Specialists in regenerative Medicine

Annual Report 2002

* in TEUR 2002 2001 Difference %

Total revenue* 14,714 12,104 + 21.6

Revenue Pharmaceuticals* 9,890 7,232 + 36.8

Revenue Biomaterials* 4,824 4,872 – 1.0

Earnings before interest and taxes* (3,368) (4,715) + 28.6

Financial earnings* (164) (133) – 23.3

Net profit/(loss) for the year* (2,280) (2,873) + 20.6

Earnings before taxes, in accordance with

DVFA/SG* (1,130) (1,196) + 5.5

Cash flow, in accordance with DVFA/SG* (2,526) (4,060) + 37.8

Earnings per share (IAS) (0.46) (0.57) + 19.3

Equity* 14,986 17,266 – 13.2

Total assets* 20,874 23,203 – 10.0

Number of employees (full-time) 100 116 – 13.8

Equity ratio (in %) 71.8 74.4

Return on sales (in %) (15.5) (23.7)

Revenue per employee* 147 104 + 41.3

EBIT per employee* (34) (41) + 17.1

ROI (in %) (15.2) (16.6)

FACTS & FIGURES FOR THE GROUP

FACT

S &

FIG

URE

S

Contents

1

LETTER TO SHAREHOLDERS

COMMITTED TO SCIENCE AND

PRACTICAL APPLICATION

THE BUSINESS UNITS

curasan SHARE PERFORMANCE

GROUP MANAGEMENT REPORT

AND MANAGEMENT REPORT

CONSOLIDATED FINANCIAL

STATEMENTS OF curasan AG (IAS)

FINANCIAL STATEMENTS OF

curasan AG (HGB)

REPORT OF THE SUPERVISORY BOARD

BOARD MEMBERS OF THE COMPANY

GLOSSARY

FINANCIAL CALENDAR / IMPRINT

02

04

06

06 Biomaterials

07 Pharmaceuticals

08

08 Stockmarkets in 2002

08 Performance of curasan shares

08 Financial communication

10

18

19 Consolidated Balance Sheet

20 Consolidated Income Statement

21 Statement of Changes in Equity

21 Cash Flow Statement

22 Notes to the Consolidated Financial Statements

34 Consolidated Fixed Assets Schedule

36 Auditor's Report

37

38 Balance Sheet

40 Income Statement

41 Notes

47 Auditor's Report

48 Fixed Assets Schedule

50

51

52

53

CONTENTS

For most of us, the 2002 financial year proved to be a dis-

appointing one. Factors such as the weak state of the

economy, the threat of military conflict, the lack of political

stimulus and a major loss of confidence in shares as an

investment instrument had an adverse effect on the overall

mood of investors and consumers.

curasan AG was only partially successful in avoiding this

trend. On the one hand, we can take great pride in having

increased Group revenues by 22% to Euro 14.7 million (FY

2001: Euro 12.1 million) in this difficult economic climate.

Our rate of expansion far exceeded the average growth

rates of the markets in which we operate. And yet these

results fell short of the expectations we had at the

beginning of the year. Against the backdrop of economic

and political volatility, we were unable to generate the

revenues of Euro 15.8 million previously targeted.

Despite this setback, we can be pleased with the way the

year progressed. We managed to sustain the expansion of

our product portfolio, obtain US regulatory approval for

Cerasorb®, launch our Cerasorb® block forms on the Euro-

pean market and pursue promising international business

opportunities, especially in the US and China.

But the highlight was perhaps the work we put into pre-

paring distribution agreements with two US organisations

for Cerasorb™ ORTHO. Our efforts led to the successful

conclusion of negotiations with CryoLife Inc. of Kennesaw,

Georgia, and Spinal Concepts Inc. of Austin, Texas, at the

beginning of February 2003 – an encouraging sign that the

world’s biggest market for pharmaceutical products and

biomaterials will help boost demand for our products, es-

pecially the Cerasorb® lead product. We are therefore looking

ahead with confidence to the remainder of the current

financial year.

The extensive cost-cutting programme implemented in the

last financial year, coupled with the increase in sales, has

resulted in a clear improvement in earnings. The Group's

loss before interest and tax fell by around Euro 1.3 million

to Euro 3.4 million (FY 2001: Euro 4.7 million), while our

quarterly results indicate that the cost-cutting measures

are continuing to have a positive effect.

We therefore remain optimistic that the growth we fore-

cast a year ago can be accomplished. We believe we can

break even in the current financial year and that a revenue

increase of around 20% is possible, provided that the

economic situation does not worsen.

The market development of our Pharmaceuticals business

unit is extremely encouraging, with about 67% share of

total sales. Growth rates here are considerably higher than

Letter to Shareholders

2

DEAR SHAREHOLDERS, LADIES AND GENTLEMEN,

those of the overall market expansion, while the constant

enhancement of our product portfolio guarantees increased

revenues. Our strategy of securing curasan AG’s core

business by delivering above-average growth rates in the

pharmaceuticals market is paying off.

Parts of the market for biomaterials have proved to be less

dynamic than we expected. The subdued level of demand

for these products can only be explained by a lack of infor-

mation on the benefits of biomaterials and a preference to

follow established practices for ordering and applying

materials. However, views are slowly changing and interest

in regenerative medicine products is increasing. In total,

we generated revenues of Euro 4,8 million in this highly

innovative business unit.

An increasingly important factor in the successful marke-

ting of biomaterials is the ability to persuade users of the

benefits of such products. Comprehensive empirical studies,

scientific research and practical knowledge transfer in the

form of seminars, conferences and meetings are all essen-

tial to achieving market penetration in the fields of bone

defect treatment, bone regeneration and tissue regenera-

tion. curasan AG has therefore decided to further extend

the broad training programme established over the last year,

as well as intensify its collaboration with research insti-

tutions.

We would like to take this opportunity to thank our em-

ployees for their commitment and loyalty, and express our

gratitude to our customers, business associates and share-

holders for their continued trust.

Hans Dieter Rössler Helmut Trahmer

Letter to Shareholders

3

Hans Dieter Rössler, CEO; Helmut Trahmer, CFO

curasan sets great store by its intensive collaboration with

scientific institutions and the close links it enjoys with

users and practitioners, which together make a significant

contribution to the company’s performance. From the

moment the product is conceived, to its regulatory approval

and ultimate market launch, curasan is in constant dia-

logue with researchers, experts, opinion formers and

practitioners as it strives to establish itself as a successful

and forward-looking company in its chosen field.

Working directly with doctors and universities gives curasan

a knowledge advantage over its competitors, while its on-

going exchange of information with scientists and research-

ers has triggered numerous ideas for products, particularly

in the field of regenerative medicine.

After a product idea has taken shape and prior to the launch

of the product, intensive research and development work

is required. This is where the excellent know-how and vast

experience of curasan's employees in this field come into

play. For instance, in the segment bone regeneration mate-

rial of our R & D department, three generations of experts

are at work on the improvement of Cerasorb® and the

development of new products. Through the intensive ex-

change of views and ideas with scientists and users, a

product's advantages are established before the initiation

of material evaluations, trials and tests.

When regulatory approval has been granted, it can be

generally assumed that the initial demand for the new

product in the conservative pharmaceuticals market will

be relatively low. At this stage, the main challenge is to

convince those responsible for providing the treatment

and employing the new product of the benefits. It falls to

the scientific institutions, however, to present and

validate these benefits in an objective manner. curasan

supports this process by organising scientific tests.

