2001. We sell land mobile
terminals primarily to distributors in Europe and North America, for use in
overseas areas with less developed telecommunications infrastructures or in
areas experiencing natural or political emergencies, and in the states of the
former Soviet Union. In the land mobile market, our principal customers are
governmental organizations, U.N. organizations, news agencies and various aid
and rescue organizations operating in developing countries.

      We outsource manufacturing of our satellite terminals to Flextronics as
described more fully under "Suppliers and Manufacturing" , see page 25.

  -   Gateways and Land Earth Stations. We design, develop, manufacture, sell
and support gateways for satellite communications networks. Gateways, or land
earth stations, form the interface between terrestrial telecom networks and the
satellite system. Gateways are typically integrated systems consisting of
antennas and RF equipment, satellite modems, traffic control computers,
telephone/data switching equipment, terrestrial interface units and
administrative systems for alarm-handling, station configuration and billing. A
large satellite gateway can handle several hundreds of circuit-switched calls
simultaneously and thousands of packet-switched connections.

      To date, most of the satellite communications products and solutions
developed by us have been designed for the INMARSAT system, currently the
leading satellite-operator for global mobile personal communications systems.
Since we delivered our first INMARSAT-A gateway in 1982, we have introduced
successive product generations for the INMARSAT C, B, M, Mini-M and Aero
systems. In 1999, we launched the INMARSAT M4 global area network gateways. Our
sales of gateways were NOK 141 million ($21 million) in 2003, NOK 209 million
($26 million) in 2002 and NOK 174 million ($19 million) in 2001. INMARSAT has a
total of 266 earth stations in its network globally. We sell our products to
operators of land earth stations, or LES, and believe we are the biggest vendor
of existing systems in the INMARSAT market with a global market share of
slightly more than 50%. The INMARSAT network now serves 266 ocean regions, of
which we have delivered systems for 172 ocean stations. For purposes of these
numbers, we consider INMARSAT M and INMARSAT B as one system.

      During the past few years, there has been a further consolidation among
LES operators in the INMARSAT market. Some of these operators have either moved
their traffic to other LES sites or left the business and sold their customer
base to other operators. As a consequence, several sites have been closed down.
In spite of consolidation and its effects, we have increased the number of LES
operators we do business with, and we expect a further increase for 2004.

      We have developed a generic satellite gateway architecture for which we
are continually developing and improving building blocks for use in our gateway
products. Through the last few years we have been working on adding building
blocks targeted towards the systems where we currently see a market, primarily
systems that offer fixed/mobile Internet protocol multimedia services, but also
those offering narrowband handheld voice services. The building blocks are
generic modules or subsystems, which are based on industry-standard development
platforms, using industry-standard development tools and methods. Where we find
that we can add value to our

                                       21

<PAGE>

customers, state-of-the-art Satcom-specific technology is developed and
integrated into the building blocks. All the building blocks incorporate
solutions for redundancy, enabling us to design complete gateways with "no
single point of failure." All the building blocks can be tied together by
industry-standard interfaces. This approach enables us to offer anything from a
complete turnkey system to any combination of subsystems tailored to the needs
of the individual project. We can integrate both internally developed products
and best-of-class components from third-party vendors, or take part as a
subcontractor in somebody else's turnkey project.

      In supplying turnkey land earth stations, we obtain certain radio
frequency equipment and antennas from outside suppliers located principally in
the United States.

      Design and development of our gateways take place mainly at our facilities
in Oslo, Norway while manufacturing is currently outsourced to Flextronics as
described more fully under "Suppliers and Manufacturing" see page 25. Marketing,
and distribution and sales is mostly geared towards direct sales to customers
and to a lesser extent through other business areas. However, satellite
terminals and satellite telephones are sold primarily through a worldwide
third-party distribution network. The business is co-ordinated across our
various subsidiaries and regional offices, which market and distribute the
products. For more information regarding our sales by geographical destination,
please see "-Sales, marketing and distribution."

      For information regarding our satellite broadband activities, please see
"-Broadband Access" below.

      Future prospects

      The unstable geo-politic situation in most of the world has resulted in a
better outlook for satellite communications markets especially during the first
part of 2003. However, it remains uncertain whether this development will
continue - and if so, for how long. Nera's recent success in the satellite
communication area are not only attributable to better market conditions but
also to sales of land-based and marine products that were introduced in early
2002. We believe that innovations to Nera's land-based and maritime products
position us for changes in customer demand and increased competition.

      In the longer term, an important part of our satellite business will be to
deliver terminals and upgrades of gateways within the INMARSAT market, including
the high-speed data terminal World Communicator and more updated versions of the
current INMARSAT products. We believe that the agreement we reached with
INMARSAT in April 2002 for the development of BGAN terminals, which is described
above, enhances our position as a major international supplier of satellite
based communication solutions.

      It our ambition to maintain and strengthen our position as the leading
producer and supplier of satellite communications equipment within the INMARSAT
system. This implies further emphasis on product innovation and product
leadership within the maritime and land mobile markets, as well as the land
earth station market.

      BROADBAND ACCESS

      The broadband access business area was organized in the first quarter of
2000 to benefit from the convergence of our experience in transmission networks
and satellite communications, with the goal of competing in the market for fixed
wireless access products. We expected that the wireless broadband concept would
offer last mile solutions because radios often offer advantages which make them
compete well with, or as supplement to, the fixed last mile alternatives time of
deployment, ease of installation, cost of deployment, restitution of the
equipment and scalable deployment. Telecommunications providers have built fiber
optic or other networks for transmission of traffic, which are concentrated in
areas where the number of connection points justifies the expense of installing
fixed network. The distance between the network and the connection point in the
customer's residence or place of business is referred to as the "last mile" and
there are many different technologies available to make that last mile
connection.

      Initially we concentrated our efforts within this area on our own products
under the name Velocity 2000, a wireless local loop infrastructure which was
acquired from Word Access in 2000, and the 40G LMDS product. Due

                                       22

<PAGE>

to changes in the market conditions, further testing of the Velocity product was
halted in September 2001 and we sold some of the Velocity assets in March 2002,
while retaining the LMDS technology pending future use.

      In late 2001, following a revision of our expectations for the wireless
broadband area, we divided our broadband activities by transferring our
satellite broadband activities to a separate subsidiary, called Nera Broadband
Satellite AS incorporating the fixed wireless access activities into Nera
Networks.

      Despite the temporary setbacks experienced in this area to date, we intend
to continue to develop our core technology, know-how and solutions in
preparation of becoming a player in the broadband access market. We aim to
become a leading supplier of wireless terrestrial broadband access using our
core expertise; radio technology. We believe we can offer cost-effective
solutions that can be installed quickly in both rural and urban areas. We
believe we can supply a competitive group of products particularly in areas
where infrastructure is limited as our broadband products do not depend on
existing infrastructure. During 2002 we have developed our core technology and
know-how through a number of projects described below.

      Since 2001, we are participating in an LMDS project piloted in Svolvaer,
Norway. The project's goal is to develop a quality broadband package based on
our advanced and unique radio technology. Initial LMDS pilot tests were
successful, and the project has continued in collaboration with Telenor, the
Norwegian national telephone operator until the present.

      After signing the first agreement to develop a wireless broadband network
for the municipal center Kyrksaeterora in Hemne, Norway, in the fall of 2001, we
have won several contracts both nationally and internationally within this area.
In the beginning of 2002, we agreed with BaneTele, a net work operator in
Norway, to provide wireless broadband solutions to their customer-base, mainly
the utility-companies in Norway. By mid 2003 we have delivered broadband
wireless solutions to more than 50 projects in our home market. We have also
established business within this area southern Europe and in South East Asia
with installation in the Philippines, Indonesia and Malaysia, in Latin America
and the Caribbean and intend to expand into Africa. All of these solutions are
based on a combination point to multi point radio from OEM-partners and our own
point to point access radio and network management system. We expect that about
50 per cent of our revenue within this area will come from our foreign operation
in 2003.

      Nera Broadband Satellite AS, which continues the company's activities in
the field of broadband via satellite were restructured in 2001. In 2002 we were
narrowly focused on digital video broadband return channel system, known as
DVB-RCS, technology. Within this business area we gained considerable knowledge
in 2001 through the development of a digital video broadcast products and
collaboration with Shinsat on the iPSTAR product. This product delivers data
over satellite and Nera entered the project with a firm belief on an emerging
market for this solution especially in Asia.

      At the end of 2002, Nera Broadband Satellite entered into a contract with
ShinSat for the delivery of 18 gateways for inexpensive broadband services over
the iPSTAR satellite system to Asia and the Pacific region. This is the largest
contract ever entered into by Nera Broadband Satellite. The fact that Nera was
selected for this contract consolidates our strong standing with regards to
technology for broadband over satellite. We expect that our performance in this
contract will lead to additional contracts in Asia. Nera Broadband Satellite
also won several minor contracts for DVB-RCS terminals on the satellite market
for broadcasting in 2002.

      The broadband via satellite market grew considerably in 2003. Nera
believes that it holds a strong position in this market, with projects on
several continents. In 2003, Nera supplied 18 land earth stations to the
proprietary Shinsat system in Asia. Nera has also won major contracts in Fiji.
The Spanish company Hispasat employs Nera's solutions in its offer of broadband
IP services in Spain, Portugal, North and South America. The contract with the
Brazilian satellite operator Hispamar entered into in December, 2003 also
contributed to the company's strong position, Nera supplied the land earth
station, terminals and services which will give several Latin-American countries
broadband access in 2004.

                                       23

<PAGE>

      FUTURE PROSPECTS

      In the years ahead, Nera Broadband Satellite expect to see interesting and
challenging opportunities, as the commercial market for its products has slowly
started to grow in 2003. Generally, the broadband market is becoming and
increasingly important market segment for us, and we intend to further develop
the wireless solutions to build a strong position in the wireless broadband
marketplace.

      NERATEL

      In November 2001, we purchased additional shares in our Singapore
subsidiary, NeraTel, to increase our ownership interest from 47.3% to 50.18%,
for a total purchase price of NOK 32.6 million (US$3.6 million). At that time,
NeraTel increased its involvement in our Asian business and began marketing our
products in India, China, Bangladesh, Mongolia and Sri Lanka. To date, we have
not yet seen significant results from that effort. NeraTel already served
Singapore, Malaysia, Thailand, Indonesia, the Philippines, Vietnam, Brunei,
Laos, Cambodia, Myanmar, Taiwan and Korea for us and will continue to do so.
NeraTel is headquartered in Singapore, with its principal business address at
109 Defu Lane 10, Singapore 539225, telephone +65 281 3388.

      NeraTel's business activities are divided into the segments of
telecommunications, information technology and electronics contract
manufacturing, which are briefly described below:

   -  TELECOMMUNICATIONS -- this segment manufactures and markets microwave
      radio products which can be used as a flexible and cost-effective method
      of establishing networks. Rapid growth of cellular usage provides NeraTel
      with opportunities for further development in close cooperation with us.
      This business area of NeraTel also includes satellite communication
      through INMARSAT system and the Nera WorldPhone terminal used for phone
      calls, fax, data transmission or internet connection irrespective of
      location.

   -  INFORMATION TECHNOLOGY -- this segment recognizes the growing significance
      of internet communication and markets related products and services, such
      as security solutions and extended authentication services, and the
      internet traffic management, or ITM, consultation to ensure after-sale
      satisfaction of the customers. A separate unit dedicated to optical
      networks uses its experience as a system integrator to undertake
      technology and market research to provide solutions for next generation
      technology, such as optical wireless, or Infra-Red, and wired, or A-PON,
      technologies.

   -  CONTRACT MANUFACTURING -- this activity is operated by Nera Electronics, a
      subsidiary of Nera Tel and listed on the stock exchange. Nera Tel owns
      approximately 70 percent of Nera Electronics. The company's strategy is to
      offer customers a production capability for complex electronics in the low
      to medium-sized series. The company's customers include international
      companies within the health sector, telecommunications, measuring
      apparatus and optics. The company is in the process of qualification with
      several customers and is currently working on the completion of several
      prototypes. In 2002, the company established a sales office in the USA in
      order to expand its customer base, and plans similar offices in Europe and
      Asia in 2003.

      NERA FINANS AS

      Nera Finans AS was set up as a separate entity in March 1995 in order to
handle our operational finance activities. In May 2002, we decided to centralize
all activities performed by Nera Finans in Nera ASA treasury department in
Bergen and therefore close its existing branch in Dublin. This change was
effected through the merger of Nera Finans into Nera ASA in October 2002, with
tax and accounting implications effective on January 1, 2002. This change has
resulted in reduction of costs and increased coordination between our operations
and financing activities.

      In addition to conducting our daily operational activities, Nera Finans
has historically also been responsible for our sales support financing program,
which provided some of our customers with credit through the financial

                                       24

<PAGE>

markets in Norway and abroad, provided guarantees to other credit institutions
or provided our direct participation in the form of leasing, loans, and, in some
cases, by purchasing equity. During 2003, we did not provide for any material
credit to new customers but limited our activity in this area to managing our
existing financing programs. At December 31, 2003, Nera ASA had a total of
approximately NOK 50 million ($7.5 million) in loans outstanding to customers in
connection with the financing of various projects

      One loan to customers is individually large enough to merit a separate
discussion. In October 1997, Nera Finans AS provided financing of $5.9 million
to CNH Communications de Venezuela, or CNH, in connection with an order for
radio link equipment for the purchase of such equipment. Through a series of
transactions and events, including bankruptcy proceedings for CNH's parent in
the United States, the nominal value on the loan is currently approximately $10
million. Nera has made provisions regarding this loan. Some of this amount is
collateralized by the equipment we delivered. CNH, however, continues to
encounter financial problems, primarily due to the political and economical
situation in Venezuela. It is highly uncertain whether we will recover the
amounts outstanding on our loan but we continue to actively monitor CNH's
efforts to improve its financial situation and are working with CNH on
alternative financing methods.

      SUPPLIERS AND MANUFACTURING

      As described in our "Transmission networks," "Satellite communications"
and "Broadband access" business segments, we obtain components and subsystems
for our products and projects from suppliers worldwide, and we seek to use
commercially available components and subsystems wherever practicable. We
attempt to increase the number of common components across all our product lines
to permit more efficient use of capital and more flexibility in logistics
control. Logistics and process control techniques have assumed greater
importance in our manufacturing activities as the relative value of our products
represented by materials has increased while that of labor has decreased. We
therefore seek to establish close cooperation with a limited number of approved
suppliers.

      Certain components and subsystems for our products can be obtained from
only a limited number of sources. A significant interruption in the delivery of
such items in a satisfactory manner could adversely affect our ability to make
timely deliveries of particular products.

      The most important components of our products are application-specific
integrated circuits known as ASICs, which are designed by us for manufacture by
third parties. Only a small number of suppliers in the United States, Japan and
Europe manufacture ASICs suitable for our needs. While this market is currently
competitive, it is possible that one supplier may come to dominate the market
for ASICs. Any change in supplier may result in production delays as a new
supplier's products are adapted to our requirements. We take measures to reduce
our reliance on any one supplier by maintaining substantial inventories of the
ASICs we require, by obtaining these components from more than one approved
supplier, to the extent practicable, and by maintaining relatively long-term
contracts with our principal suppliers.

      We outsource the manufacturing of our satellite communications terminals
to Flextronics and use Kitron as an alternative manufacturer. We use the same
suppliers for manufacturing relating to our transmission networks business if we
do not have sufficient manufacturing capacity ourselves. In connection with the
sale of our production facilities in Oslo to Flextronics in May 2000, we entered
into a number of agreements setting forth the scope of our long-term cooperation
and of manufacturing by Flextronics of various products for our business. These
agreements are generally on terms standard in the industry, have initial terms
of three years (subject to one-year renewals) and can be terminated by either
party with notice, and by us due to quality concerns. During each year of the
three-year initial term, we must use Flextronics' Oslo facility to manufacture
products with a minimum value of NOK 200 million, NOK 180 million and NOK 140
million, respectively. We have met the thresholds for the three year initial
term. Flextronics must dedicate a certain amount of resources to us. Our
relationship with Kitron is governed by two frame agreements, which are also
generally on terms standard in our industry.

      CUSTOMERS

      From 2001 through 2003, our principal customers have included the
Norwegian Defense Communications Agency (Norway), Ericsson (Poland, Mexico,
Morocco and Brazil), Telefonos de Mexico (Mexico), IUSACELL (Mexico), Promon
Electronica Ltda. (Brazil), Telenor (Norway), British Telecom PLC, Telcel
(Venezuela), Lucent

                                       25

<PAGE>

Technologies (Peru, India, Czech Republic and Saudi Arabia), NTL (Australia),
Globe Telecom (Philippines), Datang (China), ITI (India), Microcell Links
(United Kingdom), National Logistics Cell (Pakistan), Telecom Italia (Italy),
Hong Kong Telecom (Hong Kong), Total Access Communications (Thailand),
Telkomcell (Indonesia) and Singapore Telecommunications Ltd. (Singapore). All of
the Ericsson entities, taken together accounted for approx. 12% of all sales in
2001. No single customer accounted for 10% or more of our sales in 2002 and
2003. However, all of the Ericsson entities, taken together, accounted for
approximately 9% of our sales in 2003.

      PRODUCT WARRANTY AND SERVICE

      Although the terms of specific warranties vary, we typically warrant the
performance of our goods for a period of one year following acceptance of such
goods and/or two years following the shipment of such goods. We generally agree
to perform all warranty work at our own expense, including parts, labor and
miscellaneous cost, such as travel to the site of repairs, shipment of goods to
us and insurance. When carrying out our contracts, we typically post a warranty
bond, usually in the amount of 10% of the total value of a contract, at the time
of provisional acceptance of goods by the customer. Once the customer has
utilized the goods for one year, the customer takes final acceptance and the
warranty bond is canceled. We generally guarantee that we will stock spare parts
for the goods sold for periods ranging from five years through fifteen years,
depending upon the specific terms of the particular contract. At the end of
2003, our reserve for warranty claims amounted to approximately NOK 39.2 million
($5.9 million).

      In addition, we issue bid and performance bonds in connection with many of
our contracts, which may be called by customers in certain circumstances, such
as where there is a major default in our performance of a contract. As of
December 31, 2003, we had approximately NOK 130.9 million ($19.6 million) of bid
and performance bonds outstanding. We have experienced no material losses to
date in relation to any calling of performance bonds.

      BACKLOG

      The following table indicates the amount of unfilled customer orders for
our products on December 31 of each of the years presented:

<TABLE>
<CAPTION>
             1999     2000      2001      2002      2003
             ----    ------    ------    ------    ------
                         (NOK IN MILLIONS)
<S>          <C>     <C>       <C>       <C>       <C>
Backlog       998     1,158     1,023       908       784
</TABLE>

      These amounts reflect only those orders believed to be firm, based on
executed contracts and that portion of long-term contracts which had been
released for production but which were incomplete as of the applicable date.
Amounts contained in backlog for any contract or order may not represent the
total amount of such contractor order. Anticipated, but not yet firm, orders are
not included within backlog but are taken into account in determining our
available production capacity.

      Our backlog increased during 2000 due to improved market conditions
primarily for our transmission networks products and to a lesser extent for
satellite communications products. Our backlog decreased during 2002 and 2003
due to the global economic slowdown in general, and its adverse effects on the
telecommunications equipment market, in which we operate, in particular.

      We believe that approximately 95% of our backlog as of December 31, 2003
will be shipped during 2004.

                                       26

<PAGE>

      SALES, MARKETING AND DISTRIBUTION

      We have invested significant resources in order to expand our
international market presence through the establishment of our own distribution
network in regions where we have previously sold products through local agents.
We have wholly or partially owned subsidiaries in Norway, the United Kingdom,
Germany, Singapore, Hong Kong, Brazil, Colombia, Mexico, Venezuela, India, and
the United States, and market our products in over 70 countries. We have sales
offices, or representatives, in: Moscow, Russia; Warsaw, Poland; Jakarta,
Indonesia; Islamabad and Lahore, Pakistan; Johannesburg, South Africa; Beijing,
China; Hanoi, Vietnam; Madrid, Spain; Amman, Jordan; Manila, the Philippines;
Bangkok, Thailand; Kuala Lumpur, Malaysia; Dubai; United Arab Emirates, Lucca,
Italy and Buenos Aires, Argentina. In 1999 and 2000, we focused our marketing
efforts on strengthening our subsidiaries in Latin America and our sales offices
in Asia by increasing the number of sales engineers. During 2001, we opened new
offices in Prague, the Czech Republic; Sydney, Australia; and Madrid, Spain. In
2002 and 2003, we did not make any changes to our international market presence.

      The figures below show the geographical distribution of our orders
received and sales in 2003.

<TABLE>
<CAPTION>
                              ORDERS RECEIVED FROM GEOGRAPHICAL    SALES BY GEOGRAPHICAL
                                     DESTINATION IN 2003            DESTINATION IN 2003
                              ---------------------------------    ---------------------
                                         (NOK IN MILLIONS, EXCEPT PERCENTAGES)
<S>                                 <C>              <C>              <C>        <C>
Asia......................            661            30.6%              806      35.8%
Americas..................            518            24.0%              443      19.7%
Rest of Europe............            485            22.5%              478      21.2%
Norway....................            294            13.6%              310      13.8%
United Kingdom............             71             3.3%              123       5.4%
Oceania...................             65             3.0%               39       1.7%
Africa....................             64             3.0%               54       2.4%
   Total..................          2,158             100%            2,253       100%
                                    -----            ----             -----      ----
</TABLE>

      Transmission networks

      We distribute our transmission equipment and systems through direct
marketing from Norway and through our regional sales offices and subsidiaries,
as well as through selected agents. In recent years we have has set up a number
of sales and representative offices in various countries in order to strengthen
our local presence. Sales of equipment for radio link systems and turnkey
networks may also be made through other telecommunications network suppliers
such as Lucent Technologies, Nokia, Nortel Networks and Ericsson. Our sales
force consists of engineers and other employees involved in the sales process
based in Norway and in various regional offices. Our sales representatives work
with customers and our engineering and manufacturing personnel to configure
systems to meet specific customer requirements.

      We market our microwave radio transmission equipment and systems
throughout the world, principally in Southeast Asia, Norway, the United Kingdom,
several countries in Western Europe, selected markets in eastern Europe
(principally the Czech Republic, Poland, Romania and Russia), China, Latin
America, the Indian subcontinent and sub-Saharan Africa.

      We expect that our CityLink and InterLink products, which also are
available for the SONET standard used in the United States, may present new
opportunities for us in the U.S. and Canadian markets.

                                       27

<PAGE>

      Satellite communications

      We distribute our satellite terminals primarily through our subsidiaries
in the United Kingdom, Germany and Southeast Asia, and through independent
distributors in Southeast Asia, the United States, Europe and other regions.
Management estimates that this network of subsidiaries and independent
distributors, which serves approximately 70 countries, accounts for
approximately 90% of our sales of satellite terminals.

      Because the market for land earth stations consists primarily of a small
number of large projects requiring extensive technical support, we coordinate
our sales and marketing activities for land earth station systems and equipment
from our offices in Norway and through our associated companies in Southeast
Asia.

      Broadband access

      We intend to distribute our broadband access terrestrial products
primarily though our network of subsidiaries and agents. For our broadband
access satellite products, we intend to use distributors based primarily in
Scandinavia, South-East Asia and Europe.

      INTELLECTUAL PROPERTY

      Given the rapid pace of product development and the short product life
cycles in our principal businesses, we formerly did not attempt to secure patent
protection for our products and processes. We seek patent protection for some of
our products and processes. We have applied for and have been granted patent
protection for several product and process developments within our transmission
networks and satellite communications business areas.

      We have also applied for, and have obtained, trademark protection for our
logo in 70 countries.

      COMPETITION

      Our products face substantial competition from other telecommunications
product lines and alternative telecommunications transmission media. Many of our
competitors have significantly greater financial, marketing and operating
resources than us, as well as broader product lines.

      Our principal competitors in transmission equipment, systems and services
are large telecommunications equipment suppliers that have a strong presence in
the markets for transmission and switching equipment and that can supply all
elements of telecommunications networks. Most of these suppliers have greater
resources than us. Our major competitors in the market for transmission systems
include: Alcatel Alsthom (France), NEC Corporation (Japan), Fujitsu Ltd.
(Japan), Northern Telecom Limited (Canada), Marconi (the United Kingdom) and
Siemens AG (Germany) Digital Microwave Corp. (United States) and Harris (United
States). In the market for antenna systems, our principal competitor is Andrews
(United States). In addition, we face competition from a number of niche players
in certain markets, especially in the market for low-capacity microwave radio
equipment. Competition between firms is based primarily on price and on a number
of other factors, depending on the nature of the customer. For contracts with
PTTs, competition is also generally based on technical merit, while ability to
make rapid delivery typically is more important for contracts with newly
established telecommunications providers. Competition to supply
telecommunications systems in developing countries and to new operators in any
given market is often based on the ability to arrange development aid financing.

      We believe that the market for radio link systems (radio equipment with
accompanying third-party equipment and services) amounts to around USD 3
billion. Worldwide, three suppliers are each believed to have approximately 10 -
15% of the market (Ericsson, Alcatel and Siemens), while five to eight
suppliers, including us, are believed to have market shares of approximately 5%
to 8%. The other players in the transmission market are each believed to have
market shares of approximately 2%.

      The market for mobile satellite terminals and land earth stations is
characterized by strong competition and by an increasing number of new
suppliers. Our main competitors are: Japan Radio Corporation Ltd. (Japan), NEC
Corporation (Japan), MTI Technology Corp. (United States), Atlas (Germany),
Scientific Atlanta Inc. (United

                                       28

<PAGE>

States), Thrane & Thrane (Denmark), SED Systems Inc. (Canada), Comsat
Corporation (United States), Toshiba (Japan), Hughes Network Systems, Inc.
(United States), Mobile Satellite Products Corp. (United States), Trimble
Navigation (United States) and Magellan (United States). Competition in the
markets for both mobile satellite terminals and land earth station systems is
based primarily on technical merit and price. Other competitive factors include
size, weight and ease of use for satellite terminals. Today the traditional
market for INMARSAT products is mature. In the future, INMARSAT will probably
face increased competition from new satellite systems if and when financing
solutions for these systems have been found. Growth prospects for the
traditional products and services for the INMARSAT market are therefore still
good. The traditional products will still be an important platform and reference
point for future growth within new systems. We believe that our broad experience
in supplying a variety of land earth stations and the operational reliability of
our stations, together with our multiprocessor technology, make us a competitive
supplier of land earth station equipment and complete land earth stations. While
we believe there will be opportunities to supply equipment for new satellite
communications systems as they become operational, we cannot assure you that we
will be able to compete effectively in these markets.

      The market for broadband access products to bridge the last mile is very
competitive. Our main competitors in the point-to-multipoint transmission area
are ECI (Israel), RadWin (Israel), AirSpan (Israel) and Alcatel (France) and in
the LMDS area are Harris (United States), BreezeCom (United States), Alcatel
(France), Spike (Israel), Floware (United States), Netro (United States) and
Adaptive Broadband (United States).

      Future prospects

      Due to the uncertainty surrounding the world economy and the
telecommunications industry and related adverse effects on financial investments
in this area, as well as overproduction in some sectors and pressure on prices
of products similar to ours, we do not forecast any overall growth for our
products in our markets during 2004. We had hoped to see a gradual increase in
investments in the telecommunications sector resulting in part from the launch
of the next generation mobile, or 3-G, designs but have not yet seen this
increase. This is partly due to a perceived lack of consumer interest in 3-G
products. We do not know when or if 3-G designs will have widespread acceptance.
However, even if 3-G designs become more popular, negative growth rates in any
of the national economies that we operate in may continue to affect us
negatively along with other wireless infrastructure providers.

      In the years ahead, an important part of our satellite business will be to
deliver terminals and upgrades of gateways within the INMARSAT market, including
the next generation service, INMARSAT-4, and later versions of the current
INMARSAT products, niche markets in which it has a strong position today.

      Developments in the transmission market are currently being driven by the
expansion of mobile services, the Internet and the growing demand for data
transfer services. Although the traditional PDH market is still growing, with
the exception of the U.S., demand for faster and larger transmission capacity is
expected to lead to increased demand for radio link products utilizing SDH
technology.

      The constantly growing traffic is also expected to lead to a sharp rise in
high-capacity SDH systems of the CityLink type and LMDS products. An increased
volume in terms of numbers of units may compensate for price reductions for
these products.

      REGULATION

      International standards

      The telecommunications industry is to a large extent regulated by
internationally agreed standards. The common standards are set for the purpose
of linking networks and services and ensuring the interoperability of equipment
on an international basis. In addition, the use of frequency spectrum for
wireless communication is also regulated by international agreement. In
designing and developing our products, we comply with all material regulations
and standards relevant in the markets in which we operate. The main standard
setting bodies are international organizations, such as the ITU and ETSI.
Certain organizations such as INMARSAT can also operate as de facto standard
setting bodies. The standards set for the telecommunications industry by such
bodies are made

                                       29

<PAGE>

in conjunction with feedback received from telecommunications operators and, to
a lesser extent, from producers of telecommunications products, such as us.

      Environmental matters

      Our manufacturing operation is subject to various laws governing the
protection of the environment. These laws and regulations are subject to change,
and such change may require us to improve technology or incur expenditures to
comply with such laws and regulations. We believe that we comply in all material
respects with applicable environmental laws and regulations and do not expect
that any costs incurred in connection with complying with such laws and
regulations will have a material effect on our results of operations, financial
position or liquidity.

      Our manufacturing facility is located in Norway, which has comprehensive
and stringent environmental regulatory frameworks. We use certain materials and
processes that may be hazardous to the environment. Pursuant to Norwegian
environmental regulations, we are required to carry out regular tests for water
pollutants in respect of the Bergen facility and to file an annual pollution
report with the Statens Forurensningstilsyn, the Norwegian environmental agency,
detailing the level of pollution produced by us. We believe that we are in
material compliance with acceptable pollution limits.

      Export licenses

      Our operations in Norway are subject to Norwegian export license
requirements. Export licenses are required only for our high-capacity microwave
radio transmission equipment. The Norwegian export control authorities grant
export licenses for products after scrutinizing military end-users, end user
countries where there is a war or warlike conditions or countries known for
their violations of human rights or support of international terrorism. The
Norwegian export license requirements have not materially restricted our ability
to make export sales.

      Because we are given access on an open license basis to certain
high-technology products having their origins in the United States, we are
subject to compliance with the U.S. Export Administration Regulations. Since
1986 we have maintained an internal export control program under which we have
achieved compliance with such regulations. These regulations have not materially
restricted our ability to make export sales.

      C.    ORGANISATIONAL STRUCTURE

      The following is a list of the subsidiaries we consider significant to our
business, including the country of formation and our direct and indirect
proportion of ownership interest in each subsidiary:

<TABLE>
<CAPTION>
             DIRECT SUBSIDIARIES                COUNTRY OF FORMATION    % OF OWNERSHIP
             -------------------                --------------------    --------------
<S>                                             <C>                     <C>
Nera Networks AS                                Norway                       100
Nera Satcom AS                                  Norway                       100
Nera Eiendom AS                                 Norway                       100
Nera Telecommunications Ltd                     Singapore                   50.18
Nera Telecommunicaciones Latin-America SA       Venezuela                    100
</TABLE>

<TABLE>
<CAPTION>
             INDIRECT SUBSIDIARIES              COUNTRY OF FORMATION    % OF OWNERSHIP
             ---------------------              --------------------    --------------
<S>                                             <C>                     <C>
Nera Telecommunications (Australia) Pty Ltd.    Australia                    100
Nera Networks Pty Ltd                           Australia                    100
Nera America Latina Ltda                        Brazil                       100
Nera America Latina Ltda Sucursal Colombia      Colombia                     100
Nera GmbH                                       Germany                      100
Nera Ltd                                        Great Britain                100
Nera (HK) Ltd                                   Hong Kong                    100
</TABLE>

                                       30

<PAGE>

<TABLE>
<S>                                             <C>                     <C>
PT Nera Indonesia                               Indonesia                    100
Nera (India) Ltd                                India                        100
Nera Networks Srl                               Italy                        100
Nera de Mexico SA de CV                         Mexico                       100
Nera Infocom (M) Sdh Bhd                        Malaysia                     100
Nera (Malaysia) Sdn Bhd(1)                      Malaysia                      30
Nera Broadband Satellite AS                     Norway                       100
Nera (Philippines) Inc.                         Philippines                  100
Nera Networks Polska Sp.z.o.o.                  Poland                       100
Nera Electronics Ltd                            Singapore                     68
Nera (Thailand) Ltd                             Thailand                     100
Nera Telecommunications (Taiwan) Co, Ltd        Taiwan                       100
Nera Americas Holding Inc.                      USA                          100
Nera Networks Inc.                              USA                          100
</TABLE>

---------------------
      (1)   Nera (Malaysia) Sdn Bhd is consolidated based on a shareholder
agreement, that result in ownership of more than 50%.