∇ A product of the collaboration between curasan and

various research institutes over the last financial year

was the "curasan Special Pocket Atlas: Bones”. This hand-

book, published by Thieme Verlag, summarises the current

level of knowledge on osteology. The range of subjects

includes the basic principles of bone formation, bone

metabolism, the interdisciplinary treatment of the most

important bones diseases, and the very latest bone re-

generation techniques. With this atlas, curasan builds a

link between biologists and surgeons.

∇ On 15 June 2002, curasan organised the sixth FIT in

Munich, a symposium that dealt with current develop-

ments in bone regeneration from both a scientific and

a medical perspective. Renowned experts from university

departments presented the results of their extensive

studies to around 160 participants, the topics ranging

from basic research to oral, maxillofacial and spinal

Committed to Science and Practical Application

4

COMMITTED TO SCIENCE AND PRACTICAL APPLICATION

surgery and tissue engineering. The main focus, however,

was on the use of Cerasorb® as a bone regeneration

material.

curasan’s close cooperation with the professionals who use

its products as its key to success within the marketplace,

as experts are needed to point out any deficiencies in the

treatment, processes and materials used. They include

hospital surgeons and anaesthetists, along with private

specialists like orthopaedists, traumatologists, plastic

surgeons, oral and maxillofacial surgeons, dentists and

anaesthetists. For many users, curasan is the only contact

partner qualified to solve problems in both biomaterials

and pharmaceuticals. This status gives us a valuable insight

into the needs of our users, allowing us to study their situ-

ation and deliver improvements through innovative products.

Such close collaboration with users is vital if we are to

achieve market penetration. New products often necessi-

tate a change in working practices and approaches. These

must be presented to users and explained in practical

terms – mere verbal or written descriptions of new products

do not, in general, bring success. curasan offers a range of

workshops for this purpose.

The following workshops were highlights of the past year:

∇ Augmentative surgery workshops: A programme of be-

ginners and advanced courses on the basic principles of

augmentative surgery. Topics included controlled bone

and tissue regeneration, incision/suture techniques,

membrane technology and defect filling. In total, 50

workshops were held throughout Germany, with over

500 participants.

∇ Practical seminars on implantology treatments. Two-

day training events were held in March and September

covering augmentations, laser surgery, sinus floor eleva-

tions and membrane technology. Each seminar had a

theoretical and a practical session.

∇ Special events, e.g. "The changing face of dentistry –

periodontology and implantology as part of everyday

practice”.

Over the course of the 2003 financial year, we will build

on our successful event programme with the following:

∇ Numerous workshops throughout Germany on augmen-

tative surgery

∇ Several workshops on odontoscopy

∇ Seventh FIT: "Tradition and Innovation”

curasan will also be involved in the following events:

This is just a selection of events. For a complete list of

congresses in which curasan is participating, please visit

our homepage.

Committed to Science and Practical Application

5

23-25 January 2003 FDM Forum Dental Mediterráneo, Barcelona

13-15 March 2003 14th German Convention on Pain, Frankfurt

25-29 March 2003 IDS 2003, Cologne

9-13 April 2003 German Anaesthesia Conference, Munich

22-24 May 2003 10th IEC, Berlin

19-21 June 2003 1st International Endoscopy Symposium, Göttingen

19-21 June 2003 Europerio, Berlin

6-11 September 2003 Anaesthesia Week, Sylt

8-12 October 2003 German Conference on Pain, Münster

9-12 October 2003 12th EAO, Vienna

14-15 November 2003 Periodontology Power Weekend, Düsseldorf

Every year, millions of bone surgery operations are per-

formed worldwide in the fields of dental medicine, acci-

dent surgery, joint replacement, spinal cord regeneration

and plastic surgery. The bone replacement materials used

in these operations are principally autogenous bones, fol-

lowed by animal and cadaver bones. The disadvantage of

this practice is that not only do patients have to undergo

an additional operation in order to obtain the bone replace-

ment materials, complications at the donor site can occur,

and a comparatively long regeneration time may have to

be expected. In addition, such operations tend to be relative-

ly time-consuming and expensive. What’s more, there is a

limited availability of autogenous bone, since it is virtually

impossible to build up a suitable repository. Where animal

and cadaver bones are concerned, there is a risk of infection

as well as the possibility that the body will reject the foreign

body. Besides that, they remain in the patient's organism

or take very long to be resorbed.

With its lead product Cerasorb®, curasan AG offers a bone

regeneration material that eliminates the need for

autogenous, animal and cadaver bone transplants and thus

has none of the disadvantages or risks associated with

such procedures. Cerasorb® is an implantable, fully resorb-

able, pure-phase beta-tricalcium phosphate in granulate

form. The synthetic material is implanted directly in the

bone defect and, thanks to its special structure, is fully

resorbed by the body as the new bone grows. Cerasorb® is

therefore capable of setting new standards in the treat-

ment of bone defects.

Due to the enormous market potential for bone transplanta-

tions, curasan AG has become a specialist in Germany in

the development and distribution of pharmaceuticals and

medical products in the field of regenerative medicine. The

company has developed a range of biomaterials to

complement Cerasorb®, covering areas such as bone

regeneration, dentistry, orthopaedics/traumatology and

accelerated tissue regeneration. Together, these products

constitute the Biomaterials offering.

curasan AG’s second product group consists of so-called

AIEP products (i.e. anaesthesia, intensive care, emergency

medicine and pain therapy) and anti-infectives, which form

the Pharmaceuticals business unit. Virtually all of these

products are generic drugs or what are known in Germany

as "generics plus” (generic drugs offering added benefits).

Distributed to hospitals and specialists alike, they are used

in the fields of anaesthetics, pain therapy and surgery.

By focusing business activities on selected applications and

specialising in regenerative medicine, curasan AG is striv-

ing to occupy niche markets with an attractive market

volume and a high growth potential. Working directly and

intensively with our customers helps us identify new appli-

cation areas and market potential. Consequently, we are

constantly extending our product range to ensure our

long-term growth.

BIOMATERIALS

While the above-average growth rates of the Pharma-

ceuticals business unit are responsible for securing

curasan’s core business, the future undoubtedly lies in the

dynamic sector of Biomaterials. These products focus on

bone defect treatment, bone regeneration and tissue

engineering. Among the most important products in this

division are Cerasorb®, stypro®, Hy-GAG®, the PRP Kit, the

Ti-System and the Augmentation Kit.

It is widely expected that biotechnology will become the

biggest growth market in the health sector. curasan in-

tends to exploit this huge market potential by creating the

broadest possible portfolio of intelligent products based

around the Cerasorb® bone regeneration material. This will

be accompanied by an even higher national market pen-

etration and an intensification of global sales activities.

In the financial year under review, curasan reached several

significant milestones:

The Business Units

6

THE BUSINESS UNITS

∇ In March, curasan received 510k approval from the

Food and Drug Administration (FDA) for Cerasorb® for

use in the skeletal system. This approval is enabling the

company to tap into the world’s biggest market for

bone replacement and bone regeneration materials,

with a total value of around $400 million. This market

segment will be covered through two distribution part-

nerships.

∇ curasan has acquired the FDA approval for Augmen®

and Peri-Oss® as PMA (pre-marketing approval) products.

These products are related to the bone reconstruction

material Cerasorb® and will enable curasan to gain a

foothold in the market for oral surgery applications in

the US. As soon as the approval is transferred to

Cerasorb®, we will extend our product offering to this

lucrative market.

∇ We initiated studies and organised conferences and

symposia in China as part of pre-marketing activities

for the distribution of Cerasorb®. Distribution in this

important growth market is due to start in 2004.

∇ The product range for dental surgery was extended by

the addition of the "Safescraper” and "HurriSeal”. The

Safescraper is a disposable instrument that allows quick

and easy harvesting of autogenous bone grafts. It is

used to scrape, collect and transplant autogenous bone,

rendering superfluous the instruments normally required

for such procedures, such as bone filters, trepan burs,

saws and bone mills. HurriSeal is used to desensitise

sensitive teeth and tooth necks.

∇ In October, curasan received pan-European regulatory

approval for Cerasorb® block forms. Available in various

shapes and sizes, they offer stable, perfect-fit applica-

tion and simple handling. They are ideally suited to the

remedy of larger defects in weight-bearing areas, es-

pecially in the fields of traumatology, orthopaedics and

sports medicine.

PHARMACEUTICALS

In recent years, the proportion of total sales of generic

drugs within the pharmaceuticals market has risen steadily.

This is largely attributable to the proliferation of success-

ful drugs that are not subject to patent protection, ac-

companied by an increasing cost consciousness in the health

care sector. Generics enable cost savings to be made with-

out sacrificing the quality of medical care.

curasan’s sales in this business unit continue to grow, and

in 2002 the company ranked number 47 in Germany's 300

best-performing pharmaceuticals companies. The focus is

on AIEP products (anaesthesia, intensive care, emergency

medicine and pain therapy) and anti-infectives. The

success of the Pharmaceuticals unit has been driven by a

number of factors: a broad product range, the sales skills

of curasan employees, direct contact with the customer,

and additional intelligent product benefits, such as different

presentations, longer shelf life and improved tolerability.

Of all the events that have taken place during the past

twelve months, the highlight has been the inclusion of

sufentanil, from the group of opioids, in the curasan offer-

ing. Sufentanil is 1,000 times stronger than morphine and

is used principally as an analgesic and sedative during

surgery.

The Business Units

7

STOCK MARKETS IN 2002

The Deutsche Aktienindex (DAX) suffered its third loss in

succession in the financial year 2002. Following annual

declines of 7.5 per cent in 2000 and 19.8 per cent in 2001,

the DAX plunged by a staggering 43.9 per cent in the

financial year under review, a dismal performance which

no one could have expected at the beginning of 2002.

Sluggish economic growth, major accounting scandals in

Germany and abroad, and the increasing likelihood of

military conflict in the Gulf region prompted private and

institutional investors to choose the relative safety provid-

ed by other financial instruments.

The average decline in value of companies listed within

Germany's Neuer Markt segment (NEMAX-ALL-SHARE) was

a disappointing 63.2 per cent. The NEMAX-50, which com-

prises the Neuer Markt's largest companies in terms of

trading volume and market capitalisation, dropped by 69

per cent to 356 points. Indeed, it soon became apparent

that the Neuer Markt segment had been home to several

companies with unsuitable business models. The segment

also had to contend with a number of domestic and

international accounting scandals. In order to regain the

trust of investors and restructure the entire stock market,

Deutsche Börse decided to dispense with the Neuer

Market segment altogether. Plans for restructuring were

announced in the second half of the year under review.

PERFORMANCE OF curasan SHARES

At the beginning of 2002, curasan's share price stood at

Euro 3.00. The Company's share performance in the first

half of the year was adversely affected not only by the

general malaise witnessed throughout stock markets but

also by the disinvestment of a venture capital enterprise.

The aforementioned enterprise used the increase in

curasan's share price, on the back of favourable corporate

data in March 2002, to place several sizeable blocks of

shares, and, as a result, our shares were unable to maintain

the level they had previously reached. Indeed, outper-

formance of the NEMAX-ALL-SHARE proved extremely

difficult under these circumstances and was short-lived.

At the end of October, the announcement of pan-European

approval for Cerasorb® block forms propelled curasan's

share price upwards, with a threefold increase recorded

over a period of just two days. In the ensuing days the

price for curasan shares stabilised just above the two-euro

mark. At the end of the year, curasan's share price stood

at Euro 2.05.

In the first three months of 2003, our shares managed to

extricate themselves from the general level of volatility

witnessed throughout the stock markets. In fact, in January

curasan's share price climbed by around 16 per cent. In

February, reports on the launch of Cerasorb® in the United

States triggered an increase in curasan's share price to a

level of Euro 2.90. curasan's shares have been performing

solidly since the end of October 2002, displaying a notice-

able upward trend.

FINANCIAL COMMUNICATION

In the interest of its shareholders, curasan AG has decided

to list its shares within the Prime Standard established by

Deutsche Börse. As a result, the line of communication

between the Company and its shareholders remains as

solid as ever. As in the past, we remain committed to

publishing quarterly reports, holding analyst meetings and

press conferences, and disclosing ad hoc announcements

in German and English.

With regard to Corporate Governance, curasan AG

established far-reaching principles as early as December

2001. Towards the end of the financial year under review,

these were adapted to meet the requirements of the new

German Corporate Governance Code. Deviations from the

curasan Share Performance

8

curasan SHARE PERFORMANCE

curasan SHARE PERFORMANCE

curasan shares, indexed Nemax All Share, indexed

curasan Share Performance

9

above-mentioned Code merely relate to the age limits

specified for members of the boards, the establishment of

qualified committees, and the performance-oriented

remuneration of Supervisory Board members. Detailed

information regarding curasan's Corporate Governance

Principles, together with share-related data, is available

on our website (www.curasan.de).

FUNDAMENTALS

WKN / ISIN / Symbol 549 453 / DE 000 549 453 8 / CUR

Type of stock No-par-value common stock

Share volume 5.0 million

Free float 53.74%

Closing price 1/1/2002 / Closing price 31/12/2002 (Xetra) Euro 3.00 / Euro 2.05

High / Low (closing price Xetra) Euro 4.00 / Euro 0.48

Trading volume Xetra and Frankfurt (1/1/2002 – 31/12/2002) Euro 16.2 million

Market capitalisation, year end Euro 10.25 million

Free float factor acc. to Deutsche Börse AG 0.5374

Free float market capitalisation, year end Euro 5.5 million

150 %

120 %

90 %

60 %

30 %

0 %

| JANUARY 2002 | APRIL 2002 | JULY 2002 | OCTOBER 2002

I. SECTOR DEVELOPMENT

In the financial year under review, we witnessed an ex-

tremely diverse range of trends within the world's major

pharmaceutical markets. In North America (United States

and Canada), for instance, the market for pharmaceuticals

grew by 16 per cent. The key European markets were able

to keep pace to a certain extent, registering growth rates

of 10 to 12 per cent. Japan proved to be sluggish in terms

of growth, while South America had to contend with severe

declines in many areas. According to a study published by

IMS Health, the global pharmaceutical market is expected

to grow by an average rate of 9% per annum in the period

up to 2005. Therefore, this market continues to be a high-

growth segment.

Compared with its international rivals, the German market

is considered to be relatively mediocre in terms of growth.

Having said this, figures published by Germany's Federal

Association of the Pharmaceutical Industry (BPI) are above-

average and extremely encouraging considering the current

economic climate: 10 per cent growth within the pharmacy

sector, which is now estimated to be worth Euro 17.1 billion,

and 7.6 per cent growth in the hospital sector, taking the

overall figure in this area to Euro 2.7 billion.