      With respect to our operations in some countries in South America, there
may be restrictions on our subsidiaries' ability to transfer funds to us. These
restrictions may be in the form of taxation of dividends. Should these or
similar restrictions limit our ability to receive funds from our subsidiaries,
they would generally be able to extend the same funds to us in the form of
loans.

      D.    PROPERTY, PLANTS AND EQUIPMENT

      As of December 31, 2003 we had production facilities in Bergen, Norway.
This facility is leased by us and encompasses approximately 20,000 square meters
of workshops for electronic, electrical and mechanical engineering and
manufacturing. The following table gives the location and general character of
the principal plants and properties that were owned or leased by us and our
subsidiaries as of December 31, 2003:

<TABLE>
<CAPTION>
    LOCATION                  PRINCIPAL ACTIVITIES                              TITLE                       AREA
    --------                  --------------------                              -----                       ----
<S>                  <C>                                        <C>                                      <C>
Bergen, Norway       Headquarters; production of microwave      Leasehold expires 2011 with option       20,000 square meters
                     transmission equipment and systems         to extend to 2026

Bergen, Norway(1)    Office space; production of satellite      Leasehold expires 2003                    4,000 square meters
                     terminals, land earth station equipment
                     and power systems telecommunications
                     equipment

Asker, Norway        Office space                               Leasehold expires 2008                    3,000 square meters

Luton, England       Office space                               Leasehold expires 2008                    2,800 square meters

Singapore(2)         Office space, warehouse, production        Leasehold expires 2012 with an            3,200 square meters
                     facilities                                 option for a further term of 30 years
</TABLE>

--------------------
(1)   This leasehold consist of three adjacent buildings with aggregate space of
24,000 m(2). Since the lease is expiring, we have decided to exercise our option
to purchase the 4,000 m(2) building at Kokstadveien 25 for NOK 22.5 million plus
an option premium in the amount of NOK 5 million. This acquisition was effective
on January 6, 2004.

(2)   Relates to our majority-owned subsidiary, NeraTel.

                                       31

<PAGE>

      In 2003, we paid an aggregate of NOK 54.9 million (US $8.2 million) in
periodic rental payments on our principal plants and properties. We believe our
facilities are sufficient for our business activities.

      ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

      APPLICATION OF CRITICAL ACCOUNTING POLICIES

      Our consolidated financial statements are prepared in accordance with the
Norwegian Accounting Act 1998 and Norwegian generally accepted accounting
principles, and in addition are reconciled to accounting principles generally
accepted in the United States. Below is a description of accounting policies,
which we consider critical to the preparation, and understanding of our
consolidated financial statements, including the accounting principles selected
for the annual reporting of our US GAAP results. In addition, certain amounts
included in or affecting our financial statements and related disclosure must be
estimated, which requires us to make assumptions with respect to values or
conditions which cannot be known with certainty at the time the financial
statements are prepared. Actual results may differ from these estimates under
different assumptions or conditions. The selection of critical accounting
policies, the judgments and other uncertainties affecting the application of
those policies and the sensitivity of reported results to changes in conditions
and assumptions are factors to be considered when reviewing our consolidated
financial statements. We believe that the following critical accounting policies
set forth below involve the most significant judgments and estimates used in the
preparation of our consolidated financial statements. We evaluate these policies
on an ongoing basis, based upon historical results and experience, consultation
with experts, trends and other methods we consider reasonable in the particular
circumstances, as well as our forecasts as to how these might change in the
future.

      Revenue Recognition

      Approximately 20%, 20% and 25% of our revenues for the years ended
December 31, 2003, 2002 and 2001, respectively, were derived from projects
involving the customization, installation and integration of complex
telecommunications equipment. Many of these contracts are for large turnkey
projects, for which we purchase a relatively high proportion of components from
third-party suppliers, and thus our sales and margins may fluctuate depending on
the proportion of our large turnkey projects. Revenues on long term contracts to
manufacture transmission and satellite communications equipment in which we
perform significant customization based on customer specification are taken to
income using the percentage-of-completion method based on contract milestones
and are inclusive profit. Contract milestones are consistent with the level of
effort expended. Project revenues include direct materials, wages and other
direct costs, together with indirect costs and a percentage of those profits
which are attributable to the project. For contracts where the delivery of
equipment is clearly separable from installation, training and other aspects of
the contract such contracts are divided up based on the relative fair value of
the service provided and each separate part is taken to income separately.
Income recognition is deferred until progress reaches a level of completion
(generally based on established milestones) sufficient to reasonably estimate

                                       32

<PAGE>

the probable income. If estimated total costs on a contract indicate a loss, the
entire amount of the estimated loss is provided for currently.

      Revenue from the sale of goods is recognized net of discounts and recorded
once persuasive evidence of an arrangement exists, delivery has occurred, the
price is determinable and collectibility is reasonably assured. Revenues for
services provided after delivery are recorded based on a time and materials
arrangement as the service is provided. Certain contracts involve advance
payments being made by customers to finance necessary contractual investments.
In order to present operating margins and financial expenses as if such
investments had been financed by third parties, a calculated interest expense is
charged against income if it is of any size. A corresponding amount is added to
the project revenue.

      Allowances for doubtful accounts and obsolete inventory

      We maintain allowances for doubtful accounts for estimated losses
resulting from the subsequent inability of our customers to make required
payments. If the financial conditions of our customers were to deteriorate,
resulting in an impairment of their ability to make payments, additional
allowances may be required. Management specifically analyses accounts
receivables and analyses historical bad debt, customer concentrations, customer
creditworthiness, current economic trends and changes in our customer payment
terms when evaluating the adequacy of the allowance for doubtful accounts. If
market and economic conditions are less favorable then those predicted by
management additional allowance may be required.

      We periodically review the lower of cost or market carrying value of
inventory. This requires management to estimate the market value based upon
assumptions about future demand and market conditions. Any difference between
the cost of inventory and the estimated market value results in a write-down of
inventory for the estimated obsolescence or unmarketable inventory. If actual
market conditions are less favorable than those projected by management,
additional inventory write-downs may be required.

      Impairment

      We have made investments in tangible assets, goodwill and other intangible
assets, and other investments. These assets and companies are tested for
impairment when circumstances trigger an impairment test. During 2001 and 2002,
the market prices for telecom companies and assets have decreased significantly.
In 2001 , we made substantial write-downs of tangible assets, goodwill and other
intangible assets.

      Factors that we consider important and that could trigger an impairment
review include the following:

            -     significant fall in market values;

            -     significant underperformance relative to expected historical
                  or projected future operating results;

            -     significant changes in the use of our assets or the strategy
                  for our overall business; and

            -     significant negative industry or economic trends.

      The principles for impairment testing are described in the accounting
policies. For tangible and intangible assets, the assessment is made based on
estimated recoverable amount, which is the higher of estimated discounted future
cash flow and sales price less cost to sell. When such amounts are less than the
carrying amount of the asset, a write-down to estimated recoverable amount is
recorded.

      If quoted market prices for an asset or a company are not available, or
the quoted market prices cannot be regarded as fair market value due to low
trading liquidity, fair market value is determined primarily using the
anticipated cash flows discounted at a rate commensurate with the risk involved.
Estimating fair values of assets and

                                       33

<PAGE>

companies must in part be based on management evaluations, including estimates
of future performance, revenue generating capacity of the assets, assumptions of
the future market conditions and the success in marketing of new products and
services. Changes in circumstances and in management's assumptions may give rise
to impairment losses in the relevant periods.

      Goodwill is reviewed based on an estimated fair value of the reporting
unit it refers to. Fair value of the reporting unit is based on quoted market
share price (adjusted to reflect a control premium for those subsidiaries in
which we have effective control) or discounted cash flows of the reporting unit
where quoted market share price is not available.

      To assess impairment of property, plant and equipment and amortizing
intangible assets for purposes of U.S. GAAP, we apply the guidance outlined in
SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" as of
January 1, 2002. Prior to 2002, we applied SFAS 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", to
all long-lived assets, including goodwill. If we conclude that impairment
indicators exist, we will initially review for possible impairment by assessing
the undiscounted cash flows expected to be derived from the asset or group of
assets, comparing the lowest level of total expected undiscounted cash flow to
the carrying value. If the carrying value of the asset or the group of assets
exceeds the sum of the undiscounted cash flows, impairment is considered to
exist. An impairment charge is assessed by comparing the assets fair value to
the carrying value. Fair value can be calculated by a number of different
approaches, including discounted cash flow, comparables, market valuations or
quoted market prices. The process and steps required to assess the possible
impairments of assets, including the identification of possible impairment
indicators, assessing undiscounted cash flows, selecting the appropriate
discount rate, the calculation of the weighted average cost of capital and the
discounts or premiums inherent in market prices requires a substantial amount of
management discretion and judgment. If actual results differ from these
estimates, or if we adjust these estimates in future periods, operating results
could be significantly affected. This did not result in any material differences
from the result in accordance with Norwegian GAAP as December 31, 2003.

      As of January 1, 2002, for US GAAP reporting purposes, we adopted the
requirements of SFAS 142, "Goodwill and Other Intangible Assets", and as a
result we have ceased amortization of goodwill and indefinite lived intangible
assets for U.S. GAAP purposes. The requirements of SFAS 142 include that
goodwill be tested for impairment at least annually (and between annual tests
when certain triggering events occur) using a two-step methodology. The first
step screens for potential impairment at the reporting unit level, while the
second step measures the impairment, if any. Under U.S. GAAP, the quoted market
price of an asset, if available, should be used. If not available, then other
valuation techniques, including discounted cash flow, comparables, etc., are
acceptable. The selection of the various assumptions that are necessary to
arrive at the fair value of a reporting unit, including the assumptions used in
the underlying business plans, require substantial management judgment and
discretion. If actual results differ from these estimates, or if we adjust these
estimates in future periods, operating results could be significantly affected.
Based on our review at January 1, 2002 upon transition and at December 31, 2002
and 2003, no goodwill impairments were noted.

      Deferred tax assets, valuation allowances for deferred tax assets, and tax
losses

      Significant management judgment is required in determining our provision
for income taxes, deferred tax assets, deferred tax liabilities and valuation
allowances to reflect the potential inability to fully recover deferred tax
assets. We record valuation allowances to reduce our deferred tax assets to an
amount that is more likely than not to be realized. Our analysis of
realizability includes estimating taxable income in the jurisdictions in which
we operate and the period over which the deferred tax assets and liabilities
will be recoverable. If actual results differ from these estimates, or we adjust
these estimates in future periods, we may need to establish an additional
valuation allowance which could adversely affect our financial position and
results of operations. Our income taxes have been increased by valuation
allowances mainly related to our foreign operations. Furthermore, we have not
recorded deferred tax assets that may be realized upon possible future
disposal of shares in subsidiaries and associated companies only if it is
apparent that the difference will reverse in the foreseeable future.

                                       34

<PAGE>

      A.    OPERATING RESULTS

      We have restructured our operations significantly during the past six
years, including during 2003. The effects of the most recent restructuring
continue to be felt in 2003. These restructurings are described in "Item 4.A.
History and Development of the Company" as well as below in this section.

      Prior to 2001, we grew significantly in response to market trends that
increased worldwide demand for telecommunications equipment and infrastructure.
This growth imposed a significant strain on our resources, particularly our
financial resources, as we made substantial efforts and expenditures to increase
sales to meet demand. Among other things, we invested significant resources in
research and development in order to maintain our technological expertise and
renew our product lines. Our research and development expenditures, not
including grants from suppliers and governments, amounted to NOK 174.2 million,
NOK 239.6 million, and NOK 347 million in 2003, 2002 and 2001. We reduced our
research and development expenditures in 2003 and 2002 because more of our
customers, especially in the satellite business area, covered the research and
development expenses as part of our projects during this period. . Generally, we
expect that we will be required to maintain substantial amounts in research and
development activities, even though our business has seen a significant drop in
demand, so that we may maintain the competitiveness of our products.

                                       35

<PAGE>

      With respect to our operating results discussed below, please note that
NeraTel, our Singapore subsidiary, was not consolidated in our financial
statements from July 1999 to November 2001, as we owned less than 50% of NeraTel
during that period. Prior to July 1999 and starting again in December 2001 when
we increased our ownership of NeraTel above 50%, NeraTel's results have been
consolidated with our results. Due to the different accounting treatment of
NeraTel, our results for the above periods are not comparable. It should be
noted, however, that for 2001, the impact of NeraTel on our results is not
material, given that only its December 2001 results are included in our results.
For 2002 and 2003, Nera Tel's results are included for the entire year. For more
information about the effects of consolidation of NeraTel, please see note 8 to
the consolidated financial statements in Item 17 below.

      The table below shows a number of income statement items as a percentage
of sales for the periods indicated:

<TABLE>
<CAPTION>
                                                    YEAR ENDED DECEMBER 31
                                                  --------------------------
                                                   2001      2002      2003
                                                  ------    ------    ------
                                                    NOK       NOK       NOK
<S>                                               <C>       <C>       <C>
OPERATING EXPENSES AND OPERATING INCOME BEFORE
RESTRUCTURING AS A PERCENTAGE OF SALES:
Cost of materials.............................      48.8%     52.6%     53.2%
Changes in inventory of work in progress
     and finished goods.......................      -1.9%      1.0%     -0.5%
Payroll expense...............................      25.0%     27.8%     27.4%
Depreciation..................................       3.0%      3.4%      3.5%
Other operating expense.......................      30.9%     20.7%     17.5%
Operating income (loss) before restructuring
     gain and loss............................      -5.8%     -5.5%     -1.1%
</TABLE>

      The table below shows sales by product line for the periods indicated:

<TABLE>
<CAPTION>
                                                    YEAR ENDED DECEMBER 31
                                                  --------------------------
                                                   2001      2002      2003
                                                  ------    ------    ------
                                                       (NOK IN MILLION)
<S>                                               <C>       <C>       <C>
SALES BY BUSINESS AREA:
Transmission networks.........................     2,222     1,343     1,189
Satellite communications .....................       599       617       577
Broadband access..............................        47        69       166
Other operations..............................        25       416       321
                                                  ------    ------    ------
         Total................................     2,893     2,445     2,253
                                                  ======    ======    ======
</TABLE>

      The following table sets forth our sales by geographic destination for the
periods indicated:

                                       36

<PAGE>

<TABLE>
<CAPTION>
                                                    YEAR ENDED DECEMBER 31
                                                  --------------------------
                                                   2001      2002      2003
                                                       (NOK IN MILLION)
<S>                                               <C>       <C>       <C>
SALES BY GEOGRAPHIC DESTINATION:
Norway........................................       288       276       310
United Kingdom................................       202       110       123
Rest of Europe................................       559       498       478
Asia..........................................       671       863       806
North and South America ......................       814       538       443
Africa .......................................       190       105        54
Other (1).....................................       169        55        39
                                                  ------    ------    ------
         Total................................     2,893     2,445     2,253
                                                  ======    ======    ======
</TABLE>

----------------
      (1)   The category "Other" primarily includes New Zealand, Australia and
other countries in Oceania.

      YEAR ENDED DECEMBER 31, 2003 COMPARED WITH THE YEAR ENDED DECEMBER 31,
2002

      Orders and Backlog. The total value of orders received was NOK 2,158
million in 2003, compared with NOK 2,519 million in 2002. The decrease is due to
lower order intake in all business areas. Orders for transmission networks
products was NOK 1,213 million in 2003 compared with NOK 1,243 million in 2002,
a decrease of 2.5%. Orders for satellite communications products was NOK 496
million in 2003, as compared to NOK 677 million in 2002, a decrease of 26.7%.

      Backlog was NOK 784 million at the end of 2003, as compared with NOK 908
million at the end of 2002, a decrease of 13.7%. The decrease in order backlog
in 2003 was primarily the result of the continued decline in the world economy
in general and the telecommunications sector in particular, as well as the
developing trend of our customers requiring shorter delivery time, thus leading
to reduction in our backlog.

      Sales. Our sales decreased to NOK 2,253 million in 2003 from NOK 2,445
million in 2002, a decrease of 7.9%, for the reasons described below.

      Sales within transmission networks decreased 11.5% in 2003 primarily due
to the continued economic slowdown in general and the decline in the
telecommunications sector in particular.

      Sales within satellite communications decreased 6.5% in 2003 due to a
slight increase in the sale of terminals and a decrease in the sale of land
earth stations. Approximately 7,600 terminals were sold during 2003, as compared
to approximately 6,000 terminals sold in 2002. In 2003, sales of land earth
stations were approximately NOK 141 million compared to NOK 209 million in 2002.

      Sales within wireless broadband access area increased from NOK 69 million
to NOK 166 million as a result of increased activities by Nera Satellite
Broadband, our subsidiary, winning several contracts within this satellite
broadband niche.

      A comparison of geographic sales is set forth in the chart below:

                                       37

<PAGE>

<TABLE>
<CAPTION>
GEOGRAPHICAL DESTINATION                    2002                    2003
                                    --------------------    --------------------
                                    (AMOUNTS IN NOK MILLION, EXCEPT PERCENTAGES)
<S>                                 <C>         <C>         <C>          <C>
Norway..........................         276        11.3%         310       13.8%
United Kingdom..................         110         4.5%         123        5.4%
Rest of Europe..................         498        20.4%         478       21.2%
Americas........................         538        22.0%         443       19.7%
Africa..........................         105         4.3%          54        2.4%
Asia............................         863        35.3%         806       35.8%
Oceania.........................          55         2.2%          39        1.7%
                                       -----        ----        -----       ----
Total...........................       2,455         100%       2,253        100%
</TABLE>

      No single customer accounted for more than 10% of our sales in 2003.
However, we work with various Ericsson companies worldwide, which are organized
as separate legal entities. All of the Ericsson entities, taken together,
accounted for approximately 9% of our sales in 2003.

      Cost of materials and changes in inventory of work in progress and
finished goods. Cost of materials and changes in inventory of work in progress
and finished goods was NOK 1,188.2 million in 2003, as compared to NOK 1,309.8
million in 2002, a decrease of 9.3%. As a percentage of sales, cost of materials
and changes in inventory of work in progress and finished goods was 52.7% in
2003 and 53.6% in 2002. This slight decrease in cost of materials is due to
lower content of third party materials in turnkey projects.

      Payroll expense. Payroll expense was NOK 617.2 million in 2003, as
compared to NOK 679.8 million in 2002, a decrease of 9.2%. The decrease in
payroll expense is primarily due to a reduction in employees during 2003 as a
result of our continued restructuring, which is further described below. As a
percentage of sales, payroll expense was 27.4% in 2003 and 27.8% in 2002.

      Depreciation. Depreciation was NOK 79.8 million in 2003, as compared to
NOK 83.5 million in 2002, a decrease of 4.5%. This decrease was due to low new
investments in fixed assets.

      Other operating expense. Other operating expense was NOK 392.9 million in
2003, as compared to NOK 505.0 million in 2002, a decrease of 22.2%, which is
primarily due to a decrease in our research and development expenses as well as
reduced administrative expenses. As a percentage of sales, other operating
expense was 17.5% in 2003 and 20.7% in 2002.

      Operating loss before restructuring gain and loss. Operating loss was NOK
25.4 million in 2003, as compared to operating loss of NOK 133.3 million in
2002. This decrease in loss before restructuring gain and loss is primarily due
to the reasons provided above.

      Restructuring expenses and write-downs. Restructuring expenses and
write-downs were NOK 28.3 million in 2003, as compared to NOK 11.1 million in
2002. The restructuring expenses and write-downs in 2003 are primarily due to
our discontinuation of all production within Nera Networks Inc. in Boston, USA,
as described below, and simplification of the supply chain within the factory in
Bergen, Norway.

      The table below sets forth certain additional information relating to our
restructuring, including the events that took place during 2003.

                                       38

<PAGE>

<TABLE>
<CAPTION>
                                                  BALANCE AT     PROVISIONS/                         BALANCE AT
                                                 DECEMBER 31,   REVERSIONS IN   APPLIED/DISBURSE-   DECEMBER 31,
                                                     2002            2003         MENT IN 2003         2003
                                                 ------------   -------------   -----------------   ------------
                                                                        (NOK IN MILLIONS)
<S>                                              <C>            <C>             <C>                 <C>
Restructuring of Nera Ltd, UK(1)..............            1.6               -                 1.1            0.5
Restructuring of Nera Networks AS(2)..........            7.7            15.0                 7.2           15.5
Restructuring of the Boston activities(3).....              -            13.3                 4.8            8.5
Restructuring of satellite operations(4)......            2.0               -                 1.0            1.0

TOTAL                                                    11.3            28.3                14.1           25.5
</TABLE>

------------------

(1)   During 1998, our board of directors and management prepared a plan for
      restructuring of our unit in the U.K., in order to reestablish profit
      within this unit through a focused strategy and changes in the product
      range. This restructuring involved dismissal of personnel and write-downs
      of fixed assets and stock. Total provisions for this restructuring were
      NOK 71.0 million in 1998. The restructuring plan was extended in 1999, and
      another NOK 37.8 million was expensed. By the end of 2001, all payments
      relating to this restructuring were completed. In 2002, we decided to
      discontinue all production in Nera Ltd, our production unit in Great
      Britain. All of the costs and provisions including write-down of inventory
      that were made in 2002 are related to this restructuring.

(2)   Due to changes in the market, parts of the business have been reorganized.
      The reorganization resulted in dismissals and early retirements.
      Rationalisation of the supply chain has been carried out during 2003. This
      has resulted in further dismissals and early retirement. Provisions have
      been made for severance payments and early retirement, as well as unused
      space for the remaining tenancy period.

(3)   In 2003 a decision was made to transfer the production of PDH compact
      radio to NeraTel in Singapore. This transfer includes product ownership.
      Restructuring provisions were made in connection with severance payments
      and unused space for the remaining tenancy period.

(4)   In 2002 provisions were made for severance payments and early retirement
      as a result of reorganization. Applications and residual provisions for
      the year are linked to this restructuring.

      For more information relating to above restructuring, please see "Item
4.A. -- History and Development of the Company" and note 12 of our financial
statements included in Item 17. See also note 16 to our financial statements
regarding other current liabilities.

      Net Financial Items. Net financial items increased from a loss of NOK 17.8
million to a gain of NOK 37.0 million. This increase was primarily due to less
loss on exchange and higher share of profit from our associated companies.

      Operating loss. We had an operating loss of NOK 53.7 million in 2003, as
compared to an operating loss of NOK 144.4 million in 2002, an increase of 62.8%
primarily due to our continued restructuring and cost reduction efforts and
despite the continued decline in the telecommunications market. Operating loss
as a percentage of sales was 2.4% in 2003 and 5.9% in 2002.

      Income tax expense. We had an income tax of NOK 13.0 million in 2003, as
compared to an income tax credit of NOK 33.7 million in 2002. The tax credit in
2002 is due to the fact that we had operating losses in 2002.

      Net loss. We had a net loss of NOK 29.7 million in 2003, as compared to a
net loss of NOK 128.5 million in 2002, a decrease of 67% as a result of the
factors discussed above. Net loss as a percentage of sales was 1.3% in 2003 and
5.3% in 2002.

                                       39

<PAGE>

      Norwegian and U.S. GAAP reconciliation. Approximate net loss on a U.S.
GAAP basis was NOK 106.7 million for 2003, and approximate net loss was NOK
190.1 million for 2002, compared with net loss under Norwegian GAAP of NOK 52.7
million for 2003 and net loss of NOK 145.0 million for 2002. The differences in
the results under Norwegian GAAP compared with the results under U.S. GAAP were
due to a variety of factors, the most significant of which were the write-downs
of vendor financing arrangements and pensions. For a discussion of differences
between Norwegian GAAP and U.S. GAAP, see note 31 to the consolidated financial
statements included in Item 17 below.

      YEAR ENDED DECEMBER 31, 2002 COMPARED WITH THE YEAR ENDED DECEMBER 31,
2001

      Orders and Backlog. The total value of orders received was NOK 2,519
million in 2002, compared with NOK 2,277 million in 2001. The increase is due to
the consolidation of order backlog for Nera Tel, Singapore. Orders for
transmission networks products was NOK 1,243 million in 2002 compared with NOK
1,687 million in 2001, a decrease of 26.3%. Orders for satellite communications
products was NOK 677 million in 2002, as compared to NOK 586 million in 2001, an
increase of 15.5%.

      Backlog was NOK 908 million at the end of 2002, as compared with NOK 1,023
million at the end of 2001, a decrease of 11.2%. The decrease in order backlog
in 2002 was primarily the result of the continued decline in the world economy
in general and the telecommunications sector in particular.

      Sales. Our sales decreased to NOK 2,445 million in 2002 from NOK 2,893
million in 2001, a decrease of 15.5%, for the reasons described below.

      Sales within transmission networks decreased 39.6% in 2002 primarily due
to the continued economic slowdown in general and the decline in the
telecommunications sector in particular.

      Sales within satellite communications increased 3.0% in 2002 due to a
slight decrease in the sale of WorldPhones and an increase in the sale of land
earth stations. Approximately 6,000 WorldPhones were sold during 2002. In 2002,
sales of land earth stations increased by approximately NOK 35 million mainly
due to receiving more assignments to upgrade existing sites.

      Sales within wireless broadband access area increased from NOK 47 million
to NOK 69 million as a result of increased activities by Nera Satellite
Broadband, our subsidiary, and despite the closing of our operations in Dallas,
U.S., and the sale of the Velocity line of products.

      A comparison of geographic sales is set forth in the chart below:

<TABLE>
<CAPTION>
    GEOGRAPHICAL DESTINATION                 2001                    2002
                                    -------------------     --------------------
                                    (AMOUNTS IN NOK MILLION, EXCEPT PERCENTAGES)
<S>                                 <C>            <C>      <C>             <C>
Norway..........................      288           9.9%      276           11.3%
United Kingdom..................      202           7.0%      110            4.5%
Rest of Europe..................      559          19.3%      498           20.4%
Americas........................      814          28.2%      538           22.0%
Africa..........................      190           6.6%      105            4.3%
Asia............................      671          23.2%      863           35.3%
Oceania.........................      169           5.8%       55            2.2%
                                    -----          ----     -----           ----
Total...........................    2,893           100%    2,455            100%
</TABLE>

                                       40
<PAGE>

      No single customer accounted for more than 10% of our sales in 2002.
However, we work with various Ericsson companies worldwide, which are organized
as separate legal entities. All of the Ericsson entities, taken together,
accounted for approximately 12% of our sales in 2001.

      Cost of materials and changes in inventory of work in progress and
finished goods. Cost of materials and changes in inventory of work in progress
and finished goods was NOK 1,309.8 million in 2002, as compared to NOK 1,356.3
million in 2001, a decrease of 3.4%. As a percentage of sales, cost of materials
and changes in inventory of work in progress and finished goods was 53.6% in
2002 and 46.9% in 2001. This increase is due to the fact that our cost of
materials grew more significantly than our revenues in the past fiscal year,
which is consistent with a trend of lower margins and price pressure observed in
the telecommunications industry during 2002.

      Payroll expense. Payroll expense was NOK 679.6 million in 2002, as
compared to NOK 722.8 million in 2001, a decrease of 5.9%. The decrease in
payroll expense is primarily due a reduction in employees during 2002 as a
result of our restructuring. As a percentage of sales, payroll expense was 27.8%
in 2002 and 25% in 2001.

      Depreciation. Depreciation was NOK 83.5 million in 2002, as compared to
NOK 87.9 million in 2001, a decrease of 5.0%. This decrease was due to low new
investments in fixed assets.

      Other operating expense. Other operating expense was NOK 505.0 million in
2002, as compared to NOK 894.4 million in 2001, a decrease of 43.5%, which is
primarily due to a decrease in our research and development expenses. As a
percentage of sales, other operating expense was 20.7% in 2002 and 30.9% in
2001.

      Operating loss before restructuring gain and loss. Operating loss was NOK
133.3 million in 2002, as compared to operating loss of NOK 168.1 million in
2001. This decrease in loss before restructuring gain and loss is primarily due
to the reasons provided above.

      Restructuring expenses and write-downs. Restructuring expenses and
write-downs were NOK 11.1 million in 2002, as compared to NOK 264 million in
2001. The restructuring expenses and write-downs in 2002 are primarily due to
our discontinuation of all production within Nera Ltd., our unit in Great
Britain.

      The table below sets forth certain additional information relating to our
restructurings, including the events that took place during 2002.

<TABLE>
<CAPTION>
                                             BALANCE AT                                                   BALANCE AT
                                            DECEMBER 31,  PROVISIONS IN  WRITE-DOWN IN  APPLIED/DISBURS  DECEMBER 31,
                                                2001           2002           2002       EMENT IN 2002      2002
---------------------------------------------------------------------------------------------------------------------
                                                                       (NOK IN MILLIONS)
---------------------------------------------------------------------------------------------------------------------
<S>                                         <C>           <C>            <C>            <C>              <C>
Restructuring of Nera Ltd, UK(1)..........       2.5           1.6             21.4             2.5           1.6
Restructuring of Nera Networks AS(2)......        --           7.7               --              --           7.7
Closing of the Dallas office(3)...........      39.2         (15.5)              --            23.7            --
Restructuring of the Boston office(4) ....       0.2            --               --             0.2            --
Restructuring of satellite operations(5)..       8.7          (4.1)              --             2.6           2.0
Restructuring of wireless broadband
access operations(5) .....................       7.0            --               --             7.0            --
------------------------------------------
TOTAL                                           57.6         (10.3)            21.4            36.0          11.3
-----------------------------------------------------------------------------------------------------------------
</TABLE>

----------------

(1)   During 1998, our board of directors and management prepared a plan for
      restructuring of our unit in the U.K., in order to reestablish profit
      within this unit through a focused strategy and changes in the product
      range. This restructuring involved dismissal of personnel, write-downs of
      fixed assets and stock. Total provisions for this restructuring were NOK
      71.0 million in 1998. The restructuring plan was extended in 1999, and
      another NOK 37.8 million was expensed. By the end of 2001, all payments
      relating to this restructuring were completed. In 2002, we decided to
      discontinue all production in Nera Ltd, our production unit in Great
      Britain. All of the costs and provisions inclusive write-down of inventory
      that were made in 2002 are related to this restructuring.

                                       41
<PAGE>

(2)   Due to changes in the market, parts of the business have been reorganized.
      The reorganization resulted in dismissals and early retirements.
      Provisions have been made for severance payments. All significant
      activities were completed in 2002.

                                       42
<PAGE>

(3)   In 2001, we decided to terminate our presence in Dallas, U.S. Provisions
      for severance payments, purchase commitments and other commitments were
      undertaken. Fixed assets, goodwill and existing inventory have been
      written down to net realization value. All significant restructuring
      activities started in 2001 were completed in 2002.

(4)   In 2001, we also decided to restructure our presence in Boston, U.S.
      Provisions for severance payments, purchase commitments and other
      commitments were undertaken. Fixed assets, goodwill and existing inventory
      have been written down to net realization value. All significant
      restructuring activities started in 2001 were completed in 2002.

(5)   In 2001, due to changes in the market conditions, we have reorganized
      parts of our satellite unit and our wireless broadband access operations.
      This reorganization resulted in personnel dismissals. We made provisions
      for severance payments and made all related payments during 2002. We wrote
      down fixed assets and stock to net realization value in 2002.

      For more information relating to above restructuring, please see "Item
4.A. -- History and Development of the Company" and note 12 of our financial
statements included in Item 17. See also note 15 to our financial statements
regarding other current liabilities.

      Net Financial Items. Net financial items increased from a loss of NOK 16.2
million to a loss of NOK 17.8 million. This decrease was primarily due to losses
taken on Nera Tel's write down of NOK 30.0 million on its joint venture with
TVMobile.