II. BUSINESS REVIEW

The financial year 2002 was one dominated by consolida-

tion. As planned, the purchase of the two medical products

Augmen™ and Peri Oss™, both of which are registered in

the US for use in the field of dental surgery, marked the

successful culmination of our investment activities. These

transactions were completed in the spring of 2002. In the

following months, we made a concerted effort to prepare

all products already in our regulatory and distribution

pipeline for rollout; they were launched on the basis of a

step-by-step marketing plan. Some of the key milestones

within this area were the US approval of Cerasorb™

ORTHO for use in the skeletal system and the pan-European

approval granted for Cerasorb® block forms. In the course

of the financial year under review, we intensified our

business relations with two US sales partners, who were

eager to commence distribution in their respective target

markets. Both enterprises were particularly impressed with

the quality of our lead product, Cerasorb®. In the second

half of the year, we were forced to rein back spending in

order to secure cash resources. We downsized our work-

force as part of these incisive cost reduction measures. In

terms of revenues generated, the end of the financial year

proved to be our most buoyant quarter since our IPO.

III. SALES AND EARNINGS

(1) Group/AG

Consolidated revenues generated in the financial year

2002 amounted to Euro 14.7 million (AG Euro 14.3 mil-

lion). We fell short of our own revenue expectations by

roughly Euro 1.1 million. In eleven months of the financial

year under review, we managed to generate revenues that

were above those recorded in the equivalent months of

the preceding year. The first and fourth quarter of the

financial year proved to be particularly successful.

Quarter am 2002 2001 Diff.

I 3.5 2.8 25 %

II 3.7 3.2 16 %

III 3.6 3.2 13 %

IV 3.9 2.9 34 %

Total 14.7 12.1 22 %

Management Report

10

GROUP MANAGEMENT REPORT AND MANAGEMENT REPORT

Antibiotics provided considerable impetus in terms of growth,

as did our comprehensive range of anaesthetics. There can

be no doubt at all that our previous investments within the

area of pharmaceuticals are now bearing fruit. Licences pur-

chased by the Company are gradually being translated into

fully-fledged products fit for market rollout. Our pharma-

ceuticals unit is responsible for roughly two thirds of con-

solidated revenues. As a result of formidable revenue growth,

curasan AG succeeded in assuming a position among the top

50 suppliers to German hospitals in 2002.

The apparent level of stagnation in revenues with regard to

our biomaterials is the result of two trends, both of which

have cancelled each other out. While Cerasorb® and associ-

ated products for dental and traumatology-related applica-

tions were able to record growth despite the current

economic malaise, Hy-Gag®, a hyaluronic acid used for the

treatment of arthrosis, was faced with a decline in revenues.

This decline is the direct result of changes to the system of

medical reimbursements in Germany and increased compe-

tition.

Products am 2002 2001 Diff.

Biomaterials 4.8 4.8 0 %

Pharmaceuticals 9.9 7.3 36 %

of which anaesthetics 4.6 3.6 28 %

of which anti-infectives 4.5 2.9 55 %

of which miscellaneous 0.8 0.8 0 %

Total 14.7 12.1 22 %

In total, 15.5 per cent of our consolidated revenues were

generated outside Germany, in the form of export activi-

ties conducted by curasan AG or – consolidated – external

sales via our subsidiary curasan Benelux BV. Although the

share of foreign sales revenues rose by approximately two

percentage points year on year, there is still room for

improvement compared with other players within this

sector. In view of the accelerated sales activities in the

United States and progress made with regard to approval

in China, we are confident that the Company will achieve

sustainable growth in the future. The Netherlands, Belgium,

Austria, and France, i.e. international markets which are

served directly by curasan AG or its Dutch subsidiary, ac-

count for roughly fifty per cent of our overall foreign sales.

Regions am 2002 2001 Diff.

Europe 13.8 11.4 21 %

Middle East 0.5 0.5 0 %

Asia 0.3 0.1 200 %

South America 0.1 0.1 0 %

Total 14.7 12.1 22 %

The cost of materials within the Group amounted to Euro

6.9 million in 2002, compared with Euro 4.9 million a year

ago (AG Euro 7.0 million; FY 2001: Euro 4.9 million). In

relation to revenues, this equates to a figure of 46.7 per

cent in 2002, after a ratio of 40.8 per cent in 2001 (AG

49.2 per cent; FY 2001: 41.0 per cent). The increase in the

cost of sales in relation to revenues is attributable to

curasan's new product mix, to increased expenses for inven-

tories as a constituent element of the cost of sales, and

write-downs carried out in the previous financial year in

connection with merchandise inventory.

Staff costs within the Group remained relatively stable,

rising from just under Euro 6.2 million to just over Euro

6.2 million in the financial year under review (AG Euro

5.1 million; FY 2001: Euro 5.2 million). Lower staffing

levels implemented towards the end of the financial year

2002 will not show their full monetary effect until the

coming year. The reduction in special payments for Novem-

ber to a basic level of Euro 250.00 per employee contri-

buted to the success of our cost-reduction measures.

Depreciation and amortisation expense comprises the de-

preciable amount allocated to assets over their useful lives

and is attributable to investments in non-current assets

carried out in the year under review, as well as amortisa-

tion of goodwill within the Group. In contrast to the

financial year 2001, no impairment losses were recognised

in connection with current assets.

The cost management programme announced for the

financial year 2002 resulted in stable "other operating

Management Report

11

expenses" of Euro 5.6 million for the Group (AG Euro 5.6 mil-

lion; FY 2001: Euro 5.4 million). Savings achieved in a num-

ber of areas were offset by increased expenses directly

associated with higher volumes in sales and production in

the area of distribution and manufacturing.

Within the Group, interest income for the financial year

2002 was close to break even, after a figure of Euro 0.3

million posted in the previous year. Interest income

generated by the parent company curasan AG is attribu-

table to interest paid on intragroup clearing accounts,

which was offset accordingly as part of Group consoli-

(2) Subsidiary companies

Our sales team at curasan Benelux BV, now responsible for

the distribution of Streptase, was able to double sales

revenues to Euro 0.8 million within the year under review.

The operating loss – before interest and intragroup clearing

accounts – was 30% lower than in the financial year 2001.

Sales revenues are expected to increase in the course of

the financial year 2003. If this is achieved, we believe that

above-par earnings and a certain degree of financial inde-

pendence from curasan AG are possible in the ensuing years.

dation. Prior to the final disposal of financial instruments,

impairment losses were recognised in connection with

participation interests in investment funds.

Taking into account deferred assets, the consolidated net

loss for the financial year 2002 amounted to Euro 2.3

million, compared with Euro 2.9 million in 2001. Mainly as

a result of lower-than-expected revenues and a higher

cost-of-sale ratio, we failed to meet our earnings target

by roughly Euro 0.9 million. For curasan AG itself, the net

loss for the financial year 2002 amounted to Euro 2.9

million, compared with Euro 4.3 million in 2001.

Our highly specialised team at GerontoCare GmbH is re-

sponsible for managing the Group's national and inter-

national regulatory affairs. In the financial year 2002,

approvals worth a total of Euro 1.4 million were sold to

the parent company curasan AG. GerontoCare GmbH is

linked to curasan GmbH by means of a profit transfer

agreement and remitted profits of Euro 0.2 million in the

year under review.

Focusing on the sale of company-produced titanium

instruments (membranes and instruments for the dental

Management Report

12

Earnings DVFA/SG a '000 2002 2001

Consolidated loss (2,280) (2,873)

Depreciation and amortisation of non-current assets 983 768

Write-down of securities and inventories 166 909

Consolidated loss DVFA/SG (1,131) (1,196)

Number of shares ('000) 5,000 5,000

Loss per share (in €) (0.23) (0.24)

Cash Earnings DVFA/SG a 000 2002 2001

Consolidated loss (2,280) (2,873)

Depreciation and amortisation of non-current assets 983 768

Change in long-term provisions 21 20

Deferred taxes 1,251 1,975

Cash earnings ( 2,527) (4,060)

Number of shares ('000) 5,000 5,000

Loss per share (in €) (0.51) (0.81)

market), which are subsequently marketed by the parent

company, Titanium Innovations GmbH succeeded in match-

ing last year's revenue performance. The subsidiary posted

slightly below-par earnings. Relocation of our production

facilities to curasan AG's Frankfurt plant, previously planned

to commence in the financial year under review, had to be

postponed due to preparations for the audit announced by

the US Food and Drug Administration (FDA). A concerted

effort by all available members of staff was needed within

this area.

Production activities regarding our haemostatic sponge

stypro® by Pro-tec Medizinische Produkte GmbH proved

to be very solid. Indeed, in the year under review production

levels were increased to generate a figure of almost Euro

0.5 million and the net loss for the period was lowered.

Sales within the main target markets have produced re-

spectable growth, albeit at a relatively low base level. As

part of our downsizing efforts in the area of personnel

towards the end of the financial year, we managed to cut

staffing levels within the subsidiary. Our plan is to increase

production levels slightly in the medium term. On comple-

tion of our current international approval activities and

the successful penetration of the entire German market, we

are confident that export sales will show palpable growth.

Supported by continued revenue growth, the earnings

contribution by stypro® will be improved in a manner that

is sustainable. We are also confident that delays with

regard to establishing production facilities and sales markets

will be overcome as time progresses. In view of the fact

that Pro-tec Medizinische Produkte GmbH only sells its

products to curasan AG, the degree of financial dependence

on the parent company will remain.

IV. BALANCE SHEET AND CASH FLOW

Aided by thorough inventory management, we were able to

reduce stock levels in the financial year under review, while

maintaining full delivery capabilities. It should also be noted

that this was achieved against the background of ac-

celerated business activities. In contrast to the previous

year, there were no write-downs exceeding the corpora-

tion's usual depreciation and amortisation. The level of

receivables due from customers is slightly higher than in

the financial year 2001. Due to the exchange rates recorded

at the balance sheet date, adjustments were necessary in

the case of receivables denominated in foreign currencies.

Individually identifiable risks were accounted for by write-

downs on an item-by-item basis.

The portfolio of securities held as current assets was

disposed of in the year under review. Due to the perform-

ance of participation interests in investment funds, the

Company had to perform remeasurements to fair value in

the course of the financial year up to the date of disposal.

The level of cash and cash equivalents declined only

slightly in the two last quarters of the financial year.

Net additions to non-current assets were only recorded

within the area of intangible assets. These are mainly

related to drug approval licences generated by GerontoCare

GmbH.

Due to the end-of-period adjustment process, the level of

short-term borrowings from banks and invoices not yet

received, as accounted for in provisions, was lower than in

the previous year. This resulted in higher trade accounts

payable.

There were no changes to equity, apart from accounting

for the net loss for the financial year. The equity ratio for

the Group stands at 71.8 per cent (FY 2001: 74.4 per cent)

and 71.0 per cent for the AG (FY 2001: 75.6 per cent).

In the financial year under review, negative cash flow within

the Group was reduced noticeably. Cash outflow with

regard to operating activities and investments was reduced

substantially in the financial year 2002. As planned, there

was an increase in the level of cash used for the repayment

of debt.

Management Report

13

a m (Group) 2002 2001

Cash flows from

operating activities (1.0) (3.1)

Cash flows from

investing activities (1.6) (3.5)

Cash flows from

financing activities (0.9) (0.2)

Other changes in cash

and cash equivalents (0.2) (0.4)

Cash and cash equivalents 1.3 5.2

V. EMPLOYEES

Yet again, our team of employees reacted to the ever-chang-

ing requirements of a fast-track economy and delivered

outstanding results. Unfortunately, we were also faced

with a number of difficult decisions within the area of hu-

man resources. The termination of several contracts towards

the end of the financial year was unavoidable. Under-

standably, there were misgivings about these measures,

and as a result the level of staff fluctuation was higher than

in previous years. However, it is down to the team spirit

and solidarity displayed within the Group that the inevitable

unrest and uncertainty could be alleviated with a trans-

parent information policy. Both the Supervisory Board and

the Management Board would like to thank all employees

for their committed contributions and sense of loyalty.

As at the balance sheet date, curasan AG and its subsidiaries

had 109 employees in total, around 15 of whom had part-

time contracts. Calculated on the basis of full-time employ-

ment, this corresponds to a workforce of 100 (FY 2001: 116).

Employees (full-time) 2002 2001

Marketing/Sales 49 58

Operations 24 28

Research/Regulatory affairs 13 13

Finance/Controlling 7 8

Administration 7 9

Total 100 116

VI. RESEARCH, DEVELOPMENT ANDREGULATORY AFFAIRS

We pressed ahead with several regulatory approval projects

in the year under review – e.g. Cerasorb® block forms, ortho-

paedics in the US, dental in the US, and China. As one can

imagine, this required a concerted effort from our entire

team. Despite the pressure, we were able to continue as

planned with our ongoing R&D work. The manufacture of

block forms has now reached full-scale production levels.

Furthermore, we have optimised processes to manufacture

different types of Cerasorb® with improved resorption prop-

erties. It seems likely that products and processes will be

protected by patents.

Development projects related to bone adhesives were con-

tinued in the year under review. Patent protection for one

of the processes has already been applied for. Comprehensive

clinical studies are currently being conducted for a second

process. The initial findings of this study have been very en-

couraging.

Alongside large-scale R&D projects, a number of well-known

specialists from international universities and research facili-

ties were also involved in clinical studies.

In the financial year under review, Euro 0.4 million was

allocated to direct internal and external research and de-

velopment activities. Expenditure on regulatory affairs and

maintenance of drug and product licences amounted to

Euro 0.6 million in the period under review.

VII. RISK REPORT AND EVALUATION OFRISKS TO FUTURE DEVELOPMENT

The Group, which in its entirety is subject to legally binding

quality assurance regulations with regard to drugs and

medical products, is committed to maintaining the requisite

quality management systems within the respective areas

of its business. These systems have been certified by inde-

pendent specialists. As regards the ongoing activities of

Management Report

14

the Company, there were no problems or indications of

significant risks relating to the organisation of these

systems or emanating from the systems in the financial

year just ended.

Owing to the current size of the Group, it is not necessary

to manage the required commercial risk-controlling activi-

ties within a separate staff unit. Therefore, risk manage-

ment lies mainly within the sphere of responsibility of the

Management Board; as part of the rules of procedure of

the Management Board, risk management is also conduct-

ed by the Supervisory Board, and the rules of procedure

established for senior management define the risk manage-

ment duties of the heads of the business units within the

Company. The Management Board reports to the Super-

visory Board, on a regular basis, any information regarding

latent risk and provides details of appropriate measures

taken to avoid such risks. As regards insurable risks, the

Company has established a sufficient and appropriate level

of insurance protection to satisfy legal regulations and to

meet the requirements of an enterprise of this size. An inde-

pendent expert is regularly consulted for the purpose of

evaluating the efficacy and appropriateness of the afore-

mentioned insurance cover. The specialist area of company

liability was reviewed at the end of the financial year 2002.

In view of the more substantial level of business activities,

responsibility for this area was transferred to an insurance

company with the appropriate resources and capacities.

In the financial year 2002, individual areas of risk were

subjected to thorough investigation and assessment. As

part of this procedure, we compiled an organisational

manual, as well as guidelines on inventory-related

processes, inventory management, and measurement of

inventories. Both of these manuals outline the manage-

ment of specific risk-related events in the form of clearly

defined organisational procedures. Security with regard to

the Company's IT network was increased, thus further

minimising the risks associated with unauthorised access.