      Operating loss. We had an operating loss of NOK 144.4 million in 2002, as
compared to an operating loss of NOK 432.1 million in 2001, an increase of 66.6%
primarily due to the continued decline in the telecommunications market and our
ensuing restructuring and cost reduction efforts. Operating loss as a percentage
of sales was 5.9% in 2002 and 15% in 2001.

      Income tax expense. We had an income tax credit of NOK 33.7 million in
2002, as compared to an income tax credit of NOK 81.3 million in 2001. The tax
credit in 2002 is due to the fact that we had operating losses in 2002. Our
effective tax rate was -20.8% in 2002 and -18.1% in 2001.

      Net loss. We had a net loss of NOK 128.5 million in 2002, as compared to a
net loss of NOK 367 million in 2001, a decrease of 65% as a result of the
factors discussed above. Net loss as a percentage of sales was 5.3% in 2002 and
12.7% in 2001.

      Norwegian and U.S. GAAP reconciliation. Approximate net loss on a U.S.
GAAP basis was NOK 190.1 million for 2002, and approximate net loss was NOK
340.0 million for 2001, compared with net loss under Norwegian GAAP of NOK 145.0
million for 2002 and net income of NOK 370.7 million for 2001. The differences
in the results under Norwegian GAAP compared with the results under U.S. GAAP
were due to a variety of factors, the most significant of which were the taxes
gain on subsidiary equity transaction and pensions. For a discussion of
differences between Norwegian GAAP and U.S. GAAP, see note 31 to the
consolidated financial statements included in Item 17 below.

      CURRENCY FLUCTUATIONS

      Our sales and operating income are affected by the impact of fluctuations
in foreign currency exchange rates on product prices and certain operating
expenses. Fluctuations in the exchange rate of certain foreign currencies
(principally, the U.S. dollar, the EURO and the Singapore dollar) against the
Norwegian krone may affect our sales and operating income. The table below sets
forth the average currency fluctuations of the NOK against the U.S. dollar, the
EURO and the Singapore dollar for the years 1998 to the present.

                                       43
<PAGE>

<TABLE>
<CAPTION>
                          NOK                        NOK                         NOK
              DEPRECIATION(APPRECIATION)  DEPRECIATION(APPRECIATION)  DEPRECIATION(APPRECIATION)
  CURRENCY          AGAINST THE USD         AGAINST THE EURO IELU           AGAINST THE SGD
FLUCTUATIONS              (%)                         (%)                        (%)
------------  --------------------------  --------------------------  --------------------------
<S>           <C>                         <C>                         <C>
 1998-1999                3.7                        (9.0)                       2.1
 1999-2000               12.3                         2.4                       10.2
 2000-2001                2.5                        (3.6)                      (1.0)
 2001-2002               (5.3)                       (8.6)                      (6.5)
 2002-2003              (11.8)                        6.1                       (9.3)
</TABLE>

      A majority of our sales in non-Norwegian currencies are made pursuant to
long-term contracts with customers and it is our policy to hedge foreign
currency sales risks associated with these contracts in order to manage our
exposure to foreign currency risks. These hedging transactions, together with
our foreign currency translation accounting policy of using average forward
rates for translating hedging transactions, minimize the short-term impact of
the exposure of this sales revenue to currency fluctuations for the duration of
the hedged long-term contracts in progress. Our hedging activities are conducted
on a centralized basis. We use foreign exchange contracts to hedge firm
commitments. In addition, from time to time we purchase foreign currency option
contracts to hedge expected, but not contracted for, foreign currency sales in
connection with outstanding tender bids. The costs of currency option premiums
historically have not been material to our operating results or liquidity.

      Notwithstanding our hedging activities, we remain subject to foreign
exchange rate fluctuations as a result of a number of factors, including delays
in receiving payments from our customers, the cancellation of contracts that
have been hedged, as well as the impracticability of hedging each foreign
currency payment we receive. We believe that appreciation of the Norwegian krone
relative to other currencies (principally the U.S. dollar, the EURO and the
Singapore dollar) generally has an adverse effect on our sales and operating
income and on the international competitiveness of our Norwegian-based
operations. On the other hand, depreciation of the Norwegian krone against such
currencies generally has the opposite effect.

      At December 31, 2003, we had forward contracts outstanding amounting in
the aggregate NOK 702 million (the total Norwegian krone equivalent of the buy
and sell amounts based on December 31, 2003 exchange rates). The amount of
forward contracts at December 31, 2003 included forward contracts to buy and
sell U.S. dollars, AUD (Australian dollars), EURO, JPY (Japanese yen) and pound
sterling totaling NOK 503 million, NOK 2 million, NOK 146.5 million, NOK 0.5
million and NOK 50 million, respectively.

      At December 31, 2002, we had forward contracts outstanding amounting in
the aggregate NOK 649.6 million (the total Norwegian krone equivalent of the buy
and sell amounts based on December 31, 2002 exchange rates). The amount of
forward contracts at December 31, 2002 included forward contracts to buy and
sell U.S. dollars, AUD (Australian dollars) euro and pound sterling totaling NOK
375 million, NOK 8 million, NOK 124 and NOK 141 million, respectively.

                                       44
<PAGE>

      At December 31, 2001, we had forward contracts outstanding amounting in
the aggregate NOK 806.3 million (the total Norwegian krone equivalent of the buy
and sell amounts based on December 31, 2001 exchange rates). The amount of
forward contracts at December 31, 2001 included forward contracts to buy and
sell U.S. dollars, AUD (Australian dollars) and pound sterling totaling NOK 420
million, NOK 228 million and NOK 84 million, respectively.

      At December 31, 2000, we had forward contracts outstanding amounting in
the aggregate NOK 680.8 million (the total Norwegian krone equivalent of the buy
and sell amounts based on December 31, 2000 exchange rates). The amount of
forward contracts at December 31, 2000 included forward contracts to buy and
sell U.S. dollars and pound sterling totaling NOK 465.5 million and NOK 51.3
million, respectively.

      At December 31, 2000 we had currency swaps outstanding in aggregate to NOK
542.5 million (the total Norwegian krone equivalent of the buy and sell amounts
based on December 31, 2000 exchange rates). The amount of currency swaps at
December 31, 2000 included currency swaps to buy and sell U.S. dollars totaling
NOK 267.6 million.

      At December 31, 1999, we had currency swaps outstanding amounting in
aggregate to NOK 311.9 million (the total Norwegian krone equivalent of the buy
and sell amounts based on December 31, 1999 exchange rates). The amount of
currency swaps at December 31, 1999 included currency swaps to buy and sell U.S.
dollars totaling NOK 243.2 million.

      EUROPEAN ECONOMIC AND MONETARY UNION

      The single European currency known as the euro came into existence on
January 1, 1999, but Norway is not participating in the union. Our sales have
not been affected by the change of currency. Although no decision has been made
as to when, or even if, Norway will participate in the single European currency,
we believe that our commercial operations can be adapted to accommodate the euro
without a material adverse effect on operations.

      B.    LIQUIDITY AND CAPITAL RESOURCES

      During the past three years, we have funded our working capital needs from
our operating cash flows, with the exception of the $17.1 million in net
proceeds stemming from the public offering of Nera Electronics on July 15, 2002,
a $21 million loan from the Nordic Investment Bank, which we repaid in the first
quarter of 2002, as well as small loans we may take out and repay from time to
time in the ordinary course of our business. The ratio of our indebtedness to
our revenues was 0.1% at December 31, 2003, 0.4% at December 31, 2002, 6.9% at
December 31, 2001. Other than loans we may have outstanding from time to time,
we have commitments under performance guarantees we are required to give from
time to time to our customers when we undertake big projects for them. At
December 31, 2003, we had NOK 130.8 million in performance guarantees
outstanding, as compared to NOK 119.0 million in 2002. These performance
guarantees are standard in the industry and represent approximately 15% of the
contract's value. At the delivery date of the contract, the performance
guarantee is cancelled, unless there are disputes about our performance.
Historically, our performance guarantees have been cancelled in their totality.
In addition to performance guarantees, we have also granted other guarantees. At
December 31, 2003, we had NOK 97.8 million of other guarantees outstanding, as
compared to NOK 120.5 million in 2002. These guarantees relate mainly to our
sales support program, which is more fully described under "Item 4. B. Business
Overview -- Nera Finans" above.

      Our total cash was NOK 830.1 million and NOK 795.8 million as of December
31, 2003 and 2002, respectively. The increase in cash was primarily due to
positive net cash flow from operational activities. We have experienced
fluctuations in cash balances in the course of 2003. Generally, we believe our
current cash balances (even in the event our revenues decrease significantly in
2004 due to continued reduced levels of demand for our products), available
borrowings from financial institutions, cash flows from operations, future share
issuances, and our focus and introduction of various strategies aimed at
improving the underlying profitability and cash flow

                                       45
<PAGE>

generation of our business, both by increasing margins and cutting costs, will
be sufficient to meet our anticipated cash needs for working capital and capital
expenditures going forward.

      In addition, from time to time we may discuss with financial institutions
a possibility of establishing a credit line in an effort to ensure that we have
access to sufficient funds to meet our needs. However, we cannot assure you that
these efforts, together with items described above, will be sufficient to fund
our growth, or that external funding will be available to us at favorable
interest rates or at all. We do not have any current plans for significant
capital expenditures but we monitor acquisition opportunities in all of our
business areas and may make acquisitions in the future.

      Net cash provided by operating activities amounted to NOK 76.8 million in
2003, as compared with NOK 34.6 million in 2002. The increase in cash provided
by operating activities in 2003 was primarily due to decreased inventories,
partly offset trade receivables and other working capital items as well as
operating loss.

      Net cash used in investing activities was NOK 11.4 million in 2003, as
compared with NOK 57.2 million provided by investing activities in 2002. Net
cash used by investment activities in fixed assets was higher in 2003, but the
2002 figures included proceeds stemming from the public offering of Nera
Electronics, Singapore.

      Capital expenditures amounted to NOK 38.2 million, NOK 61.4 million and
NOK 129.1 million in 2003, 2002 and 2001, respectively.

      Of the 2003 total capital expenditures, NOK 15 million was used by
transmission networks, NOK 8 million by satellite communications and NOK 5
million by broadband access.

      Of the 2002 total capital expenditures, NOK 51 million was used by
transmission networks, NOK 4 million by satellite communications, and NOK 5
million by broadband access. The 2002 capital expenditures were funded
principally by proceeds from the sale of shares in May of 2000.

      Of the 2001 total capital expenditures, NOK 82 million was used by
transmission networks, NOK 8 million by satellite communications and NOK 31
million by broadband access. The 2001 capital expenditures were funded
principally by proceeds from the sale of shares on May 5, 2000, when we
initiated a public share issuance of 25,000,000 new shares, which resulted in
NOK 887.5 million in gross proceeds before the deduction of costs. Our net
proceeds were NOK 257 million, and NOK 50 million of this amount was allocated
to share capital, with the balance allocated to our reserves.

      Shareholders' equity was NOK 1,519.5 million at December 31, 2003, NOK
1,612.6 million at December 31, 2002 and NOK 1,728.1 million at December 31,
2001. Shareholders' equity on a U.S. GAAP basis was NOK 1,131.1 million at
December 31, 2003 and NOK 1,264.8 million at December 31, 2002. The differences
between Norwegian GAAP and U.S. GAAP amounts were due to a variety of factors,
the most significant of which was taxes, gain on subsidiary equity transactions
and pensions. For a discussion of differences between Norwegian GAAP and U.S.
GAAP, see note 31 to the consolidated financial statements included in Item 17
below.

      C.    RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.

      We operate in businesses characterized by extremely rapid technological
change. As a result, we devote substantial resources to research and development
for our products and services in order to remain competitive. We conduct an
active research and development program focused on strengthening our existing
products and systems and on developing new products and systems. We seek to
identify products and systems that are, or are expected to be, needed by
substantial numbers of customers worldwide and to allocate a greater share of
our research and development resources to areas we expect to have significant
potential for future benefits to us. In addition, we engage in research and
development activities that are not specifically tied to any one of our products
but that are expected to generate benefits in the longer term throughout our
business. The most important of these projects is our

                                       46
<PAGE>

ongoing research into the miniaturization and standardization of many of the
components of our products. We also devote substantial resources to the
improvement of our manufacturing processes or those of the companies to whom we
outsource some of our manufacturing processes.

      Our research and development efforts are largely decentralized, with each
business area managing its own research and development activities. Each
business area has dedicated technical staff and facilities and manages all key
technologies relevant to it. To encourage cooperation and to stimulate joint
research and development projects, representatives of the research and
development teams from each business area form a company-wide technology board,
which provides a means by which management allocates resources to the projects
that we believe to have potential for greatest return. In addition, we have a
small centralized research and development team of approximately 20 engineers
and scientists engaged in research and develop activities not specifically tied
to any of our units. We also cooperate with a number of Norwegian research
institutes and are also a member of the European Telecommunications Standards
Institute known as ETSI.

      Our net research and development expenditures, excluding customization of
products to customer needs, production engineering related to the introduction
of new products and development of manufacturing processes, has accounted for
approximately 7.7%, 9.8% and 12.0% of our sales in 2003, 2002 and 2001,
respectively. We intend to maintain research and development expenditures in the
range of approximately 7% to 12% of our sales in order to maintain our
technological expertise. We also concentrate our research and development
spending on areas where we already possess substantial know-how and for which we
believe there are markets internationally. We have financed our research and
development activities primarily from internally generated funds, although some
funding is obtained from customers and through grants from the Norwegian
government. In the past few years we had grants amounting to NOK 26.0 million,
NOK 8.1 million and NOK 13.0 million in 2003, 2002 and 2001, and we do not
expect that grants will be a significant source of funding in the future.

      The following table sets forth our total research and development
expenditures for each of the past three years. All research and development
costs we incurred are charged as expenses as and when they are incurred and
research and development acquisition costs are capitalized. The figures below
exclude customization of products to customer needs, production engineering
related to the introduction of new products and development of manufacturing
processes.

<TABLE>
<CAPTION>
                                                    YEAR ENDED DECEMBER 31
                                             2001         2002               2003
                                            --------------------------------------
                                             (NOK IN MILLIONS, EXCEPT PERCENTAGES)
<S>                                         <C>           <C>                <C>
Gross research and development(1).........  360.1         247.7              200.2
% of sales................................   12.4%         10.1%               8.9%
Net research and development(2)...........  347.0         239.6               74.2
% of sales................................   12.0%          9.8%               7.7%
</TABLE>

--------------------
(1) Includes research grants.

(2) Net of research grants.

      We have decreased our research and development expenditures (net of
research grants) over the period of 2001 through 2003 because more of our
customers, especially in the satellite business area, covered the research and
development expenses as part of our projects during this period.

      Transmission networks

      We engage in a continuous program of research and development to expand
our range of microwave products and have a number of products currently under
development. We have significantly expanded the frequency range of our
high-capacity SDH products to a current high frequency of 7, 8, 13, 15, 18, 23,
26 and 38 GHz, principally for use in urban areas. Our line of SDH products also
has an STM-1 co-channel dual polarization radio which is designed to permit
better utilization of the frequency spectrum. In addition, we are developing
STM-0

                                       47
<PAGE>

class radios, with capabilities of 51 megabits per second, that would facilitate
the integration of small spur telecommunications links into large SDH networks.
In 2001 we have developed a new "trunk" radio to replace existing STM-1 radios
with this new family of radio utilizing our CityLink technology. The new radio,
Nera Interlink, was installed in all configurations by the middle of 2003. We
are also engaged in studies relating to STM-4 radios, which would have a
capacity of 625 megabits per second (equivalent to approximately 8,000 telephone
lines).

      In 2003, total research and development expenditures in transmission
networks amounted to approximately NOK 123 million, which represents
approximately 10.3% of sales of the business area. In 2001, 2002 and 2003
substantial research and development expenditure was put into the development
and completion of CityLink and the continued development of the SDH products.
Research and development activities for the current year in respect of
transmission networks have also been linked to the completion of the new SDH
long-haul radio InterLink, and with complementing the CityLink family with new
configurations and frequencies in order to meet the 3G mobile network market.
Product improvements and cost-reducing measures in respect of existing product
families have also been implemented.

      Satellite communications

      Mobile satellite communications have experienced ongoing, substantial
development activities in connection with mobile broadband terminals and have
also launched new products in both the "Fleet" and "Landmobile" families. As
regards satellite broadband, work is being continued on the further development
of digital video broadband - return channel system, or DVB-RCS, in respect of
both earth stations and terminals. With regard to regional broadband systems,
work commenced on the second generation.

      Net research and development expenditures amounted to NOK 32 million in
2003, which was equivalent to 5.5% of sales of this business area. In satellite
communications there are approximately 80 people working in research and
development.

      Through a substantial investment in research and development, we have
developed what we believe are technologically leading products in the area of
satellite communications with a large degree of ownership of the technology and
thus control over our own products. Changes in the market, including reuse of
technologies from land-based communications such as GSM, require increased use
of partnerships on certain technologies combined with a big effort to maintain a
lead in selected technologies such as radio and modem technology,
miniaturization, real-time software, user interfaces and satellite systems
integration.

      Broadband access

      In 2003, net research and development expenditure amounted to NOK 23
million. During 2003, research and development expenditure within the wireless
broadband access business area focused mainly on broadband via satellite,
including DVB-RCS. This is a system whereby broadband signals and return signals
are transmitted over satellite. DVB-RCS is an open European Telecommunications
Standard Institute, or ETSI, standard. Core competence from the satellite
communications business area has been vital in this development.

      D.    TREND INFORMATION

      It is our long-term goal to make Nera a leading company within the
wireless telecommunications business. In order to do so, we will continue to
develop our existing business and at the same time look for strategic solutions
with other infrastructure providers.

      We have pursued, and will continue to pursue, growth opportunities through
internal development of existing business.

      Telecommunications industry is presently affected by the global economic
slowdown, which has also had an adverse effect on our company. Also, wireless
infrastructure suppliers are experiencing and will probably continue to
experience downward pricing pressure on products. As a result, we have in the
past experienced, and

                                       48
<PAGE>

expect to continue to experience, declining average sales prices for our
products. The market for our products is extremely competitive and we expect
that competition will increase. We believe that our ability to compete
successfully will depend on a number of factors, both within and outside our
control, including global economic environment, price, quality, availability,
customer service and support, breadth of product line, product performance and
features, rapid time-to-market delivery capabilities, reliability, timing of new
products by us, our customers and competitors, and the ability of our customers
to obtain financing.

      We expect that international sales will continue to account for a large
portion of our net product sales for the foreseeable future. As a result, we are
subject to the risks of doing business internationally, including unexpected
changes in regulatory requirements, fluctuations in foreign currency exchange
rates, imposition of tariffs and other barriers and restrictions, the burdens of
complying with a variety of foreign laws and general economic and geopolitical
conditions, including inflation and trade relationships.

      For more information about specific trends applicable to our business
segments, as well as for a discussion of our backlog, please refer to "Item 4.B.
-- Business Overview."

      E.    OFF-BALANCE SHEET ARRANGEMENTS.

            Not applicable.

      F.    TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS.

      Our contractual obligations as of December 31, 2003, which are required to
be disclosed under this Item 5.F, are summarized as follows:

<TABLE>
<CAPTION>
                                DUE AFTER 1     DUE AFTER 3
  CONTRACTUAL    DUE WITHIN 1     YEAR BUT        YEARS BUT    DUE AFTER 5
  OBLIGATIONS        YEAR      WITHIN 3 YEARS  WITHIN 5 YEARS     YEARS     TOTAL
                          (IN MILLIONS OF NOK AS OF DECEMBER 31, 2003)
<S>              <C>           <C>             <C>             <C>          <C>
Operating Lease
Obligations          51.0           97.2            87.2          86.1      321.5
</TABLE>

      ITEM 6.     DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

      A.    DIRECTORS AND SENIOR MANAGEMENT

      In accordance with Norwegian law, our affairs are managed by our board of
directors, which is also vested with overall control over our policy and
management. In accordance with Norwegian law, we also have a corporate assembly
of 12 members. The general meeting of shareholders elects eight members, and our
employees in Norway elect four members. There are currently three deputy members
representing three of the eight shareholder members. The chairman of the
corporate assembly is Henrik J. Lisaeth.

      Our articles of association provide that the board of directors shall have
no fewer than five members or greater than nine members. Our board of directors
currently has nine members. Under Norwegian law, one-third (and not less than
two) of the directors are elected as employee representatives, if one-third of
the members of the corporate assembly so demand. Currently, the board of
directors has nine members, three of which are elected as employee
representatives. In addition to reviewing and monitoring our business, the
powers generally held by the board of directors include the preparation of our
year-end accounts, the presentation of the accounts to the shareholders and the
convening of shareholders' meetings.

      Our directors serve two-year terms. There is no limitation on the number
of terms which a director may serve. However, our articles of association
provide that no one may be elected or reelected to the board of directors when
he or she has reached the age of 70. Under Norwegian law, at least one-half of
the directors must be citizens

                                       49
<PAGE>

and residents of a European Union or European Free Trade Area country. All of
our directors are currently citizens or residents of an EU or EFTA country.

      Our corporate assembly has the responsibility under our articles of
association for electing the members of the board of directors, including the
chairman. In addition to electing members of the board of directors, the
corporate assembly:

            -     fixes the remuneration of the board of directors,

            -     decides, upon proposal from the board of directors, matters
                  concerning investments that are substantial compared with our
                  resources, or efficiency measures or alterations of the
                  operations that would entail major changes or reallocation of
                  the labor force,

            -     expresses an opinion to the general meeting of shareholders as
                  to whether the board of director's proposal for the income
                  statement and balance sheet and the consolidated income
                  statement and consolidated balance sheet should be adopted,
                  and as to the board of director's proposal for the application
                  of profit or coverage of loss, and

            -     handles all other matters which a corporate assembly is
                  entitled to handle under Norwegian law.

      Overall control over our policy and management, however, is vested in the
board of directors and not in the corporate assembly. Members of the corporate
assembly are elected for a period of two years. No one may be elected or
reelected to the corporate assembly once he or she reaches the age of 70. We
believe there are no family relationships between any of the above officers or
directors, nor are there any arrangements or understandings under which any of
these officers or directors was elected to serve.

      The table below sets forth certain information regarding our directors and
executive officers as of December 31, 2003:

<TABLE>
<CAPTION>
              NAME                                    POSITION                  AGE
              ----                                    --------                  ---
<S>                                     <C>                                     <C>
Johan Fredrik Odfjell...............    Chairman of the Board                    56

Kari Broberg........................    Director                                 48

Gregers Mogensen....................    Director                                 58

Ole Petter Hakonsen.................    Director                                 65

Birger Magnus.......................    Director                                 49

Jostein Soreide.....................    Director (Employee Representative)       48

Ivar Arnevig........................    Director (Employee Representative)       39

Jan Stenberg........................    Director                                 65

Marcel Petie........................    Director (Employee Representative)       48

Bjorn Ove Skjeie....................    President and Chief Executive Officer    53

Bjorn Olafsson......................    EVP Finance and Accounts                 46

Terje Ask-Henriksen.................    EVP Satellite Communications             48
</TABLE>

                                       50
<PAGE>

<TABLE>
<CAPTION>
              NAME                                    POSITION                  AGE
              ----                                    --------                  ---
<S>                                     <C>                                     <C>
Oyvind Isaksen......................    EVP EMEA Region                          41

Samuel Ang..........................    EVP Asia Region                          49

Billy Cain..........................    EVP Americas Region                      48

Ove Bratsberg.......................    EVP Client Management and Product        43
                                        Portfolio

John Knudsen........................    EVP Supply Chain Management              43

Helge Skaar.........................    EVP Information and Public Affairs       49

Stig-Are Mogstad....................    EVP Technology Management                40

Gro Hatleskog.......................    EVP Organization and Management          48
</TABLE>

      JOHAN FREDRIK ODFJELL (1948), CHAIRMAN, BERGEN

      Odfjell is a business economics graduate of the Norwegian School of
Economics and Business Administration and holds a MBA from Harvard University.
He has held the position of chairman since June 1998. Odfjell has a broad range
of experience from senior positions in Norwegian industry to a number of board
appointments in Norwegian and international companies. Odfjell's appointments
have included managing director of AS Investa (1980-1986), managing director of
Vesta Forsakring AS and deputy managing director of Skandia Forsakring AB
(1986-1994). In addition to his appointment as chairman, Odfjell is also
chairman of Hafslund ASA and Norges Handels- og Sjofarstidene, deputy chairman
of Nycomed Amersham plc. and Den norske Veritas. He also serves on the boards of
Skandia Forsakring AB, Bergesen ASA and Kvaerner ASA.

      KARI BROBERG (1956), OSTRE TOTEN

      Broberg is a business economics graduate of the Norwegian School of
Management. She has been a member of our board since June 1998. Broberg has a
broad range of business experience and has held a number of senior positions in
the Alcatel Group from 1981 to 1997. Her positions with Alcatel included head of
purchasing for the telecommunications division and divisional director for
transmission and exchanges. Broberg was the head of logistics for Jordan AS
until 2000 and is currently employed as a corporate consultant by Hartmark
Consulting AS. In addition to her appointment as a member of our board, Broberg
holds a number of appointments in Norwegian industry, including membership on
the boards of Telenor and Norsk Regnesentral.

      GREGERS MOGENSEN (1946), DENMARK

      Mogensen received an MS degree in electronic engineering in 1971, and a
PhD degree in 1977 from the Danish Technical University. During 1977-1979 he
held positions as Senior Development Engineer and Project Manager with Marconi
Communications. During 1979-1984 he was associate professor at the Danish
Technical University. During 1984-1991 he held positions as manager of research
and development, production manager and technical manager with NKT Electronics.
During 1991-2001 he worked at Tellabs Denmark AS, including the position of
Chief Technical Officer he has held since April 2001.

      OLE PETTER HAKONSEN (1939), OSLO

      Hakonsen is an engineering graduate of the Norwegian University of Science
and Technology from where he received his Ph.D. in 1968. Hakonsen has held a
number of positions in various technical environments in

                                       51
<PAGE>

Norway. These include research manager at Televerket's Research Institute
(1972-1981), assistant technical director of the Teledirektoratet (1981-1983),
technical director of the Teledirektoratet/Televerket (1983-1991) and deputy
managing director of Televerket responsible for mobile networks and services,
satellite networks and services, research and development and information
technology (1991-1994). Hakonsen has been an Executive Vice President of Telenor
AS since 1994.

      JAN STENBERG (1939), SWEDEN

      Stenberg received a law degree from the Stockholm University in 1964. In
1967 he joined Ericsson, and in 1975 he was appointed General Counsel and
Secretary of the board of directors of Ericsson. In 1981 he became Executive
Vice President of the Ericsson Group and a member of the Group's Corporate
Executive Committee. In 1982, Stenberg was appointed President of Ericsson
Cables AB and Head of Business Area Cables. During 1985-1990, he was Head of
Business Area Public Telecommunications. In 1994 he joined the Scandinavian
Airlines System as President and Chief Executive Officer, a position he held
until 2001, when he joined our company.

      BIRGER MAGNUS (1955), OSLO

      Magnus is an engineering graduate of the Norwegian University of Science
and Technology and holds a MBA from INSEAD (France). Magnus has been a member of
our board since June 1998. His professional background includes experience as a
systems engineer and running his own information technology business from 1980
to 1984. From 1985 to 1995 Magnus was partner in McKinsey & Co. and he was the
managing partner of the Oslo office in the latter part of this period as well as
one of the leading partners in McKinsey's international multimedia practice
(telecomm. information technology, media). Magnus is now executive vice
president of Schibsted ASA with responsibility for the newspaper business area.

      IVAR ARNEVIG (1965), ASKER

      Arnevig has been employed by Nera since 1991 as a technical officer on
assembling/testing satellite terminals, and as an IT Coordinator at Nera SatCom
AS with effect from 2000.

      MARCEL PETIE (1956), BERGEN

      Petie is an engineering graduate of the College of Advanced Technology in
Rotterdam, Holland. He has been an employee of our group's development
department in Bergen since 1981. Petie was elected as an employee representative
on the board in September 1999.

      JOSTEIN SOREIDE, (1956), BERGEN

      Spreide has been an employee of our group since 1981 and has been an
employee representative on the Board since 1997.

      BJORN OVE SKJEIE (1951) - PRESIDENT AND CHIEF EXECUTIVE OFFICER OF NERA
ASA

      Skjeie is business economics graduate of the Norwegian School of Economics
and Business Administration. From 1989-1990 Skjeie was finance director of
National Transformer. From 1991-1997, Skjeie held a number of senior management
positions with Asea Brown Boveri AS, or ABB, including managing director of ABB
Offshore Technology AS. From 1997-1998 Skjeie was responsible for the satellite
communications business area. In 1998, Skjeie was appointed our president and
chief executive officer.

      BJ0RN OLAFSSON (1958) - EXECUTIVE VICE PRESIDENT FINANCE AND ACCOUNTS

      Olafsson is a business economics graduate of the Norwegian School of
Management. He has many years of experience of working in executive positions in
banking and insurance fields, including various positions held within Vesta
Group, a position as a bank manager and financial director at Bergen Bank, and
group management

                                       52
<PAGE>

positions at Vital Forsikring ASA. Olafsson has run businesses he established
for periods of time, and has also held a number of directorships and executive
positions.

      TERJE ASK-HENRIKSEN (1956) - EXECUTIVE VICE PRESIDENT SATELLITE
COMMUNICATION

      Ask-Henriksen is an engineering graduate of the Tinius Olsen
Ingeniprhpyskole and a business economics graduate from the Norwegian School of
Management. He also has post graduate qualifications in industrial marketing
from the Norwegian School of Management and IMD in Lausanne. His previous
employment includes Elopak AS, where he was Area Manager, Marketing Director and
the Director responsible for production and sales in Norway. He has also been
employed by Elcon Finans (Marketing Manager) Markem Ships, Industriservice AS
and Unitor Ships Service. In October 1998, Ask-Henriksen was appointed managing
director of Nera SatCom.

      OYVIND ISAKSEN (1963) - EXECUTIVE VICE PRESIDENT REGION EMEA

      Isaksen has a Dr. Scient degree in physics with the University of Bergen.
He has earlier held positions as president in Roxar Flow Measurement and leading
positions in i.a. ABB Research and Fluenta.

      SAMUEL ANG (1955) - EXECUTIVE VICE PRESIDENT REGION ASIA PASIFIC

      Ang is the CEO and President of Nera Tel, Singapore. He joined the company
in 1979 and previously served as its managing Director, Vice President and
General Manager. He was appointed as a director of the company and Nera
Electronics Ltd., Singapore in 1996. He is responsible for the management and
business strategies of the NeraTel Group.

      BILLY CAIN (1956) - EXECUTIVE VICE PRESIDENT REGION AMERICAS

      Qualified as a Telecommunications Engineer from the Royal Signals Military
College and the University of Northumbria. Currently studying an MBA in Business
Management with the Open University Business School through distance learning.
After a ten year military career as a Telecomms Engineer, Cain joined Marconi
where he held a variety of positions in sales, sales support and operations.
Joined Nera in June 1996 as Operations Director of the Nera Ltd facility in the
UK becoming General Manager of the Telecommunications Division one year later.
Assumed responsibilities for North America in mid 2001 and became President of
the Americas Region in April 2002.

      OVE BRATSBERG (1961) - EXECUTIVE VICE PRESIDENT CLIENT MANAGEMENT AND
PRODUCT PORTFOLIO

      Ove Bratsberg is an Engineering Graduate of the Horten Ingenior Hogskole
and Business Economic Graduate of the Norwegian School of Management. He also
has a Post Graduate qualification in International Business Management from the
Norwegian School of Management. Before joining Nera in 1994 Ove Bratsberg had
various positions within ABB including sales and research & development
management. Prior to taking up today's position Ove Bratsberg served as Vice
President of Nera in Latin America.

      JOHN KNUDSEN (1961) - EXECUTIVE VICE PRESIDENT SUPPLY CHAIN MANAGEMENT

      Knudsen is an Electrical Engineer from Bergen College of Engineering and a
Business Candidate from the Norwegian School of Management. Since 1987, Knudsen
has held various and leading positions within the Nera Group, primarily within
Research and Development and Operational Management as manufacturing and supply.
Knudsen became Executive Vice President of Supply Chain Management in 2002.