The reputation of curasan AG and its subsidiaries is of

immense importance when it comes to attracting new

investors, business associates, and employees in a fast-

track environment. In order to prevent internal misunder-

standings, the Supervisory Board and the Management

Board voluntarily decided to follow the principles of the

German Corporate Governance Code as early as 2001. In

the meantime, the details of corporate governance have

been reviewed and documented in a code of conduct that

is generally binding. The official declaration of conformity

as regards the German Corporate Governance Code, as well

as the Company Code derived from the aforementioned

principles, can be accessed via our corporate website.

In order to achieve revenue growth, the Company will have

to apply the full range of sales and marketing-related

measures available. If extended terms of payment are

negotiated, the Company is exposed to the risk of interest

losses or bad-debt losses. The creditworthiness and average

distribution of accounts receivable domestically – uni-

versity clinics, hospitals, pharmaceutical wholesalers as

well as several thousand dentists and pharmacies – repre-

sent a solid basis for ensuring that no significant bad debt

can arise within this area. Risks associated with

international business activities are addressed by imple-

menting appropriate internal accounting and organisa-

tional measures. Within this context, for instance, we regu-

larly check the accounts receivable of international

customers before executing delivery orders that exceed a

specific level. Moreover, prior to engaging in business with

new accounts, we conduct independent credit investiga-

tions. Deliveries to customers from specific countries are

only executed once we have received the invoiced amount

in advance.

In the financial year under review, the Company used more

cash and cash equivalents than were generated by oper-

ating activities. The Management Board is committed to

controlling this situation by means of cost reductions and

stringent cost management within the area of working

capital and non-current assets. The net outflow of cash

and cash equivalents will continue for several months in

the coming financial year. Any deviations from the

financial targets already in place and authorised, e.g. as a

Management Report

15

result of unforeseen external influences, could adversely

affect the progression of business and, under extreme

circumstances, jeopardise the future existence of the Group.

In view of the fact that the procurement of additional

capital is limited or only possible under unfavourable

terms and conditions, the existing financial resources will

have to suffice until break even has been achieved. At this

moment in time, no additional reductions in staffing

levels have been planned. If further downsizing became

necessary, this would lead to a situation in which the

Group's corporate development may be adversely affected.

The employees within our Group are highly qualified

specialists within their respective fields of expertise.

Owing to the specific character and size of our organisation,

in some areas we are dependent on certain employees with

specialist qualifications. Within this respect, it is the responsi-

bility of the Management Board members and senior

managers to ensure that the level of expertise and the

experience needed to perform certain tasks is distributed

as evenly as possible across the entire workforce.

The Company is exposed to the normal range of risks

evident in the pharmaceuticals industry, particularly as

regards unforeseen changes to legislation aimed at

reducing government expenditure on the treatment of

diseases. Other uncertainties with which this industry is

confronted relate to the legal frameworks in place for

national and international regulatory approval, as well as

the decisions taken by regulatory authorities. Bearing this

in mind, forecasts regarding revenues, business develop-

ment, and project-related progress can only be provided

based on the knowledge available to the Company at that

moment in time. We cannot exclude the possibility that

new targets will have to be defined if parameters change.

In future, risk controlling is to become even more firmly

established on a management level. The existing control

mechanisms are to be refined, both in terms of their

practical deployment within the Company and their

significance as a basis for decision-making. In the long

term, our main focus will be on achieving consistent

identification and analysis of external events and circum-

stances posing a risk to the Company

VIII. OUTLOOK

The financial targets presented to and authorised by the

Supervisory Board specify revenue growth that is compa-

rable to that achieved in the financial year under review.

These targets are to be met by taking advantage of the

continued dynamic growth displayed in the area of

Pharmaceuticals, which has benefited from sustained

demand for generic drugs. On the other hand, sales

activities in the US and distribution of block forms are to

propel the Biomaterials unit onwards and upwards. The

budgets of the respective divisions have been calculated

extremely conservatively, and there are only likely to be

limited changes within the area of human resources.

Investment activities with regard to new non-current

assets will be subject to a close assessment of financing

capabilities. The continued financing of the Group's activi-

ties, taking into account the parameters targeted in terms

of revenue growth, purchase prices, costs, as well as

interest rates and exchange rates, is achievable in the

short term if the capital expenditure plans for current and

non-current assets are observed. In order to secure

resources, the Company is currently discussing alternatives

to traditional financing of operations.

in am 2002 Actual 2003 Target

Sales revenues 14.7 18.1

EBIT (3.4) 0

Net loss for the period (2.3) 0

Equity 15.0 15.0

Cash and cash equivalents 1.3 1.0

Management Report

16

IX. SIGNIFICANT EVENTS AFTER THEBALANCE SHEET DATE

curasan AG has signed agreements with the two US-based

companies CryoLife Inc., Kennesaw/USA, and Spinal

Concepts Inc., Austin/USA. The agreements cover the distri-

bution of Cerasorb™ ORTHO within the medical field of

orthopaedics. They contain exclusive sales rights for the

synthetic, fully resorbable bone regeneration material

Cerasorb™ ORTHO within the respective areas of medical

indication.

As Cerasorb™ ORTHO can be deployed throughout the entire

skeletal system, it was particularly important to find exper-

ienced partners with a proven marketing track record in

the field of regenerative medicine, thus guaranteeing

rapid market penetration. In CryoLife and Spinal Concepts,

curasan has found two companies that are capable of

covering the entire US orthopaedics market.

The Company plans to attract additional sales partners, e.g.

for the segment of dental surgery.

Listed on the New York Stock Exchange, CryoLife Inc.,

Kennesaw (Georgia/USA), is a leader in the processing and

distribution of implantable living human tissues for use in

surgeries throughout the United States and Canada.

Employing around 300 people, it generated revenues of

more than US$87 million in 2001. The five-year contract

encompasses the exclusive sales rights for all orthopaedic

applications not associated with the spinal column, such

as traumatology and sports medicine.

The privately held medical company Spinal Concepts,

based in Austin (Texas/USA), specialises in spinal implant

products. As a technology leader it has more than 30

patents within this segment. Boasting 44 independent

sales organisations and about 180 field representatives,

Spinal Concepts has achieved outstanding results in

recent years. The agreement signed with Spinal Concepts

also covers a period of five years and gives the company

exclusive sales rights for Cerasorb™ ORTHO within the

area of spinal surgery.

Both companies presented Cerasorb™ ORTHO to their

respective target groups at the American Association of

Orthopedic Surgery (AAOS) meeting in New Orleans.