                                       53
<PAGE>

      HELGE SKAAR (1955) - EXECUTIVE VICE PRESIDENT INFORMATION AND PUBLIC
AFFAIRS

      Skaar is a graduate of the University of Bergen. Prior to 1995, he worked
within corporate communications at Den norske Bank. Skaar has also worked for
the Norwegian School of Economics and Business Administration and Haukeland
Hospital. In 1995, Skaar joined us as head of corporate communications.

      STIG-ARE MOGSTAD (1964) - EXECUTIVE VICE PRESIDENT TECHNOLOGY MANAGEMENT

      Mogstad is a computer science graduate of the University of Strathclyde.
Since 1992, Mogstad has held various positions within the Nera group, primarily
with research and development and management of various business units. Mogstad
is a member of our executive committee and is responsible for research and
development and information technology.

      GRO HATLESKOG (1956) - EXECUTIVE VICE PRESIDENT ORGANISATION AND
MANAGEMENT

      Hatleskog is a graduate of the University of Bergen. Since 1991, Hatleskog
has held various positions within Vesta Forsikring AS, including personnel
director from 1995 to 2001. Hatleskog became executive vice president of human
resources in 2001.

      B.    COMPENSATION

      For the year ended December 31, 2003, the aggregate compensation
(including salary, remuneration and pension benefits) paid or accrued by us for
our directors and executive officers (20 individuals) was NOK 21.3 million.
Salary and remuneration to the president in 2003 totaled NOK 2.3 million.
Remuneration to the members of the board totaled NOK 1.4 million. Remuneration
paid to the corporate assembly totaled NOK 0.3 million. For all employees or
past employees including the three members of the board of directors nominated
by the employees, we have pension schemes, which are administered by an
independent management company, based on actuarial principles. For more
information, please see note 10 to our consolidated financial statements
included in Item 17.

      We operate a bonus scheme for executive officers providing for a maximum
bonus of up to eight months' salary for our president, and six months' salary
for other executive officers. The level of bonus actually paid is based on the
attainment of specified financial and business measures established each year.
For the fiscal year 2003, there will be bonus disbursements to our executive
officers limited to NOK 3.2 (exclusive NeraTel).

      Our chief executive officer and president, Mr. Skjeie, was granted 99,000,
81,000 and 113,400 options to purchase shares in 2001, 2002 and 2003,
respectively. In addition, we entered into a bonus agreement with Mr. Skjeie,
which connects his bonus arrangements to the trend in the trading price of our
shares and other criteria relating to the development of our company. For the
fiscal year 2003, there will be paid a bonus of NOK 287,749 to the CEO. We have
agreed to give Mr. Skjeie 12 months notice of resignation or termination, which
is extended to 24 months if his position changes significantly, or if we merge
with, or are acquired by, another company or investor. Mandatory retirement age
is 60, with pension limited to 80% of Mr. Skjeie's salary at the time of
retirement. We have entered into individual bonus agreements with members of the
Executive Committee relating to criteria linked to the Group's developments and
individual areas of responsibility.

      Our executive officers take part in our pension scheme. As at December 31,
2003, NOK 10.9 million was accrued for future pensions of executive officers.

      On May 5, 1999 and on March 14, 2000 our shareholders approved a stock
option plan for all of our permanent employees holding active positions with us
at the time of the option exercise, including management. The plan has a total
limit of 8.3 million shares and is subject to approval of the annual general
meeting of stockholders. Options to purchase 2.1 million shares were issued in
2001 (the "2001 plan"), options to purchase 1.8 million shares were issued in
2002 (the "2002 plan") and options to purchase 2.4 million shares in 2003 (the
"2003 plan") all at an exercise price equal to fair market value at the time of
issuance. The subscription price equals the average closing price for our shares
on the Oslo Stock Exchange, respectively, ten days prior to and ten days after
February 13, 2001 for the options granted under the 2001 plan, ten days after
February 18, 2002 for the options granted under the 2002

                                       54
<PAGE>

plan and ten days after February 17, 2003 for the options granted under the 2003
plan. The exercise price increases by 1% per month until the options are
exercised for options issued in 2001, and 0.5% per month for options issued in
2002 and 2003. Thus, the exercise price for the options under the 2001 plan is
NOK 50.30 on March 1, 2003 and NOK 60.10 on March 31, 2005 (to the extent
options are not exercised on an earlier date). The exercise price for the
options under the 2002 plan is NOK 19.22 on March 1, 2004 and NOK 21.36 on March
31, 2006 (to the extent options are not exercised on an earlier date). The
exercise price for the options under the 2003 plan is NOK 7.83 on March 1, 2005
and NOK 8.67 on March 31, 2007 (to the extent options are not exercised on an
earlier date). Options under the 2001 plan may be exercised from March 1, 2003
until March 31, 2005, options under the 2002 plan may be exercised from March 1,
2004 until March 31, 2006 and options under the 2003 plan may be exercised from
March 1, 2005 until March 31, 2007.

         Under these plans, all permanent employees received options to purchase
500 (2001 plan, 500 (2002 plan) and 750 (2003 plan) shares, while key personnel
and management, about 40 persons in the aggregate, received approximately 4
million options to purchase shares. We believe that the exercise of all options
provided for under this stock option plan are covered by our repurchase of our
shares. At May 28, 2004, we held 1,627,901 of our own shares.

         C.       BOARD PRACTICES

         The terms of office for which the members of our board of directors
serve are provided in subsection 6.A above.

         Our board of directors does not have any committees, as is customary in
Norway.

         D.       EMPLOYEES

         At December 31, 2003, we had 1,564 employees, as compared to 1,669
employees at December 31, 2002. Our future performance will depend in part on
our ability to attract and retain highly skilled employees.

<TABLE>
<CAPTION>
EMPLOYEES PER BUSINESS AREA                    YEAR END
---------------------------                    --------
<S>                                            <C>
TRANSMISSION NETWORKS
Norway                                            602
UK                                                 26
Brazil                                             17
Colombia                                           44
Venezuela                                          33
Mexico                                             21
Miami                                              11
India                                               0
Boston                                             18
TOTAL                                             772

SATELLITE COMMUNICATIONS
Norway: Mobile SatCom                             214
Germany                                            19
Hong Kong                                           0
TOTAL                                             233

BROADBAND
Norway                                             48
Dallas                                              5
TOTAL                                              53
</TABLE>

                                       55
<PAGE>

<TABLE>
<CAPTION>
EMPLOYEES PER BUSINESS AREA                    YEAR END
---------------------------                    --------
<S>                                            <C>
NERA CORPORATE FUNCTION                            53

NERATEL (SINGAPORE)                               453

TOTAL                                           1 564
</TABLE>

         E.       SHARE OWNERSHIP

         The table below sets forth certain information as to the ownership of
our ordinary shares and stock options by our directors and executive officers as
of December 31, 2003 to the extent known to us:

<TABLE>
<CAPTION>
                                                                 NUMBER OF
                                                                 ORDINARY
                         NAME                                     SHARES          PERCENT
                         ----                                     ------          -------
<S>                                                              <C>              <C>
BOARD OF DIRECTORS
Johan Fredrik Odfjell..................................            410,318              *
Kari Broberg...........................................                 --            --
Gregers Mogensen.......................................                 --            --
Ole Petter Hakonsen....................................                 --            --
Birger Magnus..........................................                 --            --
Jostein Soreide(1).....................................              1,750              *
Ivar Arnevig (2) ......................................              1,250              *
Jan Stenberg...........................................                 --            --
Marcel Petie(3)........................................              2,589              *
                                                                 ---------
TOTAL                                                              415,907         0.337%

EXECUTIVE COMMITTEE
Bjorn Ove Skjeie(4)....................................            507,625              *
Bjorn Olafsson (5).....................................            110,195              *
Terje Ask-Henriksen (6)................................            250,847              *
Ove Bratsberg (7)......................................            185,523
John Knudsen (8).......................................            206,849
Helge Skaar (9)........................................            161,400              *
Stig-Are Mogstad (10)..................................            205,849              *
Gro Hatleskog (11).....................................            113,035              *
Samuel Ang.............................................             20,000
Oyvind Isaksen (12)....................................             89,947
Billy Cain (13)........................................            187,092
                                                                 ---------
TOTAL                                                            2,038,362         1.650%
</TABLE>

----------------------

*        Owns less than one percent of outstanding ordinary shares.

(1)      Includes 500 stock options granted under the 2000 plan, 500 stock
         options granted under the 2001 plan and 500 stock options granted under
         the 2002 plan. The terms of the 2000 plan, 2001 plan and the 2002 plan
         are described above.

(2)      Includes 500 stock options granted under the 2001 plan and 750 stock
         options under the 2003 plan.

(3)      Includes 500 stock options granted under the 2000 plan, 500 stock
         options granted under the 2001 plan, 500 stock options granted under
         the 2002 plan and 750 stock options under the 2003 plan.

                                       56
<PAGE>

(4)      Includes 114,000 stock options granted under the 2000 plan, 99,000
         stock options granted under the 2001 plan and 81,000 options granted
         under the 2002 plan and 113,400 Stock options under the 2003 plan.

(5)      Includes 41,748 stock options granted under the 2002 plan and 58,447
         stock options granted under the 2003 plans.

(6)      Includes 69,000 stock options granted under the 2000 plan, 66,000 stock
         options granted under the 2001 plan, 37,478 stock options granted under
         the 2002 plan and 52,469 stock options granted under the 2003 plan.

(7)      Includes 42,000 stock options granted under the 2000 plan, 39,000 stock
         options granted under the 2001 plan, 35,166 stock options granted under
         the 2002 plan and 49,232 stock options granted under the 2003 plan.

(8)      Includes 42,000 stock options granted under the 2000 plan, 45,000 stock
         options granted under the 2001 plan, 37,385 stock options granted under
         the 2002 plan and 52,339 stock options granted under the 2003 plan.

(9)      Consists of 54,000 stock options granted under the 2000 plan, 51,000
         stock options granted under the 2001 plan, 23,500 stock options granted
         under the 2002 plan and 32,900 stock options granted under the 2003
         plan.

(10)     Includes 48,000 stock options granted under the 2000 plan, 60,000 stock
         options granted under the 2001 plan, 37,385 stock options granted under
         the 2002 plan and 52,339 stock options granted under the 2003 plan.

(11)     Consists of 48,000 stock options granted under the 2001 plan, 27,098
         stock options granted under the 2002 plan and 37,937 stock options
         granted under the 2003 plan.

(12)     Consists of 37,478 stock options granted under the 2002 plan and 52,469
         stock option granted under the 2003 plan.

(13)     Includes 42,000 stock options granted under the 2000 plan, 45,000 stock
         options granted under the 2001 plan, 37,498 stock options granted under
         the 2002 plan and 52,469 stock options granted under the 2003 plan.

Currently two third of the stock options granted under the 2000 plan, and one
         third of the stock options granted under the 2001 plan are
         excersiseable.

         ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

         A.       MAJOR SHAREHOLDERS

         As far as is known to us, we are not directly or indirectly owned or
controlled by another corporation, any government or by any natural or legal
person(s) severally or jointly, and there are no arrangements the operation of
which may result in a change in our control.

         The following table sets forth, as of June 4, 2004, (1) the ownership
of our shares by each person or entity which, to our knowledge, owns of record
or beneficially and has sole voting and investment power with respect to more
than 5% of our shares, and (2) the beneficial ownership of all our directors and
officers as a group. To our knowledge, our major shareholders do not have
different voting rights.

                                       57
<PAGE>

<TABLE>
<CAPTION>
                              NAME                                            NUMBER           PERCENT
                              ----                                          ----------         -------
<S>                                                                         <C>                <C>
SHAREHOLDERS
Folketrygdfondet................................................            17,300,200          14.00%
Credit Suisse First (Europe) Prime Broke Nominee................            10,261,526           8.31%
Orkla ASA.......................................................             9,025,063           7.31%
                                                                            ----------          -----

MEMBERS OF THE BOARD OF DIRECTORS AND OFFICERS
Directors and officers as a group (20 persons) .................             2,454,269           1.99%
                                                                            ----------          -----
Total...........................................................            39,041,058          31.61%
                                                                            ----------          -----
</TABLE>

         B.       RELATED PARTY TRANSACTIONS

         There have been no material transactions during the last year nor are
there any presently proposed transactions, in which any director or officer, or
controlling shareholder, or any relative or spouse thereof had or has a direct
or indirect material interest. There is no significant indebtedness owed to us
by any director or officer or any associate of any director or officer.

         C.       INTERESTS OF EXPERTS AND COUNSEL

         Not applicable.

         ITEM 8. FINANCIAL INFORMATION

         A.       CONSOLIDATED STATEMENT AND OTHER FINANCIAL INFORMATION

SALES BY GEOGRAPHICAL DESTINATIONS

<TABLE>
<CAPTION>
AMOUNTS IN MILLIONS OF NOK                                                FOURTH               FOURTH
GEOGRAPHICAL DESTINATIONS         YEAR      2003      YEAR      2002      QUARTER    2003      QUARTER   2002
-------------------------         ----      ----      ----      ----      -------    ----      -------   ----
<S>                              <C>       <C>       <C>        <C>       <C>        <C>       <C>       <C>
Norway                             310     13.8%       276      11.3%        81      12.3%       101     16.5%
United Kingdom                     123      5.4%       110       4.5%        27       4.1%        36      5.9%
Rest of Europe                     478     21.2%       498      20.4%       132      20.0%       144     23.4%
Americas                           443     19.7%%      538      22.0%       131      19.8%       114     18.5%
Africa                              54      2.4%       105       4.3%        15       2.3%        27      4.5%
Asia                               806     35.8%       863      35.3%       262      39.7%       182     29.6%
Oceania                             39      1.7%        55       2.2%        11       1.8%         9      1.6%
                                 -----     ----      -----      ----        ---      ----        ---     ----
TOTAL                            2,253      100%     2,445       100%       659       100%       614      100%
                                 =====     ====      =====      ====        ===      ====        ===     ====
</TABLE>

         The consolidated statements and other financial information are
provided in Item 17 below.

         LEGAL PROCEEDINGS

         There are no pending legal proceedings to which we or any of our
subsidiaries is a party or to which any of our properties is subject which,
either individually or in the aggregate, are expected by us to have a material
adverse effect on our consolidated financial position, liquidity or results of
operations.

         DIVIDEND DISTRIBUTIONS

         In 2003, we had decided to pay NOK 0.22 in dividend distributions. In
2004 we decided to pay an extraordinary dividend of NOK 0.78. Our board of
directors determines, on a year to year basis, if and when dividends will be
declared and what percent of earnings will be retained.

                                       58
<PAGE>

         B.       SIGNIFICANT CHANGES

         No significant change has occurred since the date of the financial
statements provided in Item 17 below.

         ITEM 9. THE OFFER AND LISTING

         A.       OFFER AND LISTING DETAILS

         Not applicable.

         B.       PLAN OF DISTRIBUTION

         Not applicable.

         C.       MARKETS

         The principal trading market for our shares is the Oslo Stock Exchange,
where they have been listed since January 1995 under the symbol NER. American
depositary shares, or ADRs, each representing one ordinary share, traded on
Nasdaq's National Market System under the symbol NERAY from June 28, 1995 until
we voluntarily delisted the ADRs on May 30, 2002. Following that date and until
the present time, our ADRs have been trading on the Other OTC Market under the
symbol NERAF.PK, to the extent there has been trading activity. The Bank of New
York served as the depositary with respect to our American depositary shares
until we discontinued our ADR program effective January 20, 2004. Within twelve
months after the effective date of cancellation, holders of our ADRs can return
the ADRs to The Bank of New York in exchange for the underlying ordinary shares.
Following January 2005, The Bank of New York can sell the remaining ADRs it will
then hold and distribute the proceeds, if any, to the remaining ADR holders.

         Based on the information received from The Bank of New York, we believe
that there are approximately 230 U.S. holders of record who, in the aggregate,
hold approximately 124,817 of our ADRs as of May 28, 2004. We intend to
terminate the registration of our securities under the Securities Exchange Act
soon after there are less than 300 US holders of record, and provided we satisfy
all applicable criteria for such deregistration. Upon termination of the
registration, we will no longer be required to file periodic reports with the
SEC.

         The table set forth below, for the periods indicated, shows the
reported high and low quoted prices for the ordinary shares on the Oslo Stock
Exchange, as well as for the American depositary shares on Nasdaq and/or the
Other OTC Market, as applicable.

<TABLE>
<CAPTION>
                                           OSLO STOCK EXCHANGE                       NASDAQ AND/OR
                                                                                 THE OTHER OTC MARKET
                                                                             (AFTER MAY 30, 2002) (1) (2)
                                         HIGH                LOW               HIGH                 LOW
                                         ----               -----             -----                -----
                                                 (IN NOK)                               (IN USD)
<S>                                      <C>                <C>               <C>                  <C>
1999..........................           38.00              10.50             4.750                1.375
2000..........................           65.00              32.50             8.500                3.625
2001..........................           44.30              16.70             5.000                1.750
2002..........................           21.90               4.90             2.500                0.200
2003..........................           18.60               5.40                 -                    -
</TABLE>

                                       59
<PAGE>

<TABLE>
<CAPTION>
                                           OSLO STOCK EXCHANGE                       NASDAQ AND/OR
                                                                                 THE OTHER OTC MARKET
                                                                             (AFTER MAY 30, 2002) (1) (2)
                                         HIGH                LOW               HIGH                 LOW
                                         ----               -----             -----                -----
                                                 (IN NOK)                               (IN USD)
<S>                                      <C>                <C>               <C>                  <C>
2002
First quarter.................           21.90              15.50             2.500                1.800
Second quarter................           18.00               7.20             2.240                0.250
Third quarter.................            9.80               4.90             1.300                0.200
Fourth quarter................           10.70               5.06             1.330                0.600

2003
First quarter.................            8.75               5.40              N/a                  N/a
Second quarter................           11.70               5.75              N/a                  N/a
Third quarter.................           18.60               9.60              N/a                  N/a
Fourth quarter................           16.80              13.20              N/a                  N/a

2004
December 2003.................           15.40              13.20              N/a                  N/a
January 2004..................           16.70              14.00              N/a                  N/a
February 2004.................           18.30              15.00             2.400(3)             2.400(3)
March 2004....................           19.40              14.50             2.400                2.400
April 2004....................           16.50              14.30             2.400                2.400
May 2004......................           18.30              16.10             2.300                2.300
June 2004 (until June 16).....           17.70              16.10             2.350                2.300
</TABLE>

-----------

(1)      Until voluntary delisting on May 30, 2002.

(2)      "N/a" indicates periods during which, based on the information
available from Pink Sheets LLC, there appears to have been no trading activity.

(3)      Reflects high and low quoted prices reported beginning February 11,
2004.

         D.       SELLING SHAREHOLDERS

         Not applicable.

         E.       DILUTION

         Not applicable.

         F.       EXPENSES OF THE ISSUE

         Not applicable.

         ITEM 10. ADDITIONAL INFORMATION

         A.       SHARE CAPITAL

         Not applicable.

                                       60
<PAGE>

         B.       MEMORANDUM AND ARTICLES OF ASSOCIATION

         Set forth below is certain information concerning our share capital and
related summary information concerning all material provisions of our articles
of association and applicable Norwegian law. Such summary information does not
purport to be complete and is qualified in its entirety by reference to our
articles of association, which have been previously filed with the Commission as
an exhibit to our annual report for the year ended December 31, 2000.

         VOTING RIGHTS

         As a general rule, decisions that shareholders are entitled to make
pursuant to Norwegian law or our articles of association may be made by a simple
majority of votes cast. Each ordinary share carries one vote. However, any
decision to amend our articles of association, including any amendment
increasing our share capital or altering the rights and preferences of any
ordinary share or class of shares, requires the approval of at least two-thirds
of the aggregate number of votes cast as well as at least two-thirds of the
share capital represented at a shareholders' meeting, whether or not holders of
such ordinary shares are otherwise entitled to vote. In certain cases, a
stricter voting requirement is applicable.

         To vote at an annual or extraordinary general meeting, a shareholder
must have registered his title to the ordinary shares to be voted in our share
register maintained at the Norwegian centralized registry of shares and other
securities, or VPS, or have given evidence that he is the holder of the ordinary
shares. Shareholders who intend to participate in a general meeting in person or
by proxy must give notice to us by the date stated in the notice convening the
meeting, which date must be not more than five business days before the date of
such meeting.

         The annual general meeting of our shareholders is held each year before
the end of June. Norwegian law requires that written notice of general meetings
be sent to shareholders whose addresses are known at least one week prior to the
date for notification of attendance stated in the notice convening the meeting.
A shareholder may vote by proxy. Although Norwegian law does not require us to
send proxy forms to our shareholders for general meetings, we will include a
proxy form with the notice of meetings.

         Apart from the annual general meeting, extraordinary general meetings
of shareholders may be held whenever considered necessary by the corporate
assembly, the chairman of the corporate assembly or the board of directors. An
extraordinary general meeting may also be convened for the consideration of
specific matters at the written request of our auditor or of shareholders
representing at least 10 percent of our share capital. Any matter that may be
raised at an annual general meeting (other than approval of the annual accounts
and distribution of cash dividends) may also be raised at an extraordinary
general meeting.

         RESTRICTIONS ON OWNERSHIP OF ORDINARY SHARES

         The articles of association contain no provisions restricting the
foreign ownership of the ordinary shares.

         There are no limitations under Norwegian law on the right of
non-resident or foreign owners to hold or vote our ordinary shares. However, in
accordance with Norwegian law, the acquisition of assets, partnership interests,
shares or other ownership interests of a company in Norway must be notified to
the Norwegian Ministry of Industry if the purchaser, regardless of nationality,
becomes the owner of either one-third, one-half or two-thirds of the assets,
partnership interests, shares or other ownership interests in such company and
the company has annual operating revenues exceeding NOK 50 million, has more
than 50 employees, or has received public support for research and development
exceeding NOK 5 million during the past eight years. For acquisitions requiring
notifications, the Norwegian Ministry of Industry may refuse to approve the
acquisition or may approve it with or without conditions.

         We meet the above-described criteria and, therefore, future holders
will be subject to these notification requirements with respect to any
qualifying acquisitions.

         THE VPS AND TRANSFER OF ORDINARY SHARES

                                       61
<PAGE>

         Norway has a paperless, centralized registry of shares and other
securities, the VPS, which began operation in 1986. For companies that are
obliged to, or elect to, register their shares in the VPS, share certificates
are no longer used. The VPS is a computerized bookkeeping system, operated by an
independent body, in which the ownership of, and all transactions relating to,
Norwegian listed shares must be recorded. Our share register is operated through
the VPS.

         All transactions relating to securities registered with the VPS are
made through computerized book entries. The VPS confirms each entry by sending a
transcript to the registered shareholder irrespective of any beneficial
ownership. To effect such entries, the individual shareholder must establish a
share account with a Norwegian account agent. Norwegian banks, the Bank of
Norway, authorized securities brokers in Norway and Norwegian branches of credit
institutions established within the European Economic Area, are allowed to act
as such agents. If the shareholder does not establish such an account, an agent
will be appointed on the shareholder's behalf by the issuer of the shares in
question.

         The entry of a transaction in the VPS is prima facie evidence in
determining the legal rights of parties as against the issuing company or a
third party claiming an interest in the security.

         The VPS is strictly liable for any loss resulting from an error in
connection with registering, altering or cancelling a right, except in the event
of contributory negligence, in which event compensation may be reduced or
withdrawn.

         Under Norwegian law, any acquisition of shares must be registered
within one month after such acquisition. A transferee or assignee of shares may
not exercise the rights of a shareholder with respect to such shares unless such
transferee or assignee has registered such shareholding, or has reported and
shown evidence of such share acquisition, and the acquisition of shares is not
prevented by law, the articles of association or otherwise.

         DISCLOSURE OBLIGATIONS

         Under Norwegian law, any transfer of shares in a company listed on the
Oslo Stock Exchange must be registered with the VPS by the transferor within one
month of the transfer.

         A person, entity or group acting in concert that acquires or disposes
of ordinary shares resulting in its beneficial ownership, directly or
indirectly, exceeding or falling below in the aggregate thresholds of 10
percent, 25 percent, 50 percent or 75 percent of the total number of ordinary
shares outstanding has an obligation under Norwegian law to notify us and the
Oslo Stock Exchange immediately. A corresponding disclosure obligation applies
with respect to any holder of American depositary receipts, or ADRs, who is
entitled upon surrender of the ADRs to acquire directly or indirectly the
beneficial ownership of a number of ordinary shares that, together with any
ordinary shares or additional ADRs held by such holder, in the aggregate exceeds
or falls below such thresholds.

         ADDITIONAL ISSUANCES AND PREEMPTIVE RIGHTS

         All issuances of ordinary shares by us, including bonus issues (share
dividends), requires an amendment to the articles of association, which requires
the same vote as other amendments to the articles of association. Furthermore,
under Norwegian law, shareholders have a preemptive right to subscribe for and
be allotted new ordinary shares issued by us. Such preemptive rights may be
waived by a resolution in a general meeting by the same vote required to approve
amendments to our articles of association. A waiver of the shareholders'
preemptive rights in respect of bonus issues (share dividends) requires the
approval of all ordinary shares outstanding. The issuance of ordinary shares to
holders who are citizens or residents of the United States, or U.S. holders,
upon the exercise of preemptive rights may require us to file a registration
statement in the Unites States under United States securities laws. If we decide
not to file a registration statement, such U.S. holders will not be able to
exercise their preemptive rights and would be required to sell them to Norwegian
persons or other non-U.S. holders to realize the value of such rights.

         Norwegian law also provides that if a Norwegian company's capital is
increased by a subscription for shares and the preemptive rights of shareholders
have not been waived, employees of that company have preferential

                                       62
<PAGE>

rights to subscribe for such shares, to the extent such shares have not been
fully subscribed or oversubscribed through the exercise of shareholders'
preemptive rights.

         Under Norwegian law, bonus issues (share dividends) of our ordinary
shares may be distributed, subject to shareholder approval, from amounts (i)
that could otherwise be distributed as dividends, (ii) that may be created by
transferring funds from our legal reserve discussed below to share capital or
(iii) that may result from an upward revaluation of our long-term assets. Such
bonus issues (share dividends) may be effected either by issuing ordinary shares
or by increasing the par value of the shares outstanding.

         DIVIDENDS

         Under Norwegian law, dividends in cash or in kind are only payable
annually. Any proposal to pay a dividend must be recommended by the directors
and approved by the shareholders at a general meeting. The shareholders at an
annual general meeting may vote to reduce (but not to increase) dividends
proposed.

         Dividends in cash or in kind are payable only out of (1) the annual
profit according to the income statement for the last financial year, (2)
retained profit from previous years and (3) distributable reserves, after
deduction of accumulated losses and any part of the annual profit which,
according to law or the Articles of Association, must be allocated to the
reserve fund or is non-distributable. Our annual income statement and balance
sheet, including the application of profit or coverage of loss, as the case may
be, as well as the consolidated income statement and consolidated balance sheet,
must be approved by the shareholders at a general meeting. In no event may
dividends be declared in excess of an amount that is compatible with good and
careful business practice with due regard to any losses that may have occurred
after the last balance sheet date or that may be expected to occur.

         Under Norwegian law, we are required to maintain a legal reserve at
least equal to a minimum amount prescribed by law and, until such minimum amount
is reached, we must allocate to our legal reserve a proportion of our specified
profit and income prescribed by law. No dividends in cash or in kind may be paid
out of such legal reserve unless the amount of such legal reserve exceeds the
prescribed minimum level, in which case up to 20 percent of any excess may be
paid out in any year.

         Under Norwegian foreign exchange controls currently in effect,
transfers of capital to and from Norway are not subject to prior government
approval except for the physical transfer of payments in currency, which is
restricted to licensed banks. Consequently, a non-Norwegian resident may receive
dividend payments without a Norwegian exchange control consent if such payment
is made only through a licensed bank.

         RIGHTS UPON WINDING-UP

         A Norwegian company may be wound-up by a resolution of the company in a
general meeting passed by a two-thirds majority of the aggregate votes cast by
its voting shares as well as two-thirds of the aggregate share capital
represented at such meeting irrespective of class.

         MANDATORY BID REQUIREMENT

         Norwegian law requires any person, entity or group acting in concert
that acquires more than 45 percent of the voting rights of a Norwegian company
listed on the Oslo Stock Exchange to make a general offer to acquire the whole
of the outstanding share capital of that company. Such offer may be conditioned
on the offeror becoming the owner of shares representing at least two-thirds of
the voting rights. The offer is subject to approval by the Oslo Stock Exchange
before submission of the offer to the shareholders. The offering price per share
must be at least as high as the highest price paid by the offeror in the
six-month period prior to the date the 45 percent threshold was exceeded. A
shareholder who fails to make the required offer must within four weeks dispose
of sufficient shares so that the obligation ceases to apply. Otherwise, the Oslo
Stock Exchange may cause to be sold by public auction the shares exceeding the
45 percent limit. During the time the mandatory bid requirement is in force, a
shareholder failing to make the required offer may not vote or exercise any
rights of share ownership unless a majority of the remaining shareholders
approve, other than the right to receive dividends and preferential rights in
the event of a

                                       63
<PAGE>

share capital increase. In addition, the Oslo Stock Exchange may impose a daily
fine upon a shareholder who fails to make the required offer.

         The depositary has qualified and been recognized as a custodian of the
Shares in Norway, as a result of which the depositary is exempt from the
mandatory bid requirement.

         C.       MATERIAL CONTRACTS

         We have not entered into material contracts outside the course of
ordinary business.

         D.       EXCHANGE CONTROLS

         Under Norwegian foreign exchange controls, transfers of capital to and
from Norway are not subject to prior government approval, except for the
physical transfer of payments in currency, which is restricted to licensed
banks. Consequently, a non-resident of Norway may only receive dividend payments
without a Norwegian exchange control consent if such payment is made through a
licensed bank.

         Under the Norwegian Acquisition of Business Act of 1994, acquisitions
of shares, whereby the acquiring person, entity or group becomes owner of more
than one-third, one-half or two-thirds of our share capital or voting rights
must be notified to the Ministry of Industry, which may impose conditions upon
the acquiring person, entity or group or us and, if public policy so mandates,
require the acquiring person, entity or group to resell the acquired shares.

         E.       TAXATION

         GENERAL

         The following is a general summary of the principal Norwegian and
United States federal income tax consequences of the ownership and disposition
of American depositary receipts evidencing American depositary shares, or ADRs,
and/or shares to a beneficial owner of ADRs or shares who is a U.S. holder. A
U.S. holder means a beneficial owner of ADRs that is an individual who is a
citizen or resident of the United States, a United States domestic corporation,
an estate the income of which is subject to United States federal income tax
without regard to its source or a trust if (1) a court within the United States
is able to exercise primary supervision over the administration of the trust and
one or more United States persons have the authority to control all substantial
decisions of the trust and who is not a resident of Norway or (2) it has an
election in effect to be treated as a United States person under United States
federal income tax law. This summary is based

             -    on the tax laws of the United States and Norway, the income
                  tax convention between the United States and Norway, referred
                  to in this section as the convention, and interpretations
                  thereof by the relevant tax authorities that are currently in
                  effect, all of which are subject to change possibly with
                  retroactive effect, and

             -    in part on representations made by the depositary and assuming
                  that each obligation in the deposit agreement entered into
                  between us and the depositary and any related agreement will
                  be performed in accordance with its terms.

         The summary applies only to U.S. holders who hold ADRs or shares as
capital assets and does not address certain classes of persons (such as
tax-exempt entities, certain insurance companies, dealers in securities or
currencies, traders in securities that elect to mark-to-market, investors liable
for alternative minimum tax, banks, financial institutions, persons who hold
ADRs or shares as part of hedging or conversion transactions, persons whose
functional currency is not the U.S. dollar and persons who own, directly or
indirectly, at least 10% of our outstanding voting stock) that may be subject to
special rules. The discussion below does not address the tax treatment of
partnerships or persons who hold shares or ADRs through a partnership or other
pass-through entity. It also does not address the tax treatment of the ownership
and disposition of shares or ADRs under applicable state or local tax laws, or
the laws of any jurisdiction other than Norway or the United States.

                                       64
<PAGE>

         In general, and taking into account the earlier assumptions, for United
States and Norwegian tax purposes, U.S. holders of ADRs will be treated as the
owners of the shares represented by the ADRs. Unless otherwise stated below, the
Norwegian tax consequences and the United States federal income tax consequences
discussed below should apply equally to U.S. holders of ADRs and U.S. holders of
shares.

         NORWAY

         F.       NORWAY

         Taxation of dividends

         Under Norwegian tax law, withholding tax of 25% is levied on dividends
paid by Norwegian company to non-resident companies and individuals.

         The withholding tax may be reduced pursuant to the provisions of the
tax convention between Norway and the US. Pursuant to the convention, the
maximum rate of withholding tax is 15% on dividends paid by a Norwegian
corporation to a person resident (for purposes of the convention) in the United
States, provided that such person does not have a permanent establishment in
Norway with which the dividends are effectively connected. The 15% withholding
rate will apply to dividends paid on shares held directly by U.S. holders who
properly demonstrate to us and to the Norwegian tax authorities that they are
entitled to the benefits of the convention. Additionally, the 15% withholding
tax rate will also apply to dividends paid to the depositary, but only if the
depositary has obtained consent in advance (upon fulfilment of certain
conditions) from the Norwegian Tax Directorate. If such consent is not obtained
in advance, dividends paid to the depositary will be subject to withholding at
the 25% rate. U.S. holders of ADRs who believe they are entitled to the benefits
of the convention may apply to the Norwegian tax authorities for a refund of
amounts withheld in excess of 15%. The application is to be filed with the
Norwegian Tax Directorate. However, there is some uncertainty as to whether and
when such a refund may be obtained.

         We intend to file any reports with the Norwegian authorities or
agencies necessary to obtain the benefits of the convention for those U.S.
holders who are entitled to them. We will exercise our right under the deposit
agreement to reasonably request from the depositary such information from its
records to enable us to file such reports.

         If, however, the recipient of a dividend is a U.S. holder who, it is
determined, is engaged in a business activity taxable in Norway, and the shares
or ADRs with respect to which the dividend is paid are effectively connected
with such activity, then the amount distributed to such U.S. holder will be
treated as taxable ordinary income in Norway, subject to the provisions of the
convention, where applicable. Norway has an imputation system where company
surplus, including dividend payments, is taxed at company level as ordinary
income at a rate of 28%. Dividend income is also taxed as ordinary income at
shareholder level at a rate of 28%, however, as a rule, the shareholder receives
full credit for this tax.

                           a)       Taxation of dispositions

         A U.S. holder normally is not taxed in Norway on gains from the sale or
other disposition of shares or ADRs, unless the shareholding is effectively
connected with a permanent establishment in Norway, or the U.S. holder is an
individual who (1) maintains for at least 183 days during the taxable year a
fixed base in Norway with which such gains are effectively connected or (2) is
physically present in Norway for at least 183 days during taxable year.

         The same rules apply to gains realized upon our complete liquidation or
upon redemption of shares.

         Repayment in connection with a reduction of the share capital by
reducing the nominal value of the shares is, however, subject to withholding tax
as dividend distribution, if exceeding paid-in capital.

         Deposits and withdrawals of shares in exchange for ADRs will not result
in taxable gain or loss for Norwegian tax purposes.

                                       65
<PAGE>

                           b)       Transfer tax

         There is currently no Norwegian tax on the transfers of shares.
Transfers of shares, however, may be subject to nominal registration fees.

                           c)       Inheritance tax

         When shares are transferred, either through inheritance or as a gift,
such transfer may give rise to inheritance tax in Norway if the deceased, at the
time of death, or the donor, at the time the gift is made, is a resident or
citizen of Norway. However, if the deceased, at the time of death, is not a
resident of Norway but rather a citizen of Norway, Norwegian inheritance tax
will not be levied in the country of residence. Irrespective of residency or
citizenship, Norwegian inheritance tax may be levied if the shares are
effectively connected to a permanent establishment in Norway.

         Norway and the US have entered into a convention with the aim to
prevent double inheritance tax on inheritance or gift in Norway and the US.

                           d)       Property taxes or similar taxes

         Norway does not levy any property tax or similar tax on shares. A U.S.
holder of shares is not subject to Norwegian wealth tax with respect to such
shares, unless the U.S. holder is an individual and his shareholding is
effectively connected with a business carried out by the U.S. holder through a
permanent establishment in Norway.

UNITED STATES

         TAXATION OF DIVIDENDS

         Subject to the discussion under "--Passive Foreign Investment Company
Rules," for United States federal income tax purposes, the gross amount of
distributions (including any withholding tax thereon) made by us out of our
current or accumulated earnings and profits (as determined for United States
federal income tax purposes) will be included in the gross income of a U.S.
holder as dividend income on the day the distribution is actually or
constructively received by the U.S. holder, in the case of shares, or by the
depositary, in the case of ADRs. These dividends will not be eligible for the
dividends-received deduction generally allowed to domestic corporations.

         Under United States federal income tax law, if you are a non-corporate
taxpayer, these dividends may be taxed at the lower applicable capital gains
rate provided (1) certain holding period requirements are satisfied, (2) we are
eligible for the benefits of the United States-Norway income tax treaty, and (3)
we are not a "foreign personal holding company," "a foreign investment company"
or a "passive foreign investment company." Non-corporate U.S. holders are
strongly urged to consult their own tax advisors as to the applicability of the
lower capital gains rate to dividends received with respect to ADRs or our
ordinary shares.

         The amount of any dividend paid in Norwegian krone will be equal to the
U.S. dollar value of the krone on the date of receipt by the U.S. holder, in the
case of shares, or by the depositary, in the case of ADRs, regardless of whether
the payment is converted into U.S. dollars. If the krone received as a dividend
is not converted into U.S. dollars on the date of receipt, a U.S. holder will
have a basis in the krone amount equal to its U.S. dollar value on the date of
receipt. Gain or loss, if any, recognized by a U.S. holder on the subsequent
sale or disposition of the krone will generally be United States source ordinary
income or loss.

         A distribution with respect to our shares or ADRs in excess of our
current and accumulated earnings and profits will be treated as a tax-free
return of basis in the shares to the extent of the U.S. holder's adjusted basis
in such shares, with the balance of the distribution, if any, treated as gain
realized by the U.S. holder from the sale, exchange or other disposition of the
shares or ADRs.

         Subject to certain limitations, U.S. holders may elect to claim a
credit against their United States federal income tax liability for Norwegian
tax withheld in accordance with the convention from dividends, or, if they do
not

                                       66
<PAGE>

elect to credit any foreign tax for the taxable year, they may deduct such tax.
Any additional withholding tax in excess of the rate applicable under the
convention generally will not be eligible for such deduction or credit. For more
information regarding the availability of a refund of such additional
withholding tax, see "Norway Taxation of Dividends," above. For foreign tax
credit purposes, dividends paid by us will generally be foreign source "passive
income" or, in the case of certain U.S. holders, "financial services income."
Any distribution in excess of our current and accumulated earnings and profits
generally will not give rise to foreign source income, and a U.S. holder will
not be able to use the foreign tax credit arising from any Norwegian withholding
tax imposed on such distribution unless such credit can be applied (subject to
applicable limitations) against U.S. federal income tax due on other foreign
source income in the appropriate category for foreign tax credit purposes.

         Taxation of dispositions

         Subject to the discussion under "--Passive Foreign Investment Company
Rules," a U.S. holder will recognize capital gain or loss for United States
federal income tax purposes on a sale or other disposition of shares or ADRs in
an amount equal to the difference between the U.S. dollar value of the amount
realized and the U.S. holder's tax basis in the shares or ADRs. Such gain or
loss will be long-term capital gain or loss if the U.S. holder's holding period
for such shares or ADRs exceeds one year. Long-term capital gain of a
non-corporate U.S. holder is generally subject to a maximum tax rate of 15%. For
corporate U.S. holders, capital gains are currently taxed at the same rate as
ordinary income. The deductibility of a capital loss, however, is subject to
limitations for both non-corporate and corporate U.S. holders.

         Any such gain or loss recognized by a U.S. holder will generally
constitute United States source income. Because capital gains will generally
constitute United States source income, any Norwegian or other foreign tax
imposed upon capital gains in respect of the shares or ADRs may not be currently
creditable unless a U.S. holder had other foreign source income for the year in
the appropriate foreign tax credit limitation basket. Capital losses will
generally be allocated against United States source income.

         Passive Foreign Investment Company Rules

         Certain United States federal income tax rules apply to holders of
equity interests in a corporation classified as a passive foreign investment
company, or PFIC. We would be a PFIC for United States federal income tax
purposes if 75% or more of our gross income for a taxable year were to consist
of passive income, or 50% or more of our average assets held during a taxable
year were to consist of passive assets. Based on our current and projected
financial data, we believe that we will not currently be treated as a PFIC for
U.S. federal income tax purposes and we do not expect to become one in the
future. However, this conclusion is a factual determination made annually and
thus may be subject to change based on future operations and the composition and
valuation of our assets.

         If we were to constitute a PFIC, a U.S. holder could be subject to
materially adverse United States federal income tax consequences for certain
distributions made by us and with respect to gain realized by the holders on
disposition of shares or ADRs. Prospective U.S. holders should consult with
their own tax advisors regarding the potential application of PFIC rules.

         United States backup withholding tax and information reporting

         Payments made by a paying agent within the United States to U.S.
holders other than corporations and other exempt recipients in respect of shares
or ADRs may be subject to information reporting to the United States Internal
Revenue Service, or IRS. Backup withholding tax will also apply to those
payments if made to a non-exempt U.S. holder that fails to provide certain
information to the paying agent, including the holder's taxpayer identification
number, and to comply with certain other requirements concerning backup
withholding. Any amounts withheld under the backup withholding rules from a
payment to a holder of shares or ADRs generally will be allowed as a refund or a
credit against such holder's U.S. federal income tax, provided that the required
information is furnished to the IRS.

                                       67
<PAGE>

         G.       DIVIDENDS AND PAYING AGENTS

         Not applicable.

         H.       STATEMENT BY EXPERTS

         Not applicable.

         I.       DOCUMENTS ON DISPLAY

         We are subject to the informational requirements of the Securities
Exchange Act of 1934, as amended. In accordance with these requirements, we file
reports and other information with the Securities and Exchange Commission. These
materials, including this annual report and the exhibits thereto, may be
inspected and copied at the Commission's Public Reference Room at 450 Fifth
Street, N.W., Washington, D.C. 20549. Copies of the materials may be obtained
from the Public Reference Room of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. The public may obtain information on
the operation of the Commission's Public Reference Room by calling the
Commission in the United States at 1-800-SEC-0330. The Commission also maintains
a web site at http://www.sec.gov that contains reports, proxy statements and
other information regarding registrants that file electronically with the
Commission.

         J.       SUBSIDIARY INFORMATION

         Not applicable.

         ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         MARKET-SENSITIVE INSTRUMENTS AND RISK MANAGEMENT

         We sell our products and services internationally and we are subject to
market risks, primarily from changes in foreign exchange rates and interest
rates. We are not materially affected by commodity price fluctuations. In the
normal course of business we also face risks that are either nonfinancial or
nonquantifiable. Such risks principally include country risk and credit risk and
are not represented in the following analyses.

         Our board of directors has issued a policy that determines the maximum
level of foreign exchange rate and interest rate risks that can be assumed by
individual companies and our group as a whole. The calculations and measurement
techniques used by the treasury center are in accordance with established
banking practices.

         FOREIGN CURRENCY EXCHANGE RATE RISK

         We have manufacturing, sales and distribution facilities around the
world and thus make investments and enter into transactions denominated in
various foreign currencies. Our operating cash flows denominated in foreign
currency as a result of these international business activities are exposed to
changes in foreign exchange rates. In order to maintain strict control and
achieve the benefits of our global diversification, foreign exchange exposures
may be hedged with financial instruments. We primarily enter into forward
exchange controls and currency swaps to reduce the earnings and cash flow of
non-functional currency denominated receivables and payables. Gains and losses
resulting from hedging instruments usually offset the gains or losses on the
underlying assets, liabilities, and investments being hedged. Our forward
exchange contracts and currency swaps generally do not exceed 12 months, and the
maturities coincide with our best estimate as to the settlement dates of the
related firm and anticipated transactions.

         The currencies that we were primarily exposed to before hedging at
December 31, 2003 were the Norwegian krone versus the U. S. dollars, Euros and
the pound sterling.

                                       68
<PAGE>

      The following table provides the Norwegian krone equivalents of the net
foreign exchange contracts and currency swaps outstanding by currency and the
corresponding impact on the value of these instruments assuming both a 10%
appreciation and depreciation of the respective currencies from their levels at
December 31, 2003, with all other variables (including interest rates) held
constant. The resulting gains and losses are translated into Norwegian krone
using the appropriate exchange rate at December 31, 2003. The instruments held
by us are not leveraged and are held for purposes other than trading.

<TABLE>
<CAPTION>
                                                                      Foreign exchange gain/(loss)
                                                                                  from
                                                                          10%              10%
                                        Foreign                     appreciation of   depreciation of
  Forward contracts and currency       currency       Foreign         the foreign       the foreign
              swaps:                    bought     currency sold       currency          currency
-----------------------------------    --------    -------------    ---------------   ---------------
                                                          (in NOK millions)
<S>                                    <C>         <C>              <C>               <C>
Australian dollars.................        1.2           0.7             0.05             -0.05
Euro...............................        0.0         146.6            -14.7              14.7
Pounds Sterling....................        5.5          45.0             -4.0               4.0
Japanese yen.......................        0.5           0.0             0.05             -0.05
U. S. dollar...................2004       95.3         407.2            -31.2              31.2
                                         -----         -----            -----             -----
         TOTAL                           102.5         599.5            -49.8              49.8
</TABLE>

      In addition, please see note 22 to our consolidated financial statements
included in Item 17.

      INTEREST RATE SENSITIVITY

      We are exposed to changes in interest rates primarily as a result of
liquidity invested in short-term interest bearing instruments, primarily bank
deposits with a consequently low risk to value. Some interest rate exposure is
also related til project financing. Project financing in Pound Sterling has a
fixed interest rate and project financing in US dollars has a variable interest
rate with short time to maturity. The nature and amount of our bank deposits,
long-term and short-term debt can be expected to vary as a result of future
business requirements, market conditions and other factors. Due to the variable
rates, our interest cost will fluctuate during the course of any financial year.
We do not undertake any specific actions to cover our exposure to interest risk
and we are not a party to any interest risk management transactions.

      Note 22 to the consolidated financial statements discusses the fair value
of our financial instruments.

      NEW U.S. ACCOUNTING STANDARDS

      Variable Interest Entities

      Effective February 1, 2003, the Company adopted FASB Interpretation No.
46-R ("FIN 46"), "Consolidation of Variable Interest Entities, an interpretation
of ARB No. 51," for all Variable Interest Entities ("VIE"). Under FIN 46, an
entity is considered a VIE (and subject to consolidation) if its total equity at
risk is determined insufficient to finance its activities without additional
subordinated financial support, or if its equity investors lack certain
characteristics that represent a controlling financial interest. An entity that
is considered a VIE would be required to be consolidated by the variable
interest holder that holds a majority of the risks and reward from changes in
the fair values of the VIE's assets and liabilities. Currently, entities are
generally consolidated by an enterprise when it has a controlling financial
interest through ownership of a majority voting interest in the entity. The
requirements apply immediately to all entities created on or after February 1,
2003. The adoption did not have a material impact on the financial position or
results of operations of the Company. For special purpose entities created
before February 1, 2003, the provisions are effective January 1, 2004 and for
non special purpose entities,

                                       69
<PAGE>

the provisions are effective December 31, 2004. For the provisions effective in
2004, Nera has not evaluated the effect that the adoption will have on its
results of operations and financial condition.

      EITF 00-21

      In November 2003, the EITF reached a consensus on Issue 00-21, "Revenue
Elements with Multiple Deliverables" addressing how to account for arrangements
that involve the delivery or performance of multiple products, services, and/or
rights to use assets. On December 17, 2003, the SEC issued SEC Staff Accounting
Bulletin ("SAB") No. 104 "Revenue Recognition" ("SAB 104") which has effectively
codified EITF 00-21 to a higher level of GAAP. Revenue arrangements with
multiple deliverables are divided into separate units of accounting if the
deliverables in the arrangement meet the following criteria: (1) the delivered
item has value to the customer on a standalone basis; (2) there is objective and
reliable evidence of the fair value of undelivered items; and (3) delivery of
any undelivered item is probable. Arrangement consideration should be allocated
among the separate units of accounting based on their relative fair values, with
the amount allocated to the delivered item being limited to the amount that is
not contingent on the delivery of additional items or meeting other specified
performance conditions. Nera will adopt EITF 00-21 for contracts entered into on
or after January 1, 2004. Nera has not evaluated the impact that the statement
will have on revenues or results of operations.

      ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

      Not applicable.

PART II

      ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

      Not applicable.

      ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITIES HOLDERS AND
      USE OF PROCEEDS

      Not applicable.

      ITEM 15. CONTROLS AND PROCEDURES

      As of the end of the period covered by this annual report, an evaluation
was performed under the supervision and with the participation of our
management, including the chief executive officer and the chief financial
officer, of the effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e). Based on
that evaluation our management, including the chief executive officer and the
chief financial officer, concluded that our disclosure controls and procedures
were effective as of December 31, 2003. There have been no significant changes
in our internal controls over financial reporting identified in connection with
the above mentioned evaluation that occurred in the period covered by this
annual report that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.

     In designing and evaluating our disclosure controls and procedures, our
management, including the chief executive officer and the chief financial
officer, recognized that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the
desired control objectives, and our management necessarily was required to apply
its judgment in evaluating the cost-benefit relationship of possible controls
and procedures. Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within the company have been detected.Our
disclosure controls and procedures have been designed to meet, and management
believes that they do meet, reasonable assurance standards.

      ITEM 16. [RESERVED]

                                       70
<PAGE>

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT.

      Our board of directors was appointed as our audit committee for the fiscal
year 2003 in accordance with requirements of the SEC based on our status as a
company listed on NASDAQ until June 2002, when we voluntarily delisted our
securities. For more information, see "Item 9. The Offer and Listing" in this
annual report. Our board of directors decided to postpone making a decision
about the establishment of a separate audit committee because our company's
affairs are discussed extensively at board meetings, our Chief Executive Officer
is not a member of our board of directors, and our directors prefer to wait and
see how other comparable Norwegian companies implement the practice of having a
separate audit committee. Our board of directors expects that re-evaluate this
issue in one to two years.

      Our board of directors does not presently have among its members an audit
committee financial expert within the meaning of Item 16A of Form 20-F. We
postponed seeking a candidate that would satisfy these requirements because we
believe that we may soon no longer be subject to these requirements of the
Commission. For more information about our plans to deregister our securities,
please see "Item 9.C. Offer and Listing -- Markets."

ITEM 16B. CODE OF ETHICS

      On December 16, 2003, our board of directors adopted ethical guidelines
that will apply to all of our employees. These guidelines constitute the Code of
Ethics within the meaning of Item 16B of Form 20-F, and have been posted on our
website under www.nera.no, under the heading "Corporate". These guidelines have
been distributed to all employees, and other measures were taken in order to
ensure that the employees are aware of the existence and content of the
guidelines. These guidelines discuss the behavior of employees, the management
of information within our company and measures designed to protect against
economic crime. They also provide information about how compliance with the
guidelines will be monitored.

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

      The following table provides an overview of the fees billed by Ernst &
Young AS, our independent auditors, for professional services performed in
respect of 2002 and 2003.

<TABLE>
<CAPTION>
                                                          YEAR ENDED
                                                         DECEMBER 31,
                                                        --------------
                                                        2003      2002
                                                        ----      ----
<S>                                                     <C>       <C>
Audit Fees.........................................      4.2       4.1
Audit-Related Fees.................................      0.6       0.4
Tax Fees...........................................      1.4       0.6
All Other Fees.....................................      1.8       6.8
                                                         ---      ----
TOTAL..............................................      8.0      11.9
                                                         ===      ====
</TABLE>

      Audit services. The following services were billed under the category
"audit services": audit of financial statements, reviews of quarterly reports,
including the formulation of audit opinions and reports, domestic and
international statutory audits, tax services necessary for compliance with
generally accepted auditing principles, and support in the preparation and
auditing of the documents to be filed. Audit services also included the auditing
of information systems and processes and tests which serve to promote
understanding and reliability of systems and internal corporate controls, as
well as advice on issues of accounting and reporting.

                                       71
<PAGE>

      Audit-related services. Audit-related services mainly consisted of
services which are normally performed by the independent accountant in
connection with the auditing of the annual financial statements. Audit-related
services also included due diligence in connection with acquisitions and
disposals, advice on issues of accounting and reporting which were not
classified as audit services, support with the interpretation, and
implementation of new accounting and reporting standards, information systems
audits, regulatory reporting audits and auditing of employee benefit plans.

      Tax services. Tax services primarily consisted of services relating to the
review of tax compliance and tax advice.

      Other services. Other services consisted of services unrelated to the
audits of our financial statements, such as consultation regarding regulatory
reporting and training sessions.

      Our board of directors also acts as our audit committee and is
responsible, among other matters, for the oversight of our independent auditors.
On December 16, 2003, our board of directors adopted the Audit and Non-Audit
Services Pre-Approval Policies and Procedures (the "Procedures") governing the
approval by our audit committee of audit and non-audit services to be performed
by our independent auditors in order to ensure that the provision of such
services does not impair the auditor' independence.

      Under the Procedures., proposed services (i) are either reviewed and
generally pre-approved by the audit committee on an annual basis ("general
pre-approval"); or (ii) require specific pre-approval by the audit committee
("full pre-approval"). An appendix to the Procedures sets forth audit,
audit-related and tax services that have received general pre-approval, which
is general valid for the fiscal year, unless provided otherwise. The audit
committee can amend this list based on subsequent determinations. Proposed
services by the independent auditors that are not set forth in the appendix
require full pre-approval by the audit committee. There is also an appendix
setting forth prohibited non-audit services.

      All services to be performed by the independent accountants were subject
to the Procedures and approved in advance either specifically or generally. No
services which are classified as prohibited services by the U.S. Securities and
Exchange Commission were commissioned after December 16, 2003.

ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

      Not applicable.

ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

      Not yet applicable.

                                       72
<PAGE>

PART III

      ITEM 17. FINANCIAL STATEMENTS

Index to Consolidated Financial Statements of Nera ASA and Subsidiaries

<TABLE>
<CAPTION>
                                                                         Page
<S>                                                                   <C>
Report of Independent Auditors-
   Report of Ernst & Young AS for the fiscal years
    ended December 31, 2002 and 2003, dated March 29, 2004                   F-2

   Report of Arthur Andersen & Co. for the fiscal years
 ended December 31, 2001, dated March 20 and April 30, 2002                  F-3

Consolidated Statements of Profit and Loss for the years
ended December 31, 2001, 2002 and 2003                                       F-4

Consolidated Balance Sheets as of December 31,
2002 and 2003                                                                F-5

Consolidated Statements of Cash Flows for the
years ended December 31, 2001, 2002 and 2003                                 F-7

Consolidated Statements of Changes in Shareholders'
Equity for the years ended December 31, 2001, 2002 and 2003                  F-8

Notes to the Consolidated Financial Statements                        F-9 - F-34
</TABLE>

                                       73
<PAGE>

                         REPORT OF INDEPENDENT AUDITORS

    THE BOARD OF DIRECTORS AND SHAREHOLDERS OF NERA ASA

We have audited the accompanying consolidated balance sheets of Nera ASA and
subsidiaries (the "Company") as of December 31, 2003 and 2002, and the related
consolidated statements of profit and loss, shareholders' equity, and cash flows
for the years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. The financial statements of Nera ASA
and subsidiaries for the year ended December 31, 2001, were audited by other
auditors who have ceased operations as a foreign associated firm of the
Securities and Exchange Commission Practice Section of the American Institute of
Certified Public Accountants and whose report dated March 20 and April 20, 2002,
expressed an unqualified opinion on those statements.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

      In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Nera ASA and
subsidiaries at December 31, 2003 and 2002, and the consolidated results of
their operations and their cash flows for the years then ended in conformity
with accounting principles generally accepted in Norway, which differ in certain
respects from U.S. generally accepted accounting principles (see Note 31 to the
consolidated financial statements).

Ernst & Young AS

/s/ Ernst & Young AS

Bergen, Norway
March 29, 2004

                                       74
<PAGE>

   This report (i) is a copy of the accountants' report, dated March 20, and
April 20, 2002, previously issued by Arthur Andersen & Co. for the financial
statements of Nera ASA as of December 31, 1999, 2000 and 2001, and for the years
then ended, (ii) has not been reissued by Arthur Andersen & Co. and (iii) is
included herein pursuant to Rule 2.02(e) of Regulation S-X.

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders of Nera ASA:

      We have audited the accompanying consolidated balance sheets of Nera ASA
and its subsidiaries (the "Company") as of December 31, 1999, 2000 and 2001, and
the related consolidated statements of profit and loss, shareholders' equity and
cash flows for each of the three years in the period ended December 31, 2001.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

We conducted our audits in accordance with generally accepted auditing standards
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of December 31,
1999, 2000 and 2001, and the related consolidated statements of profit and loss,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 2001 in conformity with accounting principles generally
accepted in Norway.

Accounting practices used by the Company in preparing the accompanying financial
statements conform with generally accepted accounting principles in Norway, but
do not conform with accounting principles generally accepted in the United
States. A description of these differences and a complete reconciliation of
consolidated net income and shareholders' equity to US generally accepted
accounting principles is set forth in Note 32.

/S/ ARTHUR ANDERSEN

ARTHUR ANDERSEN & CO
Bergen, Norway, March 20 and April 20, 2002

                                       75
<PAGE>

                            NERA ASA AND SUBSIDIARIES
                   CONSOLIDATED STATEMENTS OF PROFIT AND LOSS

<TABLE>
<CAPTION>
                                                                              GROUP
--------------------------------------------------------------------------------------------------
(Figures in NOK million)                             NOTE        2003          2002         2001
--------------------------------------------------------------------------------------------------
<S>                                                <C>         <C>          <C>           <C>
Sales revenue                                                   2 250,5      2 438,5       2 880,6
Other operating revenues                                            2,2          6,3          12,7
--------------------------------------------------------------------------------------------------
OPERATING REVENUES                                  2, 4,22     2 252,7      2 444,8       2 893,3
--------------------------------------------------------------------------------------------------
Changes in work in progress and finished goods                     10,7        (24,2)         54,8
Cost of materials                                              (1 198,9)    (1 285,6)     (1 411,1)
Wages and salaries                                       10      (617,2)      (679,8)       (722,8)
Depreciation                                           5, 6       (79,8)       (83,5)        (87,9)
Other operating expenses                           7, 9, 13      (392,9)      (505,0)       (894,4)
--------------------------------------------------------------------------------------------------
OPERATING EXPENSES                                             (2 278,1)    (2 578,1)     (3 061,4)
--------------------------------------------------------------------------------------------------
OP. PROFIT BEFORE RESTRUCT. AND WRITE-DOWNS                       (25,4)      (133,3)       (168,1)
--------------------------------------------------------------------------------------------------
Restructuring and write-downs                            12       (28,3)       (11,1)       (264,0)
--------------------------------------------------------------------------------------------------
OPERATING PROFIT (LOSS)                                           (53,7)      (144,4)       (432,1)
--------------------------------------------------------------------------------------------------
Profit (loss) from investments in ass. cos.              16        11,0        (23,8)         30,2
Financial income                                         11        39,7         74,8         108,8
Financial expenses                                       11       (13,7)       (68,8)       (155,2)
--------------------------------------------------------------------------------------------------
NET FINANCIAL ITEMS                                                37,0        (17,8)        (16,2)
--------------------------------------------------------------------------------------------------
PROFIT (LOSS) BEFORE TAX                                          (16,7)      (162,2)       (448,3)
--------------------------------------------------------------------------------------------------
Taxes                                                    14       (13,0)        33,7          81,3
--------------------------------------------------------------------------------------------------
NET PROFIT (LOSS)                                                 (29,7)      (128,5)       (367,0)
--------------------------------------------------------------------------------------------------

Minority interests                                                (23,0)       (16,5)         (3,7)
--------------------------------------------------------------------------------------------------
PROFIT (LOSS) AFTER MINORITY INTERESTS                            (52,7)      (145,0)       (370,7)
--------------------------------------------------------------------------------------------------

Earnings per share, primary (NOK)                        15       (0,43)       (1,19)        (3,02)
Earnings per share, diluted (NOK)                        15       (0,43)       (1,19)        (3,02)

--------------------------------------------------------------------------------------------------

</TABLE>

The accompanying notes form an integral part of these consolidated financial
statements.

                                       76
<PAGE>

                            NERA ASA AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                 GROUP
-------------------------------------------------------------------------------------------------
(Figures in NOK million)                                   NOTE       31.12.2003       31.12.2002
-------------------------------------------------------------------------------------------------
<S>                                                       <C>         <C>              <C>
ASSETS :
Deferred tax assets                                          13          174,0             174,0
IT software                                                   6           23,1              23,7
Goodwill                                                      6           14,1              18,9
------------------------------------------------------------------------------------------------
INTANGIBLE FIXED ASSETS                                                  211,2             216,6
------------------------------------------------------------------------------------------------
Land, buildings and other real property                       5           11,7              13,0
Plant and machinery                                           5           63,7              83,0
Fixtures and fittings, tools, office machinery, etc           5           83,4             103,1
------------------------------------------------------------------------------------------------
TANGIBLE FIXED ASSETS                                                    158,8             199,1
------------------------------------------------------------------------------------------------
Investments in subsidiaries                                  17              -                 -
Investments in associated companies                       15,17           34,7              33,3
Investments in shares and units                              17            0,7               0,6
Net pension funds                                            21           45,8              35,8
Other long-term receivables                                  22           53,5              91,8
------------------------------------------------------------------------------------------------
FIXED ASSET INVESTMENTS                                                  134,7             161,5
------------------------------------------------------------------------------------------------
FIXED ASSETS                                                             504,7             577,2
------------------------------------------------------------------------------------------------
Raw materials and commodities                                19          100,9             161,6
Work in progress                                             19          117,4              88,3
Finished goods                                               19           75,0             133,0
------------------------------------------------------------------------------------------------
STOCKS                                                                   293,3             382,9
------------------------------------------------------------------------------------------------
Accounts receivable                                          23          563,5             518,6
Accrued, non-invoiced production                                         178,3             202,8
Other current receivables                                    25           55,1              82,5
------------------------------------------------------------------------------------------------
DEBTORS                                                                  796,9             803,9
------------------------------------------------------------------------------------------------
LIQUID ASSETS                                                18          830,1             795,8
------------------------------------------------------------------------------------------------
CURRENT ASSETS                                                         1 920,3           1 982,6
------------------------------------------------------------------------------------------------
ASSETS                                                                 2 425,0           2 559,8
------------------------------------------------------------------------------------------------
</TABLE>

  The accompanying notes form an integral part of these consolidated financial
                                   statements.

                                       77
<PAGE>

                            NERA ASA AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                   (continued)

<TABLE>
<CAPTION>
                                                                                 GROUP
-------------------------------------------------------------------------------------------------
(Figures in NOK million)                                   NOTE       31.12.2003       31.12.2002
-------------------------------------------------------------------------------------------------
<S>                                                       <C>         <C>              <C>
EQUITY AND LIABILITIES :
Share capital                                             27, 30         247,1            247,1
Own shares                                                27, 30          (3,3)            (3,3)
Share premium acount                                          30         165,3          1 265,2
Other called-up and fully paid share capital                  30             -                -
-----------------------------------------------------------------------------------------------
CALLED-UP AND FULLY PAID SHARE CAPITAL                                   409,1          1 509,0
-----------------------------------------------------------------------------------------------
Revaluation reserve                                           30             -                -
Other equity                                                  30         876,1           (136,6)
-----------------------------------------------------------------------------------------------
RETAINED EARNINGS                                                        876,1           (136,6)
-----------------------------------------------------------------------------------------------
MINORITY INTERESTS                                            30         234,3            240,2
-----------------------------------------------------------------------------------------------
EQUITY                                                                 1 519,5          1 612,6
-----------------------------------------------------------------------------------------------
Pension commitments                                           21          50,1             41,8
Deferred tax                                                  13           2,9              3,2
-----------------------------------------------------------------------------------------------
PROVISIONS FOR LIABILITIES                                                53,0             45,0
-----------------------------------------------------------------------------------------------
Commitments to credit institutions                                         1,6              4,3
Other long-term liabilities                                    7          38,9             42,7
-----------------------------------------------------------------------------------------------
OTHER LONG-TERM LIABILITIES                                               40,5             47,0
-----------------------------------------------------------------------------------------------
Commitments to credit institutions                                         1,5              4,8
Accounts payable                                                         269,0            313,2
Customer advances and production invoiced in advance          27         199,1            196,8
Tax payable                                                   13          16,5             24,5
Unpaid government charges and special taxes                               46,7             45,0
Dividends                                                                 44,6                -
Other current liabilities                                 12, 16         234,6            270,9
-----------------------------------------------------------------------------------------------
CURRENT LIABILITIES                                                      812,0            855,2
-----------------------------------------------------------------------------------------------
LIABILITIES                                                              905,5            947,2
-----------------------------------------------------------------------------------------------
EQUITY AND LIABILITIES                                                 2 425,0          2 559,8
-----------------------------------------------------------------------------------------------
GUARANTEES, ETC.                                              29         228,6            239,5
-----------------------------------------------------------------------------------------------
</TABLE>

  The accompanying notes form an integral part of these consolidated financial
                                   statements.