Management Report

17

CONSOLIDATED FINANCIAL STATEMENTS

OF curasan AG (IAS)

Consolidated Financial Statements of curasan AG (IAS)

19

Assets Note 31 Dec. 2002 a 31 Dec. 2001 a '000

A. Current assets

1. Cash and cash equivalents 5.1 1,343,824.60 1,598

2. Securities held as current assets 5.2 0.00 3,575

3. Trade accounts receivable 5.3 1,614,852.61 1,540

4. Inventories 5.4 3,613,200.24 3,974

5. Other current assets 5.5 402,105.01 554

6. Prepaid expenses 63,623.69 79

Total 7,037,606.15 11,321

B. Non-current assets

1. Goodwill 5.6 651,490.50 779

2. Intangible assets 5.6 5,815,158.75 4,807

3. Property, plant and equipment 5.6 2,336,556.74 2,514

4. Deferred taxes 5.7 5,033,251.54 3,782

Total 13,836,457.53 11,882

20,874,063.68 23,203

Liabilities and Equity Note 31 Dec. 2002 a 31 Dec. 2001 a '000

A. Current liabilities

1. Short-term liabilities to banks 5.8 308,149.91 1,007

2. Trade accounts payable 5.9 2,258,970.43 1,676

3. Provisions 5.10 581,703.62 707

4. Other current liabilities 5.11 828,328.24 422

Total 3,977,152.20 3,812

B. Non-current liabilities

1. Long-term debts 5.8 1,266,459.64 1,501

2. Retirement benefit obligation 5.12 225,889.00 205

3. Other non-current liabilities 5.8 418,620.23 419

Total 1,910,968.87 2,125

C. Equity

1. Issued capital 5,000,000.00 5,000

2. Capital reserves 19,843,856.82 19,844

3. Loss carried forward (7,577,930.53) (4,705)

4. Net loss for the period (2,279,983.68) (2,873)

Total 14,985,942.61 17,266

20,874,063.68 23,203

CONSOLIDATED BALANCE SHEET FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2002 (IAS)

Consolidated Financial Statements of curasan AG (IAS)

20

Note 31 Dec. 2002 a 31 Dec. 2001 a '000

Revenue 4.1 14,714,442.74 12,104

Changes in inventories of finished goods and

work in progress 4.1 88,891.11 19

Work performed by the enterprise and capitalised 4.1 1,103,863.05 799

Gross performance 15,907,196.90 12,922

Cost of materials and services purchased 4.2 (6,878,064.92) (4,942)

Gross profit 9,029,131.98 7,980

Other operating income 4.1 437,095.51 379

Staff costs 4.3 (6,220,055.88) (6,178)

Depreciation and amortisation of non-current assets 4.4 (983,065.91) (768)

Depreciation and amortisation of inventories to the extent

that they exceed the usual level 4.5 0.00 (484)

Other operating expenses 4.6 (5,630,785.93) (5,644)

Operating loss (3,367,680.23) (4,715)

Interest income 4.7 2,315.83 292

Write-down of securities held as current assets 4.7 (166,534.18) (425)

Financial loss (164,218.35) (133)

Taxes 4.8 1,251,914.90 1,975

Net loss for the period (2,279,983.68) (2,873)

Number of shares (‘000) 5,000 5,000

Loss per share (IAS; in a) (0.46) (0.57)

CONSOLIDATED INCOME STATEMENT FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2002

Consolidated Financial Statements of curasan AG (IAS)

21

2002 2001

Net loss (2,280) (2,873)

Depreciation and amortisation of non-current assets 983 768

Write-down of securities held as current assets 166 425

Changes in deferred taxes (1,252) (1,975)

Change in provisions (104) 20

Change in trade accounts receivable

as well as other current assets 453 (1,216)

Changes in trade accounts payable as well as other

current liabilities 989 1,709

Cash flow from operating activities (1,045) (3,142)

Proceeds from the disposal of non-current assets 25 0

Payments for investments in property, plant and equipment (199) (699)

Payments for investments in intangible assets (1,510) (2,522)

Acquisition of companies 0 (323)

Cash flow from investing activities (1,684) (3,544)

Repayment of loans (934) (246)

Cash flow from financing activities (934) (246)

Net change in cash and cash equivalents (3,663) (6,932)

Non-cash change in cash and cash equivalents (166) (425)

Cash and cash equivalents at the beginning of the period 5,173 12,530

Cash and cash equivalents at the end of the period 1,344 5,173

STATEMENT OF CHANGES IN EQUITY FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2002

a Issued Capital Loss carried Net loss for Total

capital reserves forward the period

Balance at

1 Jan. 2002 5,000,000 19,843,857 (7,577,931) 0 17,265,926

Net loss for the period 0 0 0 (2.279.984) (2,279,984)

Balance at

31 Dec. 2002 5,000,000 19,843,857 (7,577,931) (2,279,984) 14,985,942

CASH FLOW STATEMENT FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2002 (A ‘000)

1. GENERAL INFORMATION

Since 20 July 2000, curasan AG has been a public company

listed within the Geregelter Markt (Regulated Market), for-

mally within the Neuer Market and in future within the

Prime Standard segment, of the Frankfurt Stock Exchange.

The registered office of the Company is in Kleinostheim.

The Company is entered in the commercial register at

Aschaffenburg District Court under reference HRB 4436.

The object of the Company is the production and distri-

bution of drugs, medical products and diagnostics.

curasan AG has prepared its consolidated financial state-

ments in accordance with International Accounting Stand-

ards (IAS) issued by the International Accounting Stand-

ards Committee (IASC). For the financial year under review,

all International Accounting Standards and interpretations

issued by the Standing Interpretations Committee (SIC) and

applicable at the reporting date have been applied. Pursuant

to Section 292a of the German Handelsgesetzbuch (HGB –

German Commercial Code), preparation of the consolidated

financial statements in accordance with internationally

accepted accounting principles exempts the Company from

preparing consolidated financial statements on the basis of

accounting principles generally accepted in Germany.

The consolidated financial statements have been prepared

in euros (a) for the first time. The comparative figures for

the preceding financial year have been translated at the

official exchange rates.

The following legal information is of importance:

At the balance sheet date, the share capital of the Company

amounted to a 5,000,000, divided into 5,000,000 bearer

shares with a nominal value of a 1.00 each.

Subject to the agreement of the Supervisory Board, the

Management Board has a mandate to increase the share

capital in one or more stages in the period up to 30 June

2005 by up to a total of a 2,250,000, through the issue of

new bearer shares against contribution in cash or in kind

(Authorised Capital I). Subject to the agreement of the

Supervisory Board, the Management Board has a further

mandate to increase the share capital in one or more stages

in the period up to 30 June 2005 by up to a total of

a 250,000, through the issue of new bearer shares against

contribution in cash (Authorised Capital II). The Manage-

ment Board has not yet used these mandates to increase

share capital.

Based on a resolution passed by the General Meeting of

Shareholders of 3 July 2000, the share capital can be condi-

tionally increased by up to a 400,000 through the issue of

up to 400,000 shares (Conditional Capital). The purpose of

the conditional capital increase is solely to secure share

subscription rights (so-called stock options) within the

curasan stock option plan 2000. Those holding stock options

are members of the Management Board (20% – 80,000

bearer shares) and employees of curasan AG and its sub-

sidiaries (80% – 320,000 bearer shares). The stock options

granted as part of the Initial Public Offering (IPO) have

lapsed. No further options on shares were granted.

Following a decision by the General Meeting of Shareholders

on 27 June 2002, the Management Board was given a

mandate, subject to the agreement of the Supervisory Board,

to acquire, in the period up to 23 December 2003, in one

or more stages, shares of the Company for purposes other

than trading in its own shares, and to dispose of them again,

even after the end of the above-mentioned period, as a

whole or in part, observing the principle of equal treatment

or in return for the acquisition of companies, providing the

acquisition was in the interest of the Company, or to call

them in without any further decision by the General Meeting

of Shareholders. The acquired shares may not exceed 10%

of the Company's share capital (a 5,000,000). To date, the

Management Board has not made use of this mandate.

In addition to the two members of the Management Board,

the Group employed 121 members of staff on average in

the course of the financial year under review.

Notes to the Consolidated Financial Statements

22

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR 2002

The consolidated entities were included in the scope of

consolidation on the basis of their financial statements as

at 31 December 2002.