                                       78
<PAGE>

                            NERA ASA AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                            GROUP
-------------------------------------------------------------------------------------------------
(Figures in NOK million)                                      2003           2002           2001
-------------------------------------------------------------------------------------------------
<S>                                                          <C>           <C>            <C>
Profit (loss) after tax                                      (29,7)        (128,5)        (367,0)
Ordinary depreciation                                         79,8           83,5           87,9
Write-downs, fixed assets                                        -              -          236,4
Dividends received from associated companies                   9,6           12,6            2,4
Change in account debtors/creditors                          (89,3)         156,5          226,2
Change in other working capital                              111,2           54,3         (304,1)
Diff. in pension expenses and net pension payments            (1,7)          (3,2)          (7,6)
Other adjustments to operational items                        (3,1)        (140,6)        (200,7)
------------------------------------------------------------------------------------------------
NET CASH FLOW FROM OPERATIONAL ACTIVITIES                     76,8           34,6         (326,5)
------------------------------------------------------------------------------------------------
Disposal of tangible fixed assets                              2,5            7,9            1,0
Capital expenditure                                          (38,2)         (61,4)        (129,1)
Other investments and sales                                   24,3          110,7          135,1
------------------------------------------------------------------------------------------------
NET CASH FLOW FROM INVESTMENT ACTIVITIES                     (11,4)          57,2            7,0
------------------------------------------------------------------------------------------------
Equity payments                                                  -           37,7            5,2
Change, own shares                                               -           (2,8)         (26,8)
Payment of dividends                                          (5,8)         (26,8)         (27,1)
Net changes in liabilities                                    (5,9)        (191,7)         (59,6)
------------------------------------------------------------------------------------------------
NET CASH FLOW FROM FINANCING ACTIVITIES                      (11,7)        (183,6)        (108,3)
------------------------------------------------------------------------------------------------
Effect of changes in exchange rates                          (19,4)         (11,9)           7,0
------------------------------------------------------------------------------------------------
NET CHANGE IN LIQUID ASSETS                                   34,3         (103,7)        (420,8)
------------------------------------------------------------------------------------------------
LIQUID ASSETS AT THE BEGINNING OF THE PERIOD                 795,8          899,5        1 320,3
------------------------------------------------------------------------------------------------
LIQUID ASSETS AT THE END OF THE PERIOD                       830,1          795,8          899,5
------------------------------------------------------------------------------------------------
</TABLE>

  The accompanying notes form an integral part of these consolidated financial
                                   statements.

                                       79
<PAGE>

                            NERA ASA AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                                           Accumulated
PART II. AMOUNTS IN               Number of    Share Capital                                  other         Net
NOK 1,000S, EXCEPT FOR              Shares      (par value     Restricted   Unrestricted   Translation    income
NUMBER OF SHARES                 Outstanding       NOK 2)       Reserves      Reserves      adjustment    (loss)    Total
<S>                              <C>           <C>             <C>          <C>            <C>            <C>      <C>
Balance at Dec 31, 2000           123,190.4        246.4         1,453.7        281.1          (4.2)         0.0   1,977.0

Net income                                                                                                (366.9)   (366.9)

Translation adjustments                                                                       (13.7)                 (13.7)

Issuance of shares                      339          0.7             4.5                                               5.2

Purchase of own shares                                              (1.9)       (24.9)                               (26.8)

Allocation of net income and
transfers                                                         (102.9)      (267.7)                     366.9      (3.7)
---------------------------------------------------------------------------------------------------------------------------
Balance at Dec 31, 2001           123,529.4        247.1         1,353.4        (11.5)        (17.9)         0.0   1,571.1
---------------------------------------------------------------------------------------------------------------------------

Net loss                                                                                                  (145.0)   (145.0)

Purchase of own shares                                              (0.8)        (2.0)                                (2.8)

Changes in other equity                                                          (6.6)                                (6.6)

Translation difference                                                                        (44.3)                 (44.3)
---------------------------------------------------------------------------------------------------------------------------
Balance at Dec 31, 2002           123,529.4        247.1         1,352.6        (20.1)        (62.2)      (145.0)  1,372.4
---------------------------------------------------------------------------------------------------------------------------

Net loss                                                                                                   (52.7)    (52.7)

Dividend                                                                        (27.0)                               (27.0)

Conversion from restricted to
unrestricted reserves                                           (1,100.0)     1,100.0                                  0.0

Translation differences                                                                        (7.5)                  (7.5)
---------------------------------------------------------------------------------------------------------------------------
Balance at Dec 31, 2003           123,529.4        247.1           252.6      1,052.9         (69.7)      (197.7)  1,285.2
---------------------------------------------------------------------------------------------------------------------------
</TABLE>

  The accompanying notes form an integral part of these consolidated financial
                                  statements.

                                       80
<PAGE>

                           NERA ASA AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ACCOUNTING PRINCIPLES

The annual accounts have been prepared in accordance with the Norwegian
Accounting Act of 1998 and generally accepted accounting principles. The
accounts are based on established accounting principles in accordance with
generally accepted accounting principles in Norway; the transaction principle,
the earned income principle, the matching principle, the prudence concept, the
all-inclusive income concept, hedging, the best estimate principle and the going
concern assumption. When preparing the accounts it is necessary for management
to base such accounts on those assumptions and estimates which will affect the
reported values of assets, liabilities, income and expenses, as well as the
information relating to conditional commitments. The actual figures may differ
from the original estimates.

CONSOLIDATION PRINCIPLES

The consolidated accounts comprise the parent company and those subsidiaries in
which Nera ASA either directly or indirectly owns more than 50% of the share
capital or in which it has a controlling interest. Companies considered as
temporary acquisitions are not consolidated. The accounting principles are
uniform for the Group. All significant intercompany transactions and balances
are reconciled and eliminated in the consolidated accounts.

New subsidiaries are consolidated with effect from the date of acquisition. In
the event of gradual acquisitions, the excess/deficient values are measured in
respect of each individual acquisition. When subsidiaries are sold or otherwise
disposed of, their results are included in the consolidated accounts up until
the date of sale.

When subsidiaries are acquired, the cost price of the shares in the parent
company is eliminated against the equity of the subsidiary at the time of the
acquisition. Value in excess of the subsidiary's capitalized equity is allocated
to identifiable assets and liabilities so that these are recorded at their fair
value. Any additional excess value that cannot be allocated to assets and
liabilities is recorded on the balance sheet as goodwill or negative goodwill.
Deferred tax is taken into account and entered on the balance sheet when excess
value is assigned to assets and liabilities, while goodwill is recorded net of
tax. Goodwill and excess value associated with foreign subsidiaries are
converted from the relevant currency at the exchange rate which applies at the
time of acquisition.

Associated companies, i.e. companies in which the Group has a 20-50% ownership
stake and where its ownership interests provide a basis for significant
financial and operational influence, are included in the consolidated accounts
in accordance with the equity method. According to the equity method,
investments are assessed as the investor's share of equity and these taken to
income/charged against income. Value in excess of capitalised equity is
depreciated over the expected life of the asset in question. Dividends received
reduce the value of investments on the balance sheet. The share of profit or
loss is presented as a financial item on the profit and loss account, while
assets on the balance sheet are included as fixed asset investments.

Foreign subsidiaries are considered as independent units and are converted from
their respective functional currencies into Norwegian kroner at exchange rates
in effect on the balance sheet date. Figures on the profit and loss account are
converted using average exchange rates in effect during the reporting period.
Conversion differences are entered directly against equity.

                                       81
<PAGE>

Subsidiaries in countries with high inflation are converted as if the functional
currency (USD) was the entities' accounting currency. The effects of conversion
to functional currencies are charged to the profit and loss account.

MINORITY INTERESTS

The share of the profit/loss after tax attributable to minority interests is
presented on a separate line after the Group's net profit. The share of the
equity attributable to minority interests is presented on a separate line as a
specification of the Group's equity.

The share of equity attributed to minority interests is calculated at the fair
value of assets and liabilities identified at the time of acquisition.

SUBSIDIARIES/ASSOCIATED COMPANIES

In the parent company's accounts, subsidiaries are assessed in accordance with
the cost method and associated companies are treated in accordance with the
equity method.

REVENUE RECOGNITION

Revenues from the sale of goods are reconised net of discounts and are recorded
once persuasive evidence of an arrangement exists, delivery has occurred, the
price is determinable and collectibility is reasonably assured. Revenues from
long-term contracts to manufacure transmission and satellite communications
equipment in which the Company performs significant customization based on
customer specifiacation are taken to income using the percentage-of-completion
method based on contract milestones and are inclusive of profits. Contract
milestones are consistent with the level of effort expended. Project revenues
include direct materials, wages and other direct costs, together with indirect
costs and a percentage of those profits which are attributable to the project.
For contracts where the delivery of equipment is clearly separable from
installation, training and other aspects of the contract, such contracts are
divided up based on the relative fair value of the service provided and each
separate part is taken to income separately. Income recognition is deferred
until progress reaches a level of completion (generally based on established
milestones) sufficient to reasonably estimate the probable outcome. If the
estimated total costs of a contract indicate a loss the entire amount of the
estimated loss is entered immediately. Revenues for services provided after
delivery are recorded based on a time and materials arrangement as the service
is provided. Certain contracts involve advance payments being made by customers
to finance necessary contractual investments. In order to present operating
margins and financial expenses as if such investments had been financed by third
parties, a calculated interest expense is charged against income if it is of any
size. A corresponding amount is added to the project revenue.

FOREIGN CURRENCY

Monetary items and debts denominated in foreign currencies are converted into
Norwegian kroner using the exchange rate in effect on the balance sheet date.
Foreign exchange profits/losses are charged net to the profit and loss account
as financial income/expenses. Due to its considerable international operations,
the Group is exposed to changes in exchange rates. The Group's currency policy
is to balance the differences between debtors and liabilities in foreign
currencies through financial instruments like bank deposits in currency, futures
contracts and options. The Company does not use financial derivatives for
speculative purposes. Currency swap and futures contracts which have been
entered into in order to hedge future sales or purchases are not recorded until
the respective sale or purchase transaction has been recorded. Such foreign
currency transactions are considered as hedging transactions when the foreign
currency commitment is reasonably assured and the purpose of the foreign
currency transaction is to hedge against future currency sales. Futures
contracts are also used to hedge accounts receivable and accounts

                                       82
<PAGE>

payable on the balance sheet. Accounts receivable/payable have been converted
using the exchange rate in effect on the balance sheet date. Unrealised gains or
losses in respect of currency futures contracts designated as hedging contracts
are netted against gains/losses on the hedged items.

RESTRUCTURING COSTS

Restructuring provisions and write-downs of assets are made if the Company has
announced or started a restructuring plan before the balance sheet date which
identifies what part of the Company the plan embraces, approximately how many
employees will be affected, which measures are to be implemented and the date
for the implementation of the plan. Provisions are only made for costs which
cannot be associated with future earnings.

EXTRAORDINARY ITEMS

Only items that are uncommon, occur infrequently and are significant in relation
to the Group's operations are classified as being extraordinary.

CLASSIFICATION AND ASSESSMENT OF BALANCE SHEET ITEMS

Assets intended for permanent ownership or use are classified on the balance
sheet as fixed assets. Other assets are classified as current assets.
Liabilities that fall due later than one year after the end of the financial
year are classified as long-term liabilities. Other liabilities are classified
as current liabilities. Current assets are valued at the lower of cost and fair
value. Current liabilities are capitalised at their nominal value on the
transaction date. Fixed assets are assessed at cost, but are written down at
their fair value if the drop in value is not expected to be transitory.
Long-term liabilities are capitalised at their nominal value on the transaction
date.

RESEARCH AND DEVELOPMENT COSTS (R&D)

The Company's own R&D costs are charged against income as they gradually accrue.
Purchased R&D is capitalised at cost and amortised over the lifetime of the
project.

TAXES

Taxes shown on the profit and loss account include tax payable and changes in
deferred taxes. Deferred tax liabilities/assets on the balance sheet are
calculated in accordance with the liability method. When undertaking
calculations, the temporary differences between the accounting and fiscal
balance sheet values are taken into account, along with the tax loss to be
carried forward. Deferred tax liabilities are not discounted. Deferred tax
assets which cannot be assessed are capitalised if the employment of such tax
assets can be realised through future earnings.

TANGIBLE FIXED ASSETS AND LEASING AGREEMENTS

Tangible fixed assets are entered on the balance sheet at their historical cost
less accumulated straight-line depreciation and any write-downs. Depreciation is
recorded on a straight-line basis over the expected economic life of the assets.
Additional costs or improvements are added to the cost price of assets and are
depreciated in line with the assets, while expenditure on maintenance and
repairs is charged against income as it is gradually incurred. When assets are
sold or retired, any gains or losses incurred are included under other operating
revenues and other operating expenses, respectively. Operating assets which are
rented on terms and conditions which essentially serve to transfer the financial
rights and commitments to Nera (financial leasing) are capitalised under
tangible fixed assets. The current value of agreed rents is included as a
commitment under interest-bearing long-term liabilities. The assets are
depreciated as planned, and the related liabilities are reduced by the amount of
the lease payments less the estimated interest expenses. As far as other leases
are concerned, the payment of rent is seen as an operating expense which is
spread systematically over the tenancy/leasing period. The write-down of
tangible and intangible

                                       83
<PAGE>

fixed assets is considered when a drop in the value of such assets is indicated.
In such cases calculations are undertaken based on discounted future cash flow
for assets still being used by the Company, and on estimated sales prices net of
the sales costs for assets which are for sale. If the calculated value is lower
than the capitalised value, the assets will be written down at their fair value
or sales price less the sales costs incurred in respect of assets which are for
sale.

SHARES

Short-term shareholdings are stated at the lower of historical cost and market
value on the balance sheet date. Investments in other shares are stated at cost.
Write-downs are undertaken individually if the fair value is lower than the cost
price and if it is not considered to be of a temporary nature. Profits and
losses on shares and other securities are recorded as financial items.

PENSIONS AND PENSION COMMITMENTS

Gross pension commitments are the current value of accrued pension rights based
on actuarial calculations and estimated future growth in salaries and pensions.
Pension funds are assessed at their market value. Net pension expenses for the
period (gross pension expenses less the estimated return on pension funds) are
included under wages and salaries. Gross pension expenses comprise the value of
accrued annual pension rights, interest expenses on gross pension commitments
and the amortisation of unrealised profits and losses. Changes in accounts
estimates and deviations between actual and anticipated returns on pension funds
which exceed 10% of the greater of pension commitments and pension funds are
amortised over the anticipated remaining accrual period. Net pension
commitments/pensions funds are classified as long-term liabilities/receivables
on the balance sheet. One of the Company's pension schemes has been over-funded.
When preparing the accounts, it has been assumed that such over-funding can be
used on the basis of known future commitments and those developments taking
place in respect of the Group's activities. Provisions for employers' national
insurance contributions are based on the net recorded commitment/asset as part
of the pension commitment/asset.

EMPLOYEES' OPTIONS

Options for employees are charged against income as salaries only if the market
value of the underlying shares is higher than the strike price on the date of
allotment. Employers' national insurance contributions which are linked to
employees' options are calculated on the difference between the market price of
the underlying shares and the strike price at any one time. Employers' national
insurance contributions are charged against income under wages and salaries over
the period of accrual.

STOCKS

Stocks are assessed at the lower of cost in accordance with the first in, first
out principle and their estimated net sales value. Company manufactured products
are valued at their full production cost. Deductions are made for estimated
obsolete stock.

RECEIVABLES

Accounts receivable and other receivables are entered on the balance sheet at
their nominal value after making deductions for provisions for anticipated
losses. The Group's total provisions for losses in respect of accounts
receivable are made after making a concrete assessment of individual and total
receivables.

ACCRUED, NON-INVOICED PRODUCTION/CUSTOMER ADVANCES

Earned, non-invoiced income in accordance with the percentage-of-completion
method amounts to accrued production which has not been invoiced in accordance
with contract on the balance sheet date. Accrued, non-

                                       84
<PAGE>

invoiced production is entered on a separate line of the balance sheet under
receivables. For projects where the amount shown of the invoice exceeds the
income from the accrued production, the net amount is shown on the line entitled
"Customer advances and production invoiced in advance" under current
liabilities.

LIQUID ASSETS

Liquid assets are defined as cash, bank deposits and all liquid investments with
an original maturity of three months or less from the date of purchase.

CONTINGENT LIABILITIES

Contingent liabilities are entered on the accounts if there is more than a 50%
chance that they will be settled. A best estimate is used to calculate the
settlement value.

GOVERNMENT GRANTS

Grants which have been received are classified as operating or investment
grants. Operating grants are entered on the accounts along with those revenues
which they are supposed to increase, or those expenses they are supposed to
reduce. Investment grants are entered on the accounts as a gross figure by
entering the asset at its gross procurement cost and depreciating it over its
financial life. Grants are treated as deferred income and are entered on the
accounts as a correction item to be depreciated over the depreciation period.

SEGMENTS

Segment income and expenses are that portion of the Company's operating revenues
and expenses which relate directly to segment activities. Segment assets and
liabilities are balance sheet items which relate directly to segment activities.

CASH FLOW STATEMENT

The cash flow statement shows the overall cash flow broken down into operations,
investment and financing activities. The statement shows the effect of
individual activities on cash and cash equivalents. The cash flow statement has
been prepared in accordance with the indirect model.

EARNINGS PER SHARE (EPS)

Earnings per share are calculated by dividing the majority's share of profits
for the period by a weighted average of the number of ordinary shares in the
same period. When calculating diluted earnings per share, adjustments are made
for all options (from the date of allotment) which have a potential diluting
effect. In accordance with the principle which relates to the calculation of
maximum dilution, potential shares during periods with negative results are not
taken into account.

                                       85
<PAGE>

2                Segment information                      Figures in NOK million

In 2003 Nera reported within the following three business areas: Transmission
Networks, Satellite Communications and Wireless Broadband Access. Nera
Telecommunications Ltd, Singapore (Nera Tel) has been consolidated with effect
from 1 December 2001, and this company's Telecommunications activities are
divided between the Group's business areas, while Contract Manufacturing and
Information Technology are included under "Other activities and
staff/eliminations".

<TABLE>
<CAPTION>
BUSINESS AREAS                              TRANSMISSION NETWORKS     SATELLITE COMMUNICATIONS   WIRELESS BROADBAND ACCESS
--------------------------------------------------------------------------------------------------------------------------
PROFIT AND LOSS ACCOUNT                     2003     2002     2001     2003     2002     2001     2003     2002     2001
--------------------------------------------------------------------------------------------------------------------------
<S>                                       <C>      <C>      <C>        <C>      <C>      <C>      <C>      <C>      <C>
Third party orders received                1 213    1 243    1 687      496      677      586      137      215        4
Third party operating revenues             1 189    1 343    2 222      577      617      599      166       69       47
Operating expenses (excl. R&D)            (1 090)  (1 297)  (1 890)    (449)    (494)    (464)    (178)     (80)    (152)
Depreciation                                 (47)     (48)     (41)      (9)     (10)     (11)      (5)      (6)     (32)
Op. profit before R&D expenses                52       (2)     291      119      113      124      (17)     (17)    (137)
Net R&D expenses                            (123)    (163)    (166)     (32)     (44)     (65)     (23)     (35)    (121)
Op. profit before one-off items(1)           (71)    (165)     161       87       69       65      (40)     (52)    (258)
Op. profit before restr. & write-downs       (71)    (165)     125       87       69       59      (40)     (52)    (258)
Restructuring and write-downs(2)             (21)     (31)     (39)       -        4        -        -       15     (225)
Operating profit/loss                        (92)    (196)      86       87       73       59      (40)     (37)    (483)
------------------------------------------------------------------------------------------------------------------------
KEY FIGURES
------------------------------------------------------------------------------------------------------------------------
Assets                                       843      966    1 376      175      174      223       87       53       48
Liabilities                                  246      368      553      107       97      100       76       28       31
Investments(3)                                15       51       82        8        4        8        5        5       31
Man-labour years (average)(4)                937    1 021      972      257      251      301       52       79      100
Man-labour years as at 31.12.2003            881      961    1 066      259      257      315       59       77       60
------------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
                                              OTHER ACTIVITIES AND
BUSINESS AREAS:                                STAFF/ELIM INATIONS              GROUP
----------------------------------------------------------------------------------------------
PROFIT AND LOSS ACCOUNT                      2003     2002     2001     2003    2002     2001
----------------------------------------------------------------------------------------------
<S>                                         <C>      <C>      <C>      <C>     <C>      <C>
Third party orders received                   312      384        -    2 158    2 519    2 277
Third party operating revenues                321      417       25    2 253    2 445    2 893
Operating expenses (excl. R&D)               (307)    (384)    (120)  (2 024)  (2 254)  (2 626)
Depreciation                                  (19)     (19)      (4)     (80)     (84)     (88)
Op. profit before R&D expenses                 (5)      14      (99)     149      107      179
Net R&D expenses                                4        2        5     (174)    (240)    (347)
Op. profit before one-off items(1)             (1)      16      (59)     (25)    (133)     (91)
Op. profit before restr. & write-downs         (1)      16      (94)     (25)    (133)    (168)
Restructuring and write-downs(2)               (8)       -        -      (29)     (11)    (264)
Operating profit/loss                          (9)      16      (94)     (54)    (144)    (432)
----------------------------------------------------------------------------------------------
KEY FIGURES
----------------------------------------------------------------------------------------------
Assets                                      1 320    1 367    1 569    2 425    2 560    3 216
Liabilities                                   477      454      804      906      947    1 488
Investments(3)                                 10        2        8       38       61      129
Man-labour years (average)(4)                 368      371       70    1 614    1 722    1 443
Man-labour years as at 31.12.2003             365      374      379    1 564    1 669    1 820
----------------------------------------------------------------------------------------------
</TABLE>

                                       86
<PAGE>

(1)   Operating expenses include one-off items of NOK 77.0 million during the
      final quarter of 2001.

(2)   Restructuring and write-downs in 2003 are described in greater detail in
      Note 12.

(3)   Investments in tangible fixed assets, IT software, goodwill and R&D
      (purchased technology).

(4)   Man-labour years, monthly average

Segment information has, for all essential purposes, been presented in
accordance with the Group's accounting principles.

3            Orders received per market area              FIGURES IN NOK MILLION

<TABLE>
<CAPTION>
GROUP                      2003                     2002                     2001
----------------------------------------------------------------------------------------------
<S>                      <C>          <C>         <C>          <C>         <C>          <C>
Norway                     294,0       13,6%        281,5       11,2%        291,2       12,8%
Great Britain               71,2        3,3%        196,6        7,8%         95,8        4,2%
Rest of Europe             484,9       22,5%        441,7       17,5%        547,5       24,0%
America                    518,3       24,0%        544,5       21,6%        673,7       29,6%
Africa                      64,1        3,0%        113,5        4,5%         55,6        2,4%
Asia                       660,0       30,6%        899,3       35,7%        590,2       25,9%
Oceania                     65,2        3,0%         41,5        1,6%         23,4        1,0%
---------------------------------------------------------------------------------------------
SUM                      2 157,7      100,0%      2 518,6      100,0%      2 277,4      100,0%
---------------------------------------------------------------------------------------------
</TABLE>

Orders received by Nera Tel in December 2001 are not included.

4             Operating revenues per market area          FIGURES IN NOK MILLION

<TABLE>
<CAPTION>
GROUP                      2003                     2002                     2001
----------------------------------------------------------------------------------------------
<S>                      <C>          <C>         <C>          <C>         <C>          <C>
Norway                     310,4       13,8%        276,4       11,3%        287,6        9,9%
Great Britain              122,7        5,4%        110,3        4,5%        202,1        7,0%
Rest of Europe             478,0       21,2%        497,7       20,4%        558,5       19,3%
America                    442,8       19,7%        538,4       22,0%        814,5       28,2%
Africa                      54,3        2,4%        104,6        4,3%        189,8        6,6%
Asia                       805,8       35,8%        862,7       35,3%        671,5       23,2%
Oceania                     38,7        1,7%         54,7        2,2%        169,2        5,8%
---------------------------------------------------------------------------------------------
TOTAL                    2 252,7      100,0%      2 444,8      100,0%      2 893,2      100,0%
---------------------------------------------------------------------------------------------
</TABLE>

5            Tangible fixed assets                        Figures in NOK million

<TABLE>
<CAPTION>
                                            LAND AND     PLANT AND    FIXTURES AND
GROUP                                       BUILDINGS    MACHINERY   FITTINGS, ETC.    TOTAL
----------------------------------------------------------------------------------------------
<S>                                         <C>          <C>         <C>               <C>
Procurement costs as at 01.01.2003             23,8        161,4          308,8         494,0
Acquisitions during the year                                 9,2           23,0          32,2
Disposals during the year                                   (9,4)         (20,7)        (30,1)
Conversion differences                         (0,2)        (1,8)           1,8          (0,2)
---------------------------------------------------------------------------------------------
PROCUREMENT COSTS AS AT 31.12.2003             23,6        159,4          312,9         495,9
---------------------------------------------------------------------------------------------
Depreciation as at 01.01.2003                 (10,8)       (78,4)        (205,7)       (294,9)
Depreciation for the year                      (1,2)       (26,4)         (40,9)        (68,5)
Disposal of depreciation during the year                     7,6           18,6          26,2
Conversion differences                          0,1          1,5           (1,5)          0,1
---------------------------------------------------------------------------------------------
DEPRECIATION AS AT 31.12.2003                 (11,9)       (95,7)        (229,5)       (337,1)
---------------------------------------------------------------------------------------------
BOOK VALUE AS AT 31.12.2003                    11,7         63,7           83,4         158,8
---------------------------------------------------------------------------------------------
DEPRECIATION RATES                                2%       10-33%         10-33%
---------------------------------------------------------------------------------------------
</TABLE>

                                       87
<PAGE>

6                   Goodwill / IT software                Figures in NOK million

<TABLE>
<CAPTION>
GROUP:                                                 GOODWILL    IT SOFTWARE
------------------------------------------------------------------------------
<S>                                                    <C>         <C>
Procurement costs as at 01.01.2003                       24,1          26,5
Acquisitions during the year                                -           5,9
------------------------------------------------------------------------------
PROCUREMENT COSTS AS AT 31.12.2003                       24,1          32,4
------------------------------------------------------------------------------
Depreciation as at 01.01.2003                            (5,2)         (2,8)
Depreciation for the year                                (4,8)         (6,5)
------------------------------------------------------------------------------
DEPRECIATION AS AT 31.12.2003                           (10,0)         (9,3)
------------------------------------------------------------------------------
BOOK VALUE AS AT 31.12.2003                              14,1          23,1
------------------------------------------------------------------------------
DEPRECIATION RATES                                         20%        20-33%
------------------------------------------------------------------------------
</TABLE>

GOODWILL SPECIFIED FOR COMPANY ACQUISITIONS AS AT 31.12.2003:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
                                                DATE OF PROCUREMENT BOOK VALUE     ANNUAL BOOK VALUE DEPRECIATION
COMPANY:                                      ACQUISITION    COST   01.01.2003  DEPRECIATION    31.12.2003    PERIOD
--------------------------------------------------------------------------------------------------------------------
<S>                                           <C>            <C>    <C>         <C>             <C>          <C>
Nera Telecommunications Ltd, Singapore        28.11.2001     24,1      18,9          4,8           14,1      5 years
--------------------------------------------------------------------------------------------------------------------
TOTAL                                                        24,1      18,9          4,8           14,1
--------------------------------------------------------------------------------------------------------------------
</TABLE>

7                   Rental agreements                     Figures in NOK million

The Company has entered into agreements relating to the rental of
non-capitalised tangible fixed assets, where the annual rent has been charged
against income as follows:

<TABLE>
<CAPTION>
                                                                          GROUP
---------------------------------------------------------------------------------------
                                                                  2003     2002    2001
---------------------------------------------------------------------------------------
<S>                                                               <C>      <C>     <C>
Buildings                                                         50,9     58,1    60,4
Plant and machinery                                                0,6      0,6     0,3
Fixtures and fittings, tools, office machinery, etc.               3,4      6,4    14,1
---------------------------------------------------------------------------------------
TOTAL                                                             54,9     65,1    74,8
---------------------------------------------------------------------------------------
</TABLE>

The production and office premises at Kokstadveien 23 and 27 in Bergen were sold
in 1996. At the same time a lease was entered into for these premises with
effect from 1 October 1996. The office premises at Kokstadveien 25 are also
rented. The total annual rental expenses for Kokstadveien 23, 25 and 27 amounted
to NOK 20.5 million in 2003, compared to NOK 21.1 million in 2002. Nera is
responsible for the maintenance of these rented premises. The duration of the
lease is 15 years with an option for a further 15 years.

In accordance with generally accepted accounting principles the profit from the
sale of Kokstadveien 23 and 27 will be amortised over the tenancy period. The
period which formed the basis for entering against income was amended in 2002 so
that it now conforms to a tenancy period of 15 years, compared to the previous
period of 30 years inclusive of the option period. The profit provisions
constituted NOK 29.9 million as at 31 December 2003 (NOK 33.8 million as at 31
December 2002) and are included under other long-term liabilities.

Nera has a pre-emptive right to purchase the premises at Kokstadveien 23 and 27
at market value. Nera has exercised its option to purchase Kokstadveien 25 at a
fixed price (NOK 22.5 million plus the option premium of NOK 5 million).
Takeover occurred on 6 January 2004.

The Company has also entered into a lease for office, warehouse and production
premises in Bergerveien 12, Asker, with effect from 1 July 1998 until 30 June
2008 with a 10-year renewal option. The unused rented space has been sublet for
NOK 7.3 million per year. The sub-tenancy agreement has 12 months' notice of
termination. Net rental costs for 2003 amounted to NOK 16.2 million (NOK 18.2
million in 2002).

                                       88

<PAGE>

8            Significant individual transactions          Figures in NOK million
                    and proforma figures

On 28 November 2001 Nera ASA purchased 10 million shares in NeraTel and thus
increased its ownership stake to 50.2%. The purchase price was NOK 32.6 million.
This purchase resulted in the full consolidation of NeraTel with effect from 1
December 2001. Some employees at NeraTel have an option to purchase shares in
the company. This will not significantly affect Nera's control of this company.

PRO FORMA ACCOUNTING FIGURES: Pro forma profit figures have been prepared to
provide a basis for comparison with the Group's composition at the end of 2001.
These pro forma figures are encumbered with greater uncertainty than the actual
comparative figures and will not necessarily reflect those results which could
have been achieved if the purchase of NeraTel had been achieved at an earlier
date. The pro forma figures have been prepared on the assumption that the
purchase of NeraTel was completed as at 1 January 2001.

EXCESS VALUE ANALYSIS AND DEPRECIATION OF EXCESS VALUES: In the pro forma
figures the depreciation of excess values and goodwill is based on excess value
analyses undertaken at the time of acquisition. Goodwill has been depreciated
over an anticipated earnings period of 5 years.

ACCOUNTING PRINCIPLES: No accounting principles have been identified that differ
significantly from the proforma figures.

CONVERSION OF RESULTS: The profit and loss account for NeraTel has been
converted using average 2001 rates.

INTERCOMPANY TRANSACTIONS AND PROFITS: In the pro forma figures transactions
between Group companies have been eliminated according to the current structure
of the Group.

<TABLE>
<CAPTION>
                                                 2001
-------------------------------------------------------
<S>                                            <C>
Operating revenues                             3 635,5
Operating profit/loss                           (361,0)
Net profit/loss                                 (340,2)
Minority interest                                 35,5
Earnings per share (NOK)                          (3,1)
Diluted earnings per share (NOK)                  (3,1)
-------------------------------------------------------
</TABLE>

9                  Research and development               Figures in NOK million

As a general rule, all research and development work (R&D) is charged against
income. Research and development expenses in the form of purchased technology
are capitalised. The table below outlines R&D charged against income:

<TABLE>
<CAPTION>
                                                      GROUP
----------------------------------------------------------------------
                                           2003        2002       2001
----------------------------------------------------------------------
<S>                                       <C>         <C>        <C>
R&D charged against income                174,2       239,6      346,9
----------------------------------------------------------------------
TOTAL                                     174,2       239,6      346,9
----------------------------------------------------------------------
</TABLE>

It is anticipated that total earnings from ongoing R&D will at least be
equivalent to total expenses.

R&D activities for the current year in respect of Transmission Networks have
also been linked to the completion of the new SDH long-haul radio InterLink, and
to complementing the CityLink family with new configurations and frequencies in
order to meet the 3G mobile network market. Product improvements and
cost-reducing measures in respect of existing product families have also been
implemented.

Mobile Satellite Communications have experienced ongoing, substantial
development activities in connection with mobile broadband terminals and have
also launched new products in both the "Fleet" and "Landmobile" families. With
regard to satellite broadband, work is being continued on the further
development of DVB-RCS in respect of

                                       89

<PAGE>

both earth stations and terminals. With regard to regional broadband systems,
work commenced on the second generation.

                                       90

<PAGE>

10  Wages, salaries, fees and number of employees, etc.   Figures in NOK million

<TABLE>
<CAPTION>
                                                          GROUP
--------------------------------------------------------------------------------
                                           2003            2002             2001
--------------------------------------------------------------------------------
<S>                                       <C>             <C>              <C>
Wages, salaries and holiday pay           487,4           518,5            565,8
Other remunerations, etc.                  32,5            53,6             45,6
Employers' NI contributions                66,4            77,6             88,3
Pension expenses                           30,9            30,1             23,1
--------------------------------------------------------------------------------
TOTAL                                     617,2           679,8            722,8
--------------------------------------------------------------------------------
Average annual man-labour years           1 614           1 722            1 443
--------------------------------------------------------------------------------
</TABLE>

Total expenditure in 2003 on wages and salaries, pension premiums and other
remunerations paid to the Chief Executive Officer and other members of the
Executive Committee, as well as members of the Board of Directors and the
Corporate Assembly amounted to:

<TABLE>
<CAPTION>
                                                           WAGES AND             PENSION           OTHER
GROUP                                                      SALARIES              PREMIUMS      REMUNERATIONS (2)             TOTAL
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                        <C>                   <C>           <C>                           <C>
President and CEO(1)                                          2,1                  0,1              0,1                        2,3
Other members of the Executive Committee                     11,9                  1,0              4,7                       17,6
Board of Directors                                              -                    -              1,4                        1,4
Corporate Assembly                                              -                    -              0,3                        0,3
-----------------------------------------------------------------------------------------------------------------------------------
TOTAL                                                        14,0                  1,1              6,5                       21,6
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)   In 2002 the CEO was paid a salary of NOK 2.1 million, pension premiums of
      NOK 0.1 million and other million and other remunerations of NOK 0.1
      million.

(2)   Other remunerations include reported amounts for any bonuses, as well as
      the advantage of a free car, etc.

No loans or guarantees have been provided to the Chief Executive Officer, Board
members, members of the Corporate Assembly, Executive Committee members,
shareholders or other employees or close members of their families.

In compliance with the authority granted by the General Meeting of Nera, the
Board of Directors issued share options in 2001, 2002 and 2003 to employees of
Nera ASA and the Company's subsidiaries as described in more detail in Note 27.

In 2001, 2002 and 2003, CEO Bjorn Ove Skjeie was awarded 99,000, 81,000 and
113,400 options respectively. In addition, a bonus agreement was entered into
with Mr Skjeie relating to the measurement criteria employed in respect of the
development of the Group. The CEO will be paid a bonus of NOK 287,749 for the
2003 financial year. The CEO has a 12-month period of notice, which can be
extended to 24 months if his position changes significantly or if the Company is
taken over by another group. Salaries are paid during periods of notice, with
deductions made for any other income from employment received during this
period. The age of retirement is 60, with pensions limited to 80% of salary at
the time of retirement.

The Group may impose a salaried qualifying period of 18 months on some members
of the Group's Executive Committee. Apart from this, no agreements of any great
importance have been entered into in respect of the termination or amendment of
conditions of employment. Individual bonus agreements have been entered into
with members of the Executive Committee relating to criteria linked to the
Group's developments and individual areas of responsibility. Annual salary,
bonus payments and the allocation of options for the CEO and other members of
the Executive Committee are discussed below. In 2004, a total bonus payment of
NOK 3.2 million will be paid out for the 2003 financial year.

                                       91

<PAGE>

<TABLE>
<CAPTION>
                                         SALARY
                                          PAID                BONUS PAYMENTS MADE IN                                OPTIONS
                                           IN              2003 FOR THE 2002 FINANCIAL   OPTIONS GRANTED IN       GRANTED IN
     NAME                                 2003                         YEAR                   2003(1)               2004(2)
<S>                                     <C>                <C>                           <C>                      <C>
Seong Kang-Samuel Ang                   1 515 379                    1 975 069                     0                     0

Terje Ask-Henriksen                     1 266 201                      435 625                52 469                47 000
Ove Bratsberg                             904 194                       38 958                49 232                45 000
William Cain                            1 841 602                      150 571                52 469                47 000
Gro Hatleskog                             913 167                      127 604                37 937                35 000
Oyvind Isaksen                          1 244 873                      182 292                52 469                47 000
John Knudsen                              935 613                       77 917                52 339                47 000
Stig-Are Mogstad                        1 158 489                      336 667                52 339                47 000
Bjorn Olafsson                          1 219 978                            0                58 447                53 000
Helge Skaar                               925 624                      162 031                32 900                30 000
---------------------------------------------------------------------------------------------------------------------------
TOTAL                                  13 998 669                    3 486 734               554 001               499 000
---------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)   The Company's option scheme is described in greater detail in Note 27.

(2)   Options granted in accordance with the 2004 options programme adopted on
      11 February 2004.

            No agreements have been entered into between the Company and the
Chairman of the Board of Directors or other Board members in respect of further
benefits over and above ordinary Board fees.

In 2003 the fee paid to the Group's auditor Ernst & Young AS amounted to NOK 4.2
million, (2002: NOK 4.1 million). Fees paid for other services rendered by the
auditor amounted to NOK 0.6 million (2002: NOK 0.4 million). Fees paid to the
auditor and/or joint venture companies providing tax advice amounted to NOK 1.4
million (2002: NOK 0.6 million). In addition, Ernst & Young undertook advisory
services to the tune of NOK 1.8 million (2002: NOK 6.8 million) relating to
coordination project in the Transmission area. Fees paid for audits carried out
by other auditors amounted to NOK 0.1 million (2002: NOK 0.1 million). All
figures are exclusive of VAT.

11        Financial income and financial expenses         Figures in NOK million

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
                                                                      GROUP
---------------------------------------------------------------------------------------------
                                                  2003                 2002             2001
---------------------------------------------------------------------------------------------
<S>                                              <C>                  <C>             <C>
Interest received                                 25,5                 50,6             80,4
Interest received, Nera Group                        -                    -                -
Other financial income                            14,2                 24,2             28,4
Other financial income, Nera Group                   -                    -                -
Group contributions taken to income                  -                    -                -
Dividends taken to income, Nera Group                -                    -                -
---------------------------------------------------------------------------------------------
FINANCIAL INCOME                                  39,7                 74,8            108,8
---------------------------------------------------------------------------------------------
Interest expenses                                 (2,5)                (4,6)           (18,4)
Interest expenses, Nera Group                        -                    -                -
Loss on exchange                                  (0,1)               (43,3)(1)         (6,0)
Write-down of shares in subsidiaries                 -                    -                -
Write-down of vendor financing                       -                    -           (106,1)
Other financial expenses                         (11,1)               (20,9)           (24,7)
Other financial expenses, Nera Group                 -                    -                -
---------------------------------------------------------------------------------------------
FINANCIAL EXPENSES                               (13,7)               (68,8)          (155,2)
---------------------------------------------------------------------------------------------
</TABLE>

(1) Exchange losses include the effects of converting figures for subsidiaries
    in high inflation countries to a functional currency (USD) to the tune of
    NOK 14.0 million.

                                       92

<PAGE>

12              Restructuring and write-downs             Amounts in NOK million

<TABLE>
<CAPTION>
                                                                  PROVISIONS/         APPLIED/
                                              BALANCE AS AT        REVERSIONS       DISBURSEMENT  BALANCE AS AT
                                               31.12.2002           IN 2003           IN 2003       31.12.2003
---------------------------------------------------------------------------------------------------------------
<S>                                           <C>                 <C>               <C>           <C>
Restructuring Nera Ltd                             1,6                   -               1,1            0,5
Restructuring Nera Networks AS                     7,7                15,0               7,2           15,5
Restructuring Boston activities                      -                13,3               4,8            8,5
Restructuring Satellite                            2,0                   -               1,0            1,0
---------------------------------------------------------------------------------------------------------------
TOTAL                                             11,3                28,3              14,1           25,5(1)
---------------------------------------------------------------------------------------------------------------
</TABLE>

(1)   See Note 16, Other current liabilities

RESTRUCTURING NERA LTD: As part of strategy changes in previous years a decision
was taken in 2002 to discontinue all production operations. The annual
application of provisions is linked to this restructuring.

RESTRUCTURING NERA NETWORKS AS: Rationalisation of the supply chain has been
carried out during 2003. This has resulted in dismissals and early retirement.
Provisions have been made for severance payments and early retirement, as well
as unused space for the remaining tenancy period.

RESTRUCTURING OF BOSTON ACTIVITIES: In 2003 a decision was made to transfer the
production of PDH compact radio to NeraTel in Singapore. This transfer includes
product ownership. Restructuring provisions were made in connection with
severance payments and unused space for the remaining tenancy period.

RESTRUCTURING SATELLITE: In 2002 provisions were made for severance payments and
early retirement as a result of reorganisation. Applications and residual
provisions for the year are linked to this restructuring.

                                       93

<PAGE>

13                           Taxes                        Figures in NOK million

<TABLE>
<CAPTION>
                                                                                                                 GROUP
----------------------------------------------------------------------------------------------------------------------------------
TAXES CONSIST OF:                                                                                 2003            2002      2001
----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                               <C>            <C>        <C>
Tax payable, Norway                                                                                  -               -          -
Tax payable, outside Norway                                                                       13,3            24,5       16,3
Changes in deferred tax, Norway                                                                      -           (58,4)     (74,2)
Changes in deferred tax, outside Norway                                                           (0,3)            0,2      (23,4)
Adjustments for previous years                                                                       -               -          -
----------------------------------------------------------------------------------------------------------------------------------
TAXES                                                                                             13,0           (33,7)     (81,3)
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
RECONCILIATION OF TAX PAYABLE ON THE BALANCE SHEET AND THE PROFIT AND LOSS ACCOUNT                2003             2002
-----------------------------------------------------------------------------------------------------------------------
<S>                                                                                               <C>             <C>
Tax payable on the profit and loss account                                                        13,3            24,5
Adjustments for previous years                                                                     3,2               -
-----------------------------------------------------------------------------------------------------------------------
TAX PAYABLE ON THE BALANCE SHEET                                                                  16,5            24,5
-----------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
RECONCILATION FROM NORWEGIAN NOMINAL TO ACTUAL TAX:                                               2003           2002
-----------------------------------------------------------------------------------------------------------------------
<S>                                                                                              <C>            <C>
Pre-tax profit/loss                                                                              (16,7)         (162,3)
EXPECTED TAX, 28% (1)                                                                             (4,7)          (45,4)

Items affecting actual tax:
Non-deductible expenses/non-taxable income                                                        (4,8)          (18,0)
Foreign tax rates differing from Norwegian rates                                                  (3,3)           (4,1)
Deficit/temporary differences without net tax effect                                              28,9            18,5
Differences for previous years' deferred tax assets                                                  -             8,6
Profit/loss from investments in associated companies                                              (3,1)            6,7
Other                                                                                                -               -
-----------------------------------------------------------------------------------------------------------------------
ACTUAL TAXES                                                                                      13,0           (33,7)
-----------------------------------------------------------------------------------------------------------------------
</TABLE>

DEFERRED TAX:

Below is a specification of the temporary differences between book and tax
values, including calculation of deferred tax liabilities/assets at the end of
the financial year:

<TABLE>
<CAPTION>
BASIS FOR DEFERRED TAX:                                                                          2003            2002
-----------------------------------------------------------------------------------------------------------------------
<S>                                                                                             <C>           <C>
Receivables                                                                                      (44,3)         (105,0)
Stocks                                                                                          (120,6)         (108,9)
Other current balance sheet items                                                                (10,9)          (43,3)
-----------------------------------------------------------------------------------------------------------------------
TOTAL RELATED TO CURRENT BALANCE SHEET ITEMS                                                    (175,8)         (257,2)
-----------------------------------------------------------------------------------------------------------------------
Tangible fixed assets and goodwill                                                              (139,7)          (13,7)
Pensions                                                                                          (4,3)           (5,1)
Deferred entry of sales profits                                                                  (29,9)          (33,8)
Shares and other securities                                                                          -          (100,9)
Other temporary differences                                                                      (45,9)          (33,8)
Loss to be carried forward                                                                      (683,4)         (595,0)
-----------------------------------------------------------------------------------------------------------------------
TOTAL RELATED TO LONG-TERM ITEMS                                                                (903,2)         (782,3)
-----------------------------------------------------------------------------------------------------------------------
TOTAL TEMPORARY DIFFERENCES                                                                   (1 079,0)       (1 039,5)
-----------------------------------------------------------------------------------------------------------------------
Adjustments for deferred non-capitalised tax assets                                              468,1           427,8
-----------------------------------------------------------------------------------------------------------------------
CALCULATED DEFERRED TAX (+)/TAX ASSETS (-)                                                      (171,1)         (170,8)
-----------------------------------------------------------------------------------------------------------------------
Deferred tax on the balance sheet                                                                  2,9             3,2
Deferred tax assets on the balance sheet                                                        (174,0)         (174,0)
</TABLE>

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
EXPIRY DATE FOR TAX LOSS TO BE CARRIED FORWARD:                                                   2003
-----------------------------------------------------------------------------------------------------------------------
<S>                                                                                             <C>
2013                                                                                            (563,8)
Later than 2013                                                                                 (119,6)
-----------------------------------------------------------------------------------------------------------------------
TOTAL                                                                                           (683,4)
-----------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)   Nominal tax rate in Norway.

                                       94
<PAGE>

14                        EARNINGS PER SHARE              FIGURES IN NOK MILLION

<TABLE>
<CAPTION>
GROUP:                                                                                        2003     2002      2001
---------------------------------------------------------------------------------------------------------------------
<S>                                                                                          <C>     <C>       <C>
BASIS FOR CALCULATING EARNINGS PER SHARE:
Net profit/loss after minority interests                                                     (52,7)  (145,1)   (370,7)
Weighted average, outstanding shares (millions)                                              121,9    122,1     122,8
Earnings per share (NOK)                                                                     (0,43)   (1,19)    (3,02)
---------------------------------------------------------------------------------------------------------------------
BASIS FOR CALCULATING DILUTED EARNINGS PER SHARE:
Net profit/loss after minority interests                                                     (52,7)  (145,1)   (370,7)
Weighted average, outstanding shares, corrected for convertible bonds and options (mill.)    121,9    122,1     122,8
Diluted earnings per share (NOK)                                                             (0,43)   (1,19)    (3,02)
---------------------------------------------------------------------------------------------------------------------
RECONCILIATION, AVERAGE NO. OF ORDINARY SHARES (MILLIONS):
Weighted average, outstanding shares                                                         121,9    122,1     122,8
Weighted average, outstanding shares, corrected for convertible bonds and options            121,9    122,1     122,8
---------------------------------------------------------------------------------------------------------------------
</TABLE>

15          INVESTMENTS IN ASSOCIATED COMPANIES           FIGURES IN NOK MILLION

<TABLE>
<CAPTION>
                                                  BEIJING NERA                WORLD WIDE
                                                   STENTOFON       NERATEK      MOBILE
           GROUP:                                 COM. CO LTD         AS       COM. AS         TOTAL
----------------------------------------------------------------------------------------------------
<S>                                                <C>             <C>        <C>              <C>
EXCESS VALUE ANALYSIS:
----------------------------------------------------------------------------------------------------
Capitalised equity on establishment                   1,6            0,4         33,0           35,0
Goodwill                                              0,6            0,9            -            1,5
----------------------------------------------------------------------------------------------------
PROCUREMENT COST                                      2,2            1,3         33,0           36,5
----------------------------------------------------------------------------------------------------
CALCULATION OF BOOK VALUE AS AT 31.12.2003:
----------------------------------------------------------------------------------------------------
Opening balance, 01.01.2003                           1,6            7,9         23,8           33,3
Annual share of profit                                  -            2,2          8,8           11,0
Dividends received by Nera                              -           (3,6)        (6,0)          (9,6)
----------------------------------------------------------------------------------------------------
CLOSING BALANCE, 31.12.2003                           1,6            6,5         26,6           34,7
----------------------------------------------------------------------------------------------------
</TABLE>

16                      OTHER CURRENT LIABILITIES        FIGURES IN NOK MILLION

<TABLE>
<CAPTION>
                                                                  GROUP
----------------------------------------------------------------------------
                                                             2003       2002
----------------------------------------------------------------------------
<S>                                                         <C>        <C>
Miscellaneous accruals                                       65,8       55,0
Provisions for warranties                                    39,2       36,7
Outstanding agent commissions                                 9,4        5,2
Current liabilities, Nera Group                                 -          -
Miscellaneous current liabilities                            25,9       93,6
Restructuring provisions (1)                                 25,5       11,3
Provisions for holiday pay, wages and salaries, etc.         68,8       69,1
----------------------------------------------------------------------------
TOTAL                                                       234,6      270,9
----------------------------------------------------------------------------
</TABLE>

(1) See Note 12, Restructuring and write-downs

                                       95
<PAGE>

17               INVESTMENTS IN SUBSIDIARIES AND ASSOCIATED COMPANIES

<TABLE>
<CAPTION>
     GROUP:                                REGISTERED       COMPANY'S TOTAL           OWNERSHIP                  BOOK VALUE
                                             OFFICE:        SHARE CAPITAL (MILL.)       STAKE         VOTING    (NOK MILLION)
-----------------------------------------------------------------------------------------------------------------------------
<S>                                        <C>              <C>           <C>         <C>             <C>       <C>
INVESTMENTS IN ASSOCIATED COMPANIES:
------------------------------------------------------------------------------------------------------------------------
Beijing Nera Stentofon Com. Co Ltd           China          CNY            4,2            36%            36%         1,6
Neratek AS                                   Norway         NOK            0,3            45%            45%         6,5
World Wide Mobile Com. AS                    Norway         NOK           82,5            20%            20%        26,6
------------------------------------------------------------------------------------------------------------------------
TOTAL                                                                                                               34,7
------------------------------------------------------------------------------------------------------------------------
INVESTMENTS IN SHARES AND UNITS:
------------------------------------------------------------------------------------------------------------------------
IT VEST AS                                   Norway         NOK            4,7           6,4%           6,4%         0,6
Asker Vekst AS                               Norway         NOK            0,3          16,7%          16,7%         0,1
------------------------------------------------------------------------------------------------------------------------
TOTAL                                                                                                                0,7
------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Nera (Malaysia) Sdn Bhd is consolidated as the result of a shareholders'
    agreement which gives effective influence of more than 50%.

Nera has significant, but not controlling or formal, interests in a loan in
default in the company NGTV in Venezuela. This situation is temporary in order
to secure the value of the debt.

18                            LIQUID ASSETS               FIGURES IN NOK MILLION

GROUP: As at 31 December 2003 the Group's liquid assets consisted of cash and
bank deposits, totalling NOK 830.1 million. Of the total cash and bank deposits,
NOK 1.1 million is restricted as security against possible tax demands in
resects of the dissolution of United Marine Electronics (International) Ltd. on
Jersey. Liability for outstanding taxes as at 31 December 2003 is secured by
bank guarantees totalling NOK 30.2 million which are included in Note 30 under
Other guarantees. Unutilised credit facilities in the form of a bank overdraft
as at 31 December 2003 amounted to NOK 32.7 million. The Norwegian comp anies in
the Group are jointly and severally liable for the Group account system.

19                                 STOCKS                 FIGURES IN NOK MILLION

The total value of Group stocks amounted to NOK 293.3 million of which NOK 246.0
million was valued at cost and NOK 47.3 million was valued at the lower of cost
and net sales value.

Company manufactured products are valued at their full production cost except
from manufactured products in Nera Electronics Ltd, which is valued at standard
cost. Any differences between full production cost and standard cost are charged
to the profit and loss account.

<TABLE>
<CAPTION>
                                                                           OTHER ACTIVITIES
                        TRANSMISSION      SATELLITE          BROADBAND        AND STAFF/
GROUP:                    NETWORKS      COMMUNICATIONS        ACCESS        ELIMINATIONS(1)        TOTAL
------------------------------------------------------------------------------------------------------------
                        2003     2002   2003      2002     2003    2002    2003        2002     2003   2002
------------------------------------------------------------------------------------------------------------
<S>                    <C>      <C>     <C>       <C>      <C>     <C>     <C>         <C>     <C>     <C>
Raw materials           56,4    114,9   22,7      24,5      2,6       -    19,2        22,2    100,9   161,6
Work in progress       100,9     71,2      -         -        -       -    16,5        17,1    117,4    88,3
Finished goods          27,2     78,8   30,4      28,8      4,9     4,7    12,5        20,7     75,0   133,0
------------------------------------------------------------------------------------------------------------
TOTAL                  184,5    264,9   53,1      53,3      7,5     4,7    48,2        60,0    293,3   382,9
------------------------------------------------------------------------------------------------------------
</TABLE>

(1) NeraTel's business areas, Contract Manufacturing and Information Technology,
    are included under Other activities and staff/eliminations.

                                       96
<PAGE>

20                      GOVERNMENT GRANTS                FIGURES IN NOK MILLION

In 2003 the Group received operating grants of NOK 26.0. These grants have been
entered on the accounts as a reduction of other operating expenses.

<TABLE>
<CAPTION>
                                                GROUP
----------------------------------------------------------------
OPERATING GRANTS TO COVER:            2003        2002      2001
----------------------------------------------------------------
<S>                                   <C>         <C>       <C>
R&D expenses                          26,0         8,1      13,1
----------------------------------------------------------------
</TABLE>

The research and development grants are linked to 16 different projects, of
which 12 were concluded in 2003. Of the remaining four projects, three are
expected to be completed during the course of 2004 and one in 2005.

One project funded by the SND (the Norwegian Regional and Industrial Development
Fund) carried a commitment to repay a remuneration calculated on the basis of
the sales revenue received in respect of Aero products during the period 1
January 1998 to 31 December 2003. Accumulated income did not achieve the
interval which triggered the repayment commitment.

21            PENSIONS AND PENSION COMMITMENTS            AMOUNTS IN NOK MILLION

The Norwegian Group companies have pension schemes which provide their employees
with an entitlement to agreed future pension benefits. The Group's collective
scheme comprised a total of 1,268 people as at 31 December 2003, including 249
people at the parent company (including pensioners) and 1,019 people at the
subsidiaries. In addition 114 employees and people who have opted for early
retirement are included in the Company's pension schemes which are funded by
operations. Calculations have also been made in respect of the Company's AFP
scheme (special government early retirement plan), which is included under the
unsecured schemes. All of the Company's pension schemes are treated as benefit
plans.

The Group's secured pension scheme has been placed with Nera Pensjonskasse. The
pension funds are managed by DnB Asset Management, which took over management
from SEB Kapitalforvaltning in July 2003. At the end of 2003, the pension funds
were worth NOK 289.5 million. As at December 2003, the portfolio was divided
between interest-bearing securities (91.6%) and shares (8.4%).

STRATEGY: Pensjonskassen's investment strategy indicates that the ratio between
interest-bearing securities and shares should be between 90%-95% and 5%-10%
respectively.

RETURN: In 2003, the net realisable return on pension funds amounted to 10.2%.
The corresponding returns for 2002 and 2001 were 1.5% and 6.3% respectively.

SENSITIVITY: The size of the Group's pension commitments will vary according to
the financial assumptions. Analyses based on the company's pension commitment in
the secured scheme have shown that the sensitivity of this pension commitment is
approx.17% when the discount rate changes by one percentage point.

<TABLE>
<CAPTION>
                                                                                    GROUP
--------------------------------------------------------------------------------------------------------------
SPECIFICATION OF ANNUAL PENSION COSTS                              2003              2002                 2001
--------------------------------------------------------------------------------------------------------------
<S>                                                               <C>               <C>                  <C>
Costs in accordance with benefit plans:
Annual pension accruals                                            18,2              18,8                 14,2
Interest received on pension commitments                           25,8              23,5                 20,3
Expected return on pension funds                                  (19,1)            (17,4)               (15,2)
Net amortisation                                                    6,0               5,2                  3,8
Sale of business                                                      -                 -                    -
PENSION COSTS, EXCLUDING EMPLOYERS' NI CONT.                       30,9              30,1                 23,1
Employers' NI contributions                                         4,4               4,2                  3,2
--------------------------------------------------------------------------------------------------------------
PENSION COSTS, INCLUDING EMPLOYERS' NI CONT.                       35,3              34,4                 26,3
--------------------------------------------------------------------------------------------------------------
</TABLE>

                                       97
<PAGE>

SPECIFICATION OF NET PENSION FUNDS

<TABLE>
<CAPTION>
(ACCRUED PENSION COMMITMENT) ON THE BALANCE SHEET                   2003             2002
------------------------------------------------------------------------------------------
<S>                                                                <C>              <C>
GUARANTEED SCHEMES
------------------------------------------------------------------------------------------
Accrued benefit obligation (ABO)                                   (299,4)          (247,3)
Calculated effect of future salary adjustments                      (62,1)           (51,8)
PROJECTED BENEFIT OBLIGATION (PBO)                                 (361,5)          (299,1)
Pension funds at market value                                       280,0            245,1
PENSION FUNDS GREATER (LESS) THAN PBO                               (81,5)           (54,0)
Unrecognised (profit) loss                                          121,6             85,4
TOTAL                                                                40,1             31,4
Accrued employers' NI contributions                                   5,7              4,4
------------------------------------------------------------------------------------------
NET PENSION FUNDS                                                    45,8             35,8
------------------------------------------------------------------------------------------

NON-GUARANTEED SCHEMES AND AFP (SPECIAL PENSION SCHEME)
------------------------------------------------------------------------------------------
Accrued benefit obligation (ABO)                                    (82,0)           (64,4)
Calculated effect of future salary adjustments                      (12,9)           (11,9)
PROJECTED BENEFIT OBLIGATION (PBO)                                  (94,9)           (76,3)
Unrecognised (profit) loss                                           51,0             40,1
TOTAL                                                               (43,9)           (36,2)
Accrued employers' NI contributions                                  (6,2)            (5,6)
------------------------------------------------------------------------------------------
ACCRUED PENSION COMMITMENT                                          (50,1)           (41,8)
------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
FINANCIAL ASSUMPTIONS FOR THE GROUP                                 2003            2002
------------------------------------------------------------------------------------------
<S>                                                                 <C>             <C>
Expected return on pension funds                                     6,5%            7,5%
Discount rate                                                        5,7%            7,0%
Annual wages growth                                                  3,0%            3,5%
Annual adjustment of the basic National Insurance amount             2,5%            2,5%
Annual adjustment of pensions being paid out                         2,5%            2,5%
Estimated rate of employee participation in AFP                     50,0%           50,0%
------------------------------------------------------------------------------------------
</TABLE>

22                          FINANCIAL MARKET RISK

The Group has financial instruments linked to its ordinary operations, such as
accounts receivable, accounts payable, etc. Project funding (lending) is used in
some contexts in respect of large sales contracts, and these commitments had a
balance sheet value as at 31 December 2003 of NOK 49.8 million. Currency futures
and swap contracts are used in order to balance out the currency risk linked to
accounts receivable and payable on the balance sheet, as well as future
contractual sales and purchases of goods.

CURRENCY RISK

The Group has production facilities in Norway and Singapore and an international
sales and marketing organisation with offices in a number of countries. As a
result of its international activities, Nera is exposed to fluctuations in
exchange rates. The main currency risk to which the Company was exposed at the
end of the year was Norwegian kroner against American dollars, Euros and the
British pound. The Group makes use of currency swaps and futures contracts in
order to reduce its currency exposure in respect of ordinary operations.
Currency sales options are used in the context of tenders.

The table below specifies, listed by purchase and sales contracts in respect of
each individual currency, the Group's contractual commitments converted into
Norwegian kroner for currency futures contracts and swaps as at 31 December
2003:

                                       98
<PAGE>

<TABLE>
<CAPTION>
                                                     SALES CONTRACTS                    PURCHASE CONTRACTS
                           MATURITY/            ---------------------------         ----------------------------
                          SETTLEMENT            NOMINAL         UNREALISED           NOMINAL        UNREALISED
CURRENCY                     DATE                VALUE         PROFIT/(LOSS)          VALUE        PROFIT/(LOSS)
----------------------------------------------------------------------------------------------------------------
<S>                       <C>                   <C>            <C>                   <C>           <C>
USD                          2004                395,4             33,0                95,3             (8,6)
                             2005                 11,4              1,2                   -                -
                             2006                  0,4                -                   -                -
----------------------------------------------------------------------------------------------------------------

EUR                          2004                146,1             (3,8)                  -                -
                             2005                  0,5                -                   -                -
----------------------------------------------------------------------------------------------------------------

GBP                          2004                 45,0                -                 5,5              0,1
----------------------------------------------------------------------------------------------------------------

AUD                          2004                  0,7                -                 1,2                -
----------------------------------------------------------------------------------------------------------------

JPY                          2004                    -                -                 0,5                -
----------------------------------------------------------------------------------------------------------------
TOTAL                                            599,5             30,4               102,5             (8,5)
----------------------------------------------------------------------------------------------------------------
</TABLE>

The contractual amounts in foreign currency are converted into Norwegian kroner
on the basis of contractual rates at the end of the year. The financial
instruments mature mainly within 12 months, and the maturity dates coincide with
the Company's best estimate for those currencies which are hedged. Unrealised
profits/(losses) reflect the fair value of the contracts as at 31 December 2003.

Accounts receivable and payable are converted at the rate which applies on the
balance sheet date. Unrealised profits and losses on currency hedging contracts
are set off against profits and losses on those items which have been hedged.

Group sales are undertaken in different types of currency. The table below
specifies turnover expressed in the main types of currency.

<TABLE>
<CAPTION>
                                  2003                                                 2002
                  ----------------------------------------          -----------------------------------------
                  FIGURES IN     FIGURES IN       SHARE IN          FIGURES IN       FIGURES IN      SHARE IN
CURRENCY           CURRENCY         NOK              %               CURRENCY            NOK             %
-------------------------------------------------------------------------------------------------------------
<S>               <C>            <C>              <C>               <C>              <C>             <C>
USD                  112.1          821.2           36.6%             111.6             927.6          37.9%
EUR                   31.3          248.0           11.0%              29.0             217.8           8.9%
GBP                    2.0           22.8            1.0%               2.3              27.2           1.1%
SGD                   39.4          160.6            7.1%              33.6             150.7           6.2%
NOK                  838.4          838.0           37.1%             946.6             948.3          38.8%
Other                               162.1            7.2%                               173.2           7.1%
-------------------------------------------------------------------------------------------------------------
TOTAL                              2252.7          100.0%                              2222.8         100.0%
-------------------------------------------------------------------------------------------------------------
</TABLE>

INTEREST RATE RISK

Interest rate risk exposure is primarily linked to project financing. Project
financing in British pounds has a fixed interest rate, and project financing in
US dollars has a variable interest rate with a short term.

23                      ACCOUNTS RECEIVABLE               FIGURES IN NOK MILLION

<TABLE>
<CAPTION>
                                                                                GROUP
--------------------------------------------------------------------------------------------
                                                                           2003         2002
--------------------------------------------------------------------------------------------
<S>                                                                       <C>          <C>
Gross account receivable                                                  594,7        549,5
Provisions for losses on accounts receivable                              (32,4)       (32,1)
Account receivable falling due for payment after 1 year or more             1,2          1,2
--------------------------------------------------------------------------------------------
TOTAL                                                                     563,5        518,6
--------------------------------------------------------------------------------------------
</TABLE>

                                       99
<PAGE>

<TABLE>
<CAPTION>

                                                  At December 31 2003
                                                   2003        2002
--------------------------------------------------------------------
<S>                                                <C>         <C>
Provisions as of January 1                         32,1        39,8
Provisions as of December 31,                      32,4        32,1
Change in provisions for bad debt                   0,3        -7,7
Other changes in provisions for bad debt            0,6         2,5
Realized losses for the year                        5,1        20,8
Recovered amounts previously written off           -0,3           -
--------------------------------------------------------------------
Total bad debt                                      5,7        15,6
--------------------------------------------------------------------
</TABLE>

Nera is engaged in business in several countries where the political risks may
be high. The development of the international telecommunications industry is
becoming more concentrated on larger units. As a result of this development,
Nera's credit risk has become more concentrated.

24           LONG-TERM MANUFACTURING CONTRACTS            FIGURES IN NOK MILLION

Revenues from fixed price contracts are taken to income in accordance with the
percentage-of-completion method. The table below provides an overview of ongoing
projects for the Group as at 31 December 2003 and 2002. Revenues are not
recorded until the contracts reach an adequate degree of completion, based on
milestones in the contracts, in order to be able to estimate a result with a
satisfactory degree of certainty.

<TABLE>
<CAPTION>
GROUP:                                                                   2003                2002
--------------------------------------------------------------------------------------------------
<S>                                                                    <C>                 <C>
Gross contractual value for ongoing projects                           1 500,4             1 536,2
Accumulated revenues                                                   1 081,6             1 027,4
Accumulated expenses                                                    (928,2)             (845,7)
Accumulated gross profit as a % of accumulated revenues                   14,2%               17,7%
Remaining revenues on contracts operating at a loss                       61,4               105,0
--------------------------------------------------------------------------------------------------
</TABLE>

The BGAN contract, which is calculated with a negative margin, is included with
a gross contractual value of NOK 145.6 million. Accumulated revenues amount to
NOK 84.9 million, and accumulated expenses amount to NOK 113.9 million,
including estimated losses in respect of the whole contract.

25                      OTHER CURRENT RECEIVABLES         FIGURES IN NOK MILLION

<TABLE>
<CAPTION>
                                                                                 GROUP
------------------------------------------------------------------------------------------------
                                                                        2003                2002
------------------------------------------------------------------------------------------------
<S>                                                                     <C>                 <C>
Current receivables and pre-paid expenses                               31,1                58,6
Current receivables and pre-paid expenses, Nera Group                      -                   -
Loans to subsidiaries                                                      -                   -
Prepayments to suppliers                                                 1,7                 2,2
Receivables falling due after one year                                  11,9                10,7
Other current receivables                                               10,4                11,0
------------------------------------------------------------------------------------------------
TOTAL                                                                   55,1                82,5
------------------------------------------------------------------------------------------------
</TABLE>

26            INFORMATION REGARDING RELATED PARTIES      FIGURES IN NOK MILLION

                                      100
<PAGE>

<TABLE>
<CAPTION>
                                                                                              ACCOUNTS      ACCOUNTS
GROUP:                                    OPERATING REVENUES          PURCHASED GOODS        RECEIVABLE     PAYABLE
--------------------------------------------------------------------------------------------------------------------
ASSOCIATED COMPANIES (20-50%):          2003     2002    2001      2003     2002    2001     31.12.03       31.12.03
--------------------------------------------------------------------------------------------------------------------
<S>                                     <C>      <C>    <C>        <C>      <C>     <C>      <C>            <C>
Neratek AS                              14,1     22,9    27,1         -        -       -          1,0              -
Nera Telecommunications Ltd                -        -   280,9         -        -    80,0            -              -
Nera Satellite Service Ltd              28,2     38,3       -         -        -       -          4,1            0,2
--------------------------------------------------------------------------------------------------------------------
TOTAL                                   42,3     61,2   308,0         -        -    80,0          5,1            0,2
--------------------------------------------------------------------------------------------------------------------
</TABLE>

Nera ASA increased its shareholdings in Nera Telecommunications Ltd, Singapore
as at 28 November 2001, and with effect from that date the Company changed its
status from associated company to subsidiary. Sales and purchases made by the
company during the first 11 months of the year are included in the information
about related parties.

Nera Satellite Service Ltd. is included as a related party, since it is a wholly
owned subsidiary of World Wide Mobile Com. AS, of which Nera owns 20%.

                                      101
<PAGE>

27     SHARE CAPITAL AND INFORMATION ABOUT SHAREHOLDERS   FIGURES IN NOK MILLION

SHARE CAPITAL: As at 31 December 2003 the share capital in Nera ASA consisted of
one single class of shares with a total of 123,529,371 shares with a nominal
value of NOK 2 per share, i.e. a total share capital of NOK 247,058,742. Each
share entitles the owner to equal rights in the Company, and in the event of
capital expansion being undertaken the existing shareholders have pre-emptive
rights to subscribe for new shares. The total share capital and number of shares
have remained unchanged during 2003.

ISSUANCE OF POWERS OF ATTORNEY: The General Meeting has not currently issued any
powers of attorney relating to capital expansion.

OWN SHARES: Nera's portfolio of own shares stands at 1,627,901 shares, and has
remained unchanged during 2003. It will be possible to use the shares as payment
in connection with acquisitions or other transactions where payment is offered
in the form of Nera's own shares, and they can be sold to employees in
connection with share incentives/option programmes or transactions on stock
exchanges on which the Company's shares are listed. The Board was granted
authority by the General Meeting on 22 May 2003 to acquire own shares on behalf
of the Company with a total nominal value of up to NOK 12,352,938 at a price no
lower than the nominal value or higher than NOK 100.

SHARE-BASED PAY: The current options programme includes options issued in 2000,
2001, 2002 and 2003 with a total framework of 8.3 million shares and comprising
both key personnel and other employees. The subscription rates for these options
are fixed at the average closing price for Nera shares on the Oslo Stock
Exchange, respectively 10 days before and 10 days after 10 February 2000, 13
February 2001, 18 February 2002 and 17 February 2003. Until these options have
been exercised, the strike price will increase by 1% per month for options
issued in 2000 and 2001, and 0.5% per month for options issued in 2002 and 2003.
One option carries an entitlement to one share.

<TABLE>
<CAPTION>
STRIKE PRICE FOR OPTIONS ISSUED IN:                      2000               2001          2002           2003
----------------------------------------------------------------------------------------------------------------
<S>                                                   <C>                <C>           <C>            <C>
First date for exercising options                     01.03.2002         01.03.2003    01.03.2004     01.03.2005
Strike price in NOK                                        52,45              50,30         19,22           7,83

Last date for exercising options                      30.03.2004         30.03.2005    30.03.2006     30.03.2007
Strike price in NOK                                        62,69              60,10         21,36           8,67
----------------------------------------------------------------------------------------------------------------
</TABLE>

SHAREHOLDERS: The largest shareholders in Nera ASA, together with shareholdings
and potential shareholdings in the Company held by Executive Committee and Board
members, including any shareholdings/potential shareholdings held by closely
related parties, were as follows as at 31 December 2003:

                                      102
<PAGE>

<TABLE>
<CAPTION>
SHAREHOLDER                                         NO. OF SHARES   OWNERSHIP
-----------------------------------------------------------------------------
<S>                                                 <C>             <C>
Folketrygdfondet (National Insurance Fund)            13 246 600      10,7 %
Orkla ASA                                              9 088 963       7,4 %
Verdipapirfond Odin Norge                              5 368 100       4,3 %
Skandinaviska Enskilda Banken, client account          4 522 333       3,7 %
Credit Suisse First Boston Ltd., client account        4 062 825       3,3 %
Verdipapirfond Odin Norden                             4 027 700       3,3 %
Aksjefondet Skagen Vekst                               3 303 010       2,7 %
Verdipapirfondet Nordea Avkastning                     1 658 425       1,3 %
Nera ASA                                               1 627 901       1,3 %
JPMorgan Chase Bank, client account                    1 557 441       1,3 %
Vicama AS                                              1 509 200       1,2 %
Verdipapirfondet Nordea Vekst                          1 500 000       1,2 %
Storebrand Livsforsikring AS                           1 439 241       1,2 %
JPMorgan Chase Bank S/A Dekabank Frankfurt             1 439 000       1,2 %
Credit Suisse First Boston (Europe), client account    1 418 150       1,1 %
Skandinaviska Enskilda Banken AB, Oslo branch          1 400 000       1,1 %
Verdipapirfondet Orkla Finans Investment Fund            889 500       0,7 %
Vital Forsikring ASA                                     819 138       0,7 %
Verdipapirfondet Fondsfinans Aktiv III                   799 500       0,6 %
Bank of New York Europe Ltd. client account              780 000       0,6 %
-----------------------------------------------------------------------------
Total 20 largest shareholders                         60 457 027      48,9 %
-----------------------------------------------------------------------------

Other shareholders                                    63 072 344      51,1 %
-----------------------------------------------------------------------------
TOTAL                                                123 529 371     100,0 %
-----------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
NAME                        NO. OF SHARES   OPTIONS
----------------------------------------------------
<S>                         <C>            <C>
BOARD OF DIRECTORS:
Johan Fr. Odfjell              410 318             -
Ivar Arnevig                         -         1 250
Kari Broberg                         -             -
Ole Petter Hakonsen                  -             -
Birger Magnus                        -             -
Gregers E. Mogensen                  -             -
Marcel Petie                       339         2 250
Jan Stenberg                         -             -
Jostein Soreide                    250         1 500

EXECUTIVE COMMITTEE
Bjorn Ove Skjeie               100 225       407 400
Seong Kang Samuel Ang           20 000             -
Terje Ask-Henriksen             25 900       224 947
Ove Bratsberg                   20 125       165 398
William Cain                    10 125       176 967
Gro Hatleskog                        -       113 035
Oyvind Isaksen                       -        89 947
John Knudsen                    30 125       176 724
Stig-Are Mogstad                 8 125       197 724
Bjorn Olafsson                  10 000       100 195
Helge Skaar                          -       161 400
----------------------------------------------------
TOTAL                          635 532     1 818 737
----------------------------------------------------
</TABLE>

As at 31 December 2003, 23,122 of the Company's shares were owned by members of
the Corporate Assembly. The partners and employees of Ernst & Young AS, the
Company's auditor, do not own shares in the Company.

28  CUSTOMER ADVANCES AND PRODUCTION INVOICED IN ADVANCE  FIGURES IN NOK MILLION

<TABLE>
<CAPTION>
GROUP:                                      2003              2002
-------------------------------------------------------------------
<S>                                         <C>               <C>
Production invoiced                         148,1             147,2
Paid customer advances                       51,0              49,6
-------------------------------------------------------------------
TOTAL                                       199,1             196,8
-------------------------------------------------------------------
</TABLE>

29                       GUARANTEES                       AMOUNTS IN NOK MILLION

<TABLE>
<CAPTION>
                                            GROUP
---------------------------------------------------------------------
                                            2003                2002
---------------------------------------------------------------------
<S>                                         <C>                 <C>
Contract guarantees                         130,8               119,0
Other guarantees                             97,9               120,5
---------------------------------------------------------------------
TOTAL                                       228,6               239,5
---------------------------------------------------------------------
</TABLE>

30                CHANGES IN EQUITY                       FIGURES IN NOK MILLION

<TABLE>
<CAPTION>
                                                           SHARE       CALLED-UP
                                       SHARE     OWN      PREMIUM   AND FULLY PAID  RETAINED     MINORITY
GROUP:                                CAPITAL   SHARES    ACCOUNT    SHARE CAPITAL  EARNINGS     INTERESTS    TOTAL
--------------------------------------------------------------------------------------------------------------------
<S>                                   <C>       <C>      <C>        <C>             <C>          <C>         <C>
OPENING BALANCE, 01.01.2003            247,1     (3,3)     1 265,3    1 509,1        (136,7)       240,2     1 612,6
--------------------------------------------------------------------------------------------------------------------
Net profit/loss                            -        -            -          -         (52,7)        23,0       (29,7)
Provisions for dividends                   -        -            -          -         (27,0)       (23,3)      (50,3)
Other changes in equity                    -        -     (1 100,0)  (1 100,0)      1 100,0            -           -
Conversion differences                     -        -            -          -          (7,5)        (5,6)      (13,1)
--------------------------------------------------------------------------------------------------------------------
CHANGE IN EQUITY 2003                      -        -    (1 100,00)  (1 100,0)      1 012,8         (5,9)      (93,1)
--------------------------------------------------------------------------------------------------------------------
CLOSING BALANCE, 31.12.2003            247,1     (3,3)       165,3      409,1         876,1        234,3     1 519,5
--------------------------------------------------------------------------------------------------------------------
</TABLE>

                                      103
<PAGE>

31       ACCOUNTING POLICY DIFFERENCES AND RECONCILIATION BETWEEN US GAAP/N GAAP

The Group's consolidated financial statements are prepared in accordance with
generally accepted accounting principles in Norway (N. GAAP), which differ in
certain respects from U.S. generally accepted accounting principles (U.S. GAAP).

Following is a summary of the adjustments under U.S. GAAP that would affect the
Company's consolidated net loss for the years ended December 31, 2003, 2002 and
2001, and shareholders' equity as of December 31, 2003 and 2002 together with a
discussion of the principal differences between N. GAAP and U.S. GAAP that are
significant to the Company's consolidated financial statements.

<TABLE>
<CAPTION>

Year ended December 31                                                                2003      2003       2002     2001
-------------------------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>      <C>        <C>       <C>
Reconciliation of net loss                                                            USD (1)   NOK        NOK       NOK
Amounts in million NOK, except per share amounts
Net loss after minority interest reported under N. GAAP                               (7.9)    (52.7)    (145.0)   (370.7)
U.S. GAAP adjustments:
a) Financial instruments and hedging                                                  (1.0)     (6.5)       5.5       0.0
b) Pensions                                                                           (2.3)    (14.9)      (9.3)     (3.2)
c) Restructuring charges                                                               1.3       8.4       (8.7)      8.7
d) Goodwill                                                                            0.7       4.8        4.8      37.0
e) Gain on subsidiary equity transactions and disposal of shares in  a subsidiary     (0.6)     (4.3)      97.9         -
f) Venezuela operations                                                                  -         -       14.0         -
h) Vendor finance arrangement                                                         (5.9)    (39.1)         -         -
i) Stock-based compensation                                                           (0.4)     (2.7)         -         -
j) Taxes                                                                               0.1       0.3     (149.3)    (11.8)
                                                                                     ------------------------------------
Net loss under U.S. GAAP                                                             (16.0)   (106.7)    (190.1)   (340.0)
                                                                                     ------------------------------------
Loss per share-basic and diluted                                                     (0.13)    (0.88)     (1.56)    (2.77)
                                                                                     ------------------------------------
</TABLE>

<TABLE>
<CAPTION>
As of December 31                                                                     2003      2003       2002
----------------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>      <C>        <C>
Reconciliation of Shareholder's equity                                                USD (1)   NOK        NOK
Amounts in million NOK
Shareholder's equity under N. GAAP                                                   227.8    1,519.5    1,612.6
Minority interest                                                                    (35.1)    (234.3)    (240.2)
U.S. GAAP adjustments:
a) Financial instruments and hedging                                                  (0.1)      (1.0)       5.5
b) Pensions                                                                          (14.6)     (97.1)     (66.5)
c) Restructuring charges                                                               1.3        8.4          -
d) Goodwill                                                                            0.9        6.0        4.8
e) Gain on subsidiary equity transactions and disposal of shares in a subsidiary      14.0       93.6       97.9
g) Dividends                                                                           4.0       26.8        0.0
h) Vendor finance arrangement                                                         (5.8)     (39.1)         -
i) Stock-based compensation                                                           (0.4)      (2.7)         -
j) Taxes                                                                             (22.3)    (149.0)    (149.3)
                                                                                     ---------------------------
Shareholder's equity under U.S. GAAP                                                 169.7    1,131.1    1,264.8
                                                                                     ---------------------------
</TABLE>

(1)      Translation of amounts from Norwegian kroner (NOK) into United States
dollars (USD) has been made for the convenience of the reader at the Noon Buying
Rate on December 31, 2003 of $1.00 = NOK 6.667

                                      104
<PAGE>

a) Financial instruments and hedging: The Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards (SFAS) 133,
"Accounting for Derivative Instruments and Hedging Activities," as amended,
effective for Nera beginning January 1, 2001. The Company utilizes forward
contracts, currency options and currency swaps in managing its exposure in
foreign currency commitments of long-term sales contracts. For N. GAAP, such
foreign currency transactions are considered hedges of sales of these long-term
contracts when the foreign currency commitment is reasonably assured and the
foreign currency transaction is designated as a hedge of the foreign currency
commitment. Gains and losses on foreign currency transactions identified as
hedges are deferred until completion of the related hedged long-term contract.

The Company follows a policy of translating the foreign currency receivables as
well as the forward contracts purchased in connection with a particular
long-term contract using the average of the exchange rates received for all
forward contracts purchased in connection with the particular long-term sales
contract to which the respective receivables and forward contracts relate.
Differences between amounts translated at the actual versus the average exchange
rates received are deferred and recorded as other assets or liabilities until
the related long-term sales contract is completed.

To qualify as a hedge under SFAS 133, the Company is required to comply with
certain documentation requirements. Nera has not applied hedge accounting under
U.S.GAAP, because of the additional work related to the documentation and
because the effect on net loss and equity over a long-term period is not
expected to be material. The difference between N. GAAP and U. S. GAAP at
December 31, 2003 and 2002 is approximately NOK (1) million and NOK 5.5 million
when all off balance and on balance items are marked to market.

b) Pensions: In accordance with U.S. GAAP, the Company implemented SFAS 87,
"Employers' Accounting for Pensions" as of January 1, 1989. The net differences
between the N. GAAP and U.S. GAAP net loss and shareholders' equity related to
pension accounting have been included in the reconciliation above.

Under U.S. GAAP, the implementation effect of pension accounting is amortized
over the estimated remaining average service period. Under N. GAAP the effect
has been charged directly to equity. In accordance with U.S. GAAP, the Company
has recorded an additional minimum liability, representing the excess of
unfunded accumulated benefit obligation over the accrued pension liability. An
intangible asset has been recognized to the extent of unrecognized prior service
cost. Any additional minimum liability in excess of unrecognized prior service
cost has been charged to equity (other comprehensive income). At December 31,
2003, gross additional minimum liability is NOK 75.3 million.

c) Restructuring charges: Nera has recognized restructuring expenses and
write-down of assets in 2001 as part of a restructuring plan. Under U.S. GAAP,
EITF 94-3, "Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring", certain criteria must be met to qualify as restructuring
expenses. Not all of these criteria are required under N. GAAP, including that
the benefit information must be communicated to employees prior to the date of
the financial statements. Consequently, restructuring charges not meeting these
specific criteria have been included in the reconciliation above. All
restructuring charges in 2002 met the criteria specified in EITF 94-3.

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities," which is effective for exit or disposal
activities initiated after December 31, 2002. This statement nullifies EITF
Issue 94-3. Nera has adopted this statement for exit or disposal activities
initiated from January 1, 2003. During 2003, Nera recognized certain
restructuring expenses related to unused space for the remaining tenancy period
as part of a restructuring plan. The criteria for recognizing such expenses
under SFAS 146 were not met and thus, such amounts have been included in the
reconciliation above.

d) Goodwill: In June 2001, the FASB issued SFAS 142, "Goodwill and Other
Intangible Assets". Upon adoption on January 1, 2002, the Company ceased
amortizing goodwill related to its acquisition of Nera Telecommunications Ltd.,
Singapore. Under N. GAAP, the Company continued amortizing goodwill. As a
result, amortization of goodwill for 2003 and 2002 totaling NOK 4.8 million is
reflected in the reconciliation above. Translation of goodwill related to Nera
Electronics Pte. Ltd. for the year ended Dec. 31, 2003 amounted to NOK 3.6
million.

e) Gain on subsidiary equity transactions and disposal of shares in a
subsidiary: Under Norwegian GAAP, no gains from subsidiary equity transactions
and disposal of shares in a subsidiary are recognized. Under U.S. GAAP, the

                                      105
<PAGE>

Group records gains from subsidiary equity transactions (SAB 51 transactions)
and disposal of shares in a subsidiary through income.

Under N. GAAP, the minority interest is measured at fair value of the
consideration paid from the minority. The difference between the recorded equity
in the subsidiary and value of the consideration paid by the minority will be
amortized or written down through allocating results to minority. This
allocation is not consistent with U.S. GAAP.

During 2002, Nera ASA reduced its ownership stake in Nera Electronics Ltd when
Nera Electronics Ltd issued shares to minority shareholders for cash in July
2002 trough an initial public offering, reducing Nera's ownership by 9.1%. In
particular, Nera Electronics Ltd issued 30 million shares in at a price per
share of SGD 0.33 (NOK 1.42). Nera did not participate in this issue, and Nera
Telecomunications Ltd ownership was reduced from 100% to 90.9%. Immediately
after the initial public offering Nera Telecomunications Ltd reduced its
ownership by selling additional 74.8 million shares at an average price of SGD
0.287 (NOK 1.23). Nera Telecomunications ownership was then reduced to 68.3 %.
Total consideration received from minority shareholders was NOK 134 million and
Nera recognized a gain under U.S. GAAP of NOK 97.9 million.

f) Venezuela operations: For the year ended December 31, 2002, for N. GAAP
purposes, Nera accounted for its operations in Venezuela as highly inflationary
and as a result, recorded a NOK 14 million loss in its statement of operations.
For U.S. GAAP, Nera applies the provisions of SFAS 52, "Foreign Currency
Translation" and did not account Venezuela as highly inflationary. Beginning in
2003, for N. GAAP purposes, Nera ceased accounting for its operations in
Venezuela as highly inflationary.

g) Dividends: Under N. GAAP, dividends are recorded in the fiscal year when
proposed by the Board of Directors. Under U.S. GAAP, dividends are not accrued
until declared by the shareholders.

h) Vendor finance arrangement: In accordance with SFAS 114, "Accounting by
Creditors for Impairment of a Loan an amendment of FASB Statement No. 5 and 15,"
Nera has determined that it is probable it will be unable to collect all amounts
due from its vendor finance loan to NGTV. During 2001, Nera restructured the
loan. Since that time, NGTV has defaulted on its payments and has not achieved
its forecasted results. As a result, Nera has fully impaired the loan as Nera
has estimated the expected future cash flows and collateral value are minimal.
Nera considered the degree to which it could objectively verify the forecasted
results given that the previous forecasted results have not been achieved. The
criteria for recognizing an impairment under N. GAAP is less stringent. Under N.
GAAP, Nera has used their best estimate of expected collectable amounts.
However, the methodology and criteria for calculating such an impairment are
different compared to U.S. GAAP.

i) Stock-based compensation: In accordance with Norwegian GAAP, the Group did
not recognize expense for stock options with no intrinsic value that were
granted to employees.

Nera has elected to follow Accounting Principles Board Opinion No. 25.
"Accounting for Stock Issued to Employees" (APB 25) and related interpretations
in accounting for its employee stock options. In accordance with U.S. GAAP, the
measurement date for determining compensation costs for stock options is the
first date on which the number of shares the employee is entitled to receive and
the exercise price of the options are known. When Nera ASA granted the stock
options, the number of shares was known at the grant date; however, the exercise
price to be paid upon exercise was not known as the strike price increases by a
percentage per month until exercised. Accordingly, variable plan accounting for
these options applies under U.S. GAAP. The compensation effect under U.S. GAAP
amounted to approximately NOK 3.3 million for the year ended December 31, 2003.
In addition under U.S. GAAP the company cannot accrue for social security taxes
on options until exercised as opposed to N. GAAP which reflected a charge of
approximately NOK 0.6 million for such charges.

j) Taxes: For U.S. GAAP reporting purposes, Nera follows the provisions of SFAS
109, "Accounting for Income Taxes". In accordance with SFAS 109, Nera has
recognized deferred tax assets and liabilities to reflect the future tax
consequences of events that have already been recognized in the consolidated
financial statements or tax returns. Where it is anticipated that all or a
portion of a deferred tax asset will not be realized, a valuation allowance has
been established.

At December 31, 2003, the Company has gross net operating loss carryforwards of
NOK 683.4 million and other temporary differences of NOK 410.0 million. The
losses and credits generally expire within a period of ten years. In accordance
with SFAS 109, the Company has recognized a valuation allowance of NOK 287.8
million as it is more likely than not the net deferred tax assets will not be
realized due to the accumulated loss position. For NGAAP the criteria for
recording a deferred tax asset is based on expectations regarding future profit
and the criteria for companies in a cumulative loss position is not the same as
for U.S. GAAP. This results in a valuation allowance of NOK 131.1 million for N
GAAP.

                                      106
<PAGE>

Changes in valuation allowances for the year ended December 31, 2003 and 2002

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
(Amounts in NOK millions)                                  2003             2002
--------------------------------------------------------------------------------
<S>                                                       <C>              <C>
Balance at the beginning of the year                      267.8             90.3
--------------------------------------------------------------------------------
Changes in opening balance of valuation allowances          0.0             98.7
--------------------------------------------------------------------------------
Other not recognized tax assets this year                  20.0             78.8
--------------------------------------------------------------------------------
Balance at the end of the year                            287.8            267.8
--------------------------------------------------------------------------------
</TABLE>

In addition, shareholders' equity and net loss is adjusted for the tax effects
of differences between U.S. GAAP and N GAAP.

Comprehensive income and reconciliation of U.S. GAAP Shareholders' Equity: The
changes in shareholders' equity from January 1, 2000, through December 31, 2003
on a U.S. GAAP basis are summarized as follows:

<TABLE>
<CAPTION>
(Amounts in NOK millions)
--------------------------------------------------------------------------------
<S>                                                                    <C>
Shareholders' equity at January 1, 2000                                1,972.0
                                                                       -------
Issuance of shares                                                         5.2
Dividends                                                                (27.2)
Changes in minimum pension liability                                     (43.3)
Translation adjustments                                                  (13.7)
Purchase of own shares                                                   (26.8)
Net loss                                                                (340.5)
                                                                       -------
Shareholders' equity at December 31, 2001                              1,525.7
                                                                       -------
Changes in minimum pension liability                                      (3.1)
Translation adjustments                                                  (58.3)
Purchase of own shares                                                    (2.8)
Net loss                                                                (190.1)
Other                                                                     (6.6)
                                                                       -------
Shareholders' equity at December 31, 2002                              1,264.8
                                                                       -------
Changes in minimum pension liability                                     (15.7)
Translation adjustments                                                  (11.3)
Net loss                                                                (106.7)
                                                                       -------
Shareholders' equity at December 31, 2003                              1,131.1
                                                                       -------
</TABLE>

The Company's total comprehensive loss in accordance with U.S. GAAP is described
in the table below:

<TABLE>
<CAPTION>
                                                        December 31     December 31         December 31
                                                            2003            2002                2001
<S>                                                     <C>             <C>                 <C>
Net loss                                                  (106.7)         (190.1)             (340.5)
Accumulated other comprehensive loss:
Additional minimum liability                               (15.7)           (5.0)              (43.3)
Translation adjustments                                    (11.3)          (58.3)              (13.7)
Total other comprehensive loss                             (27.0)          (63.3)              (57.0)
Comprehensive loss                                        (133.7)         (253.4)             (397.5)
</TABLE>


NEW U.S. ACCOUNTING STANDARDS

Variable Interest Entities

Effective February 1, 2003, the Company adopted FASB Interpretation No. 46-R
("FIN 46"), "Consolidation of Variable Interest Entities, an interpretation of
ARB No. 51," for all Variable Interest Entities ("VIE"). Under FIN 46, an entity
is considered a VIE (and subject to consolidation) if its total equity at risk
is determined insufficient to finance its activities without additional
subordinated financial support, or if its equity investors lack certain
characteristics that represent a controlling financial interest. An entity that
is considered a VIE would be required to be consolidated by the variable
interest holder that holds a majority of the risks and reward from changes in
the fair values of the VIE's assets and liabilities. Currently, entities are
generally consolidated by an enterprise when it has

                                      107
<PAGE>

a controlling financial interest through ownership of a majority voting interest
in the entity. The requirements apply immediately to all entities created on or
after February 1, 2003. The adoption did not have a material impact on the
financial position or results of operations of the Company. For special purpose
entities created before February 1, 2003, the provisions are effective January
1, 2004 and for non special purpose entities, the provisions are effective
December 31, 2004. For the provisions effective in 2004, Nera has not evaluated
the effect that the adoption will have on its results of operations and
financial condition.

EITF 00-21

In November 2003, the EITF reached a consensus on Issue 00-21, "Revenue Elements
with Multiple Deliverables" addressing how to account for arrangements that
involve the delivery or performance of multiple products, services, and/or
rights to use assets. On December 17, 2003, the SEC issued SEC Staff Accounting
Bulletin ("SAB") No. 104 "Revenue Recognition" ("SAB 104") which has effectively
codified EITF 00-21 to a higher level of GAAP. Revenue arrangements with
multiple deliverables are divided into separate units of accounting if the
deliverables in the arrangement meet the following criteria: (1) the delivered
item has value to the customer on a standalone basis; (2) there is objective and
reliable evidence of the fair value of undelivered items; and (3) delivery of
any undelivered item is probable. Arrangement consideration should be allocated
among the separate units of accounting based on their relative fair values, with
the amount allocated to the delivered item being limited to the amount that is
not contingent on the delivery of additional items or meeting other specified
performance conditions. Nera will adopt EITF 00-21 for contracts entered into on
or after January 1, 2004. Nera has not evaluated the impact that the statement
will have on revenues or results of operations.

                                      108
<PAGE>

         ITEM 18.  NOT APPLICABLE

         ITEM 19.  EXHIBITS

<TABLE>
<CAPTION>
Exhibit
Number                                                Description of Exhibits
-------                                               -----------------------
<S>               <C>
8                 List of Subsidiaries

12.1              Certifications by Bjorn Ove Skjeie, President and Chief Executive Officer, required by
                  Section 302 of the Sarbanes-Oxley Act of 2002.

12.2              Certifications by Bjorn Olafsson, Executive Vice President and Chief Financial Officer, required
                  by Section 302 of the Sarbanes-Oxley Act of 2002.

13.1              Certification by Bjorn Ove Skjeie, President and Chief Executive Officer, required by
                  Section 906 of the Sarbanes-Oxley Act of 2002.

13.2              Certification by Bjorn Olafsson, Executive Vice President and Chief Financial Officer, required
                  by Section 906 of the Sarbanes-Oxley Act of 2002.
</TABLE>

                                      109
<PAGE>

                                   SIGNATURES

         The registrant hereby certifies that it meets all of the requirements
for filing Form 20-F and that it has duly caused and authorized the undersigned
to sign this annual report on its behalf.

                                           NERA ASA

                                           /s/  Bjorn Ove Skjeie
                                           -------------------------------------
                                           Name: Bjorn Ove Skjeie
                                           Title: President

Date: June 25, 2004

                                      110
<PAGE>

                                INDEX TO EXHIBITS

<TABLE>
<CAPTION>
Exhibit
Number                                                Description of Exhibits
-------                                               -----------------------
<S>               <C>
8.                List of Subsidiaries

12.1              Certifications by Bjorn Ove Skjeie, President and Chief Executive Officer, required by
                  Section 302 of the Sarbanes-Oxley Act of 2002.

12.2              Certifications by Bjorn Olafsson, Executive Vice President and Chief Financial Officer, required
                  by Section 302 of the Sarbanes-Oxley Act of 2002.

13.1              Certification by Bjorn Ove Skjeie, President and Chief Executive Officer, required by
                  Section 906 of the Sarbanes-Oxley Act of 2002.

13.2              Certification by Bjorn Olafsson, Executive Vice President and Chief Financial Officer, required
                  by Section 906 of the Sarbanes-Oxley Act of 2002.
</TABLE>