2. SCOPE OF CONSOLIDATION

The scope of consolidation for the financial year ended 31

December 2002 includes the parent company curasan AG as

well as the following entities (see below).

curasan AG holds no equity interests other than those held

in entities included in the consolidated financial statements

prepared for the financial year under review.

3. ACCOUNTING POLICIES

3.1 Use of estimates

The preparation of consolidated financial statements requires

management to make assumptions and estimates that

directly affect the amounts reported in the balance sheet

and the income statement. In particular, these estimates

and assumptions apply to provisions, inventories, receivables

as well as deferred tax assets.

3.2 Consolidation

The consolidated financial statements comprise the individ-

ual financial statements of curasan AG and the individual

financial statements of its subsidiaries, which have also

been prepared in accordance with International Accounting

Standards. The date of initial consolidation is the date on

which curasan AG assumed the power to control the enter-

prise. Capital consolidation was performed on the basis of

the purchase method of accounting. Any difference that

cannot be allocated directly to individual assets is carried

as goodwill under intangible assets.

Intragroup receivables and liabilities as well as intragroup

expenses and income have been eliminated as part of stand-

ard consolidation procedures.

Transactions to be included in the consolidated financial

statements have been carried at cost of purchase or con-

version. Unrealised profits resulting from intragroup trans-

actions were eliminated.

3.3 Currency translation

The financial statements of all entities included in the

scope of consolidation have been prepared in euros (a). No

currency translation was required.

3.4 Revenue recognition

Revenue is recognised when the goods or merchandise have

been delivered or when the service has been rendered.

3.5 Goodwill, software, development costs and other

intangible assets

Goodwill arising on acquisition of the subsidiaries has been

capitalised and is amortised on a systematic basis over its

estimated useful life of 7 years using the straight-line

method.

Development costs associated with internally generated drug

approvals have been capitalised. The costs of internally

generated intangible assets are calculated in accordance

with IAS 38 and comprise direct personnel-related

expenditure in addition to overheads directly associated

with the generation of the asset in question. The

Notes to the Consolidated Financial Statements

23

Name and location Ownership interest Date of initial consolidation

curasan Benelux b.v., Barneveld/Netherlands 100 % 31 Dec. 1998

GerontoCare GmbH, Kleinostheim 100 % 31 Dec. 1998

Pro-tec Medizinische Produkte GmbH, Kleinostheim 100 % 01 Mar. 2001

Titanium Innovations GmbH, Kleinostheim 100 % 01 Apr. 2001

depreciable amount of the aforementioned drug approvals

is allocated on a systematic basis over a useful life of 10

years.

Acquired drug approvals are recognised at cost as intangible

assets. The depreciable amount of acquired drug approvals

is allocated on a systematic basis over a useful life of 10

years.

An external appraisal report has been furnished with regard

to the recoverable amount of these intangible assets,

which is an essential element when assessing whether the

carrying amounts at the balance sheet date are impaired.

Based on this information, no impairment losses were

recognised as at the balance sheet date.

Purchased software has been capitalised and is amortised

over its useful life of 3 years.

3.6 Property, plant and equipment

Property, plant and equipment are recognised on the basis

of acquisition cost or production cost less depreciation on

a systematic basis. Additions to property, plant and equip-

ment are written down on a straight-line basis. The depreci-

ation periods follow those periods stipulated by taxation

requirements. Depreciation rates vary from 4% to 25%.

Due to their immaterial nature, items with a purchase cost

of up to a 410.00 are written down fully in the year of

purchase and shown as a disposal in order to avoid a

difference to the accounting requirements stipulated by

the German Commercial Code (HGB).

3.7 Cash and cash equivalents

Cash and cash equivalents as reported in the cash flow

statement comprise cash on hand and bank deposits.

3.8 Trade accounts receivable and other assets

Trade receivables and other assets are carried at the

estimated recoverable amount. In the event of doubtful

accounts, the carrying amount is reduced to its estimated

recoverable amount.

3.9 Inventories

Inventories are measured at the cost of purchase or cost of

conversion. Materials and production supplies as well as

goods are measured at their cost of purchase less an

appropriate deduction. Finished goods are measured at

their cost of conversion. The costs of conversion of

inventories include costs directly related to the units of

production and a systematic allocation of fixed and variable

production overheads that are incurred in converting

materials into finished goods, which includes depreciation

of fixed assets associated with conversion. An applicable

amount of administration overheads is also included. Bor-

rowing costs are not included in the costs of conversion.

The cost of conversion of finished goods is subject to an

appropriate deduction.

Inventories that are unsaleable or obsolete are written

down to the appropriate amount.

3.10 Trade accounts payable and other liabilities

Trade payables and other liabilities are carried at the

amounts payable.

3.11 Short-term liabilities to banks

Short-term liabilities to banks are carried at the amount

payable and are presented in the schedule of liabilities.

3.12 Provisions

The retirement benefit obligation was accounted for in

accordance with IAS 19 using the projected unit credit

method.

Other provisions take into account all liabilities of uncertain

timing or amount. They are carried at the amount that is

deemed appropriate following a reasonable commercial

assessment.

3.13 Deferred taxes

In accordance with IAS 12, deferred tax liabilities are the

amounts of income taxes payable in future periods in respect

of taxable temporary differences. Deferred tax assets are

Notes to the Consolidated Financial Statements

24

the amounts of income taxes recoverable in future periods

in respect of deductible temporary differences, the carry-

forward of unused tax losses and the carryforward of

unused tax credits. Temporary differences are differences

between the carrying amount or liability in the IAS balance

sheet and its tax base. Deferred tax assets and deferred tax

liabilities are measured at the tax rates and laws enacted

by the balance sheet date. The carrying amount of a deferred

tax asset is reduced to the extent that it is no longer

probable that sufficient taxable profit will be available to

allow the benefit of part or all of that deferred tax asset to

be utilised.

curasan AG has considerable corporation tax and trade tax

loss carryforwards, thus resulting in deferred tax assets.

Due to the level of uncertainty as regards the Company's

tax situation, for reasons of caution the Management

Board assumes that the deferred tax asset up to the time

of the Company's IPO will not be utilised. Therefore, no

corresponding assets were recognised. Deferred tax assets

were recognised for losses generated in the period

subsequent to the IPO. Measurement is based on an expected

standard corporation tax rate of 25%. Including the soli-

darity surcharge and the trade tax on earnings, deferred

income taxes were determined at a rate of approx. 38.26%.

In addition, the subsidiaries of curasan AG also generated

tax losses, resulting in the recognition of deferred tax assets.

We have no reason to believe that the carrying amounts of

the aforementioned items are inappropriate. Please note:

Since its IPO, the curasan Group has been generating

operating losses. Taking into account planned increases in

future revenues, curasan AG is expected to reach the break-

even point in the coming financial year. Overall, slight

losses are expected to be recorded by the subsidiaries.

Based on the plans for the Group drawn up by the Manage-

ment Board and approved by the Supervisory Board,

sufficient taxable profit to allow the benefit of part or all

of the deferred tax assets to be utilised is expected to

materialise from the financial year 2004.

3.14 Concentration of risk

Financial risk is mainly associated with trade receivables.

Within the area of trade receivables, accounts payable by

customers located abroad represent a sizeable amount of

overall receivables. The increased risk of default and

concomitant interest losses due to the long terms of

payment has been accounted for by the Company. Within

the area of exporting activities (mainly billing in US dollars)

there are risks associated with currency fluctuations.

Notes to the Consolidated Financial Statements

25

4. NOTES TO INCOME STATEMENT

4.1 Sales revenue and operating income

Operating income (a '000) 2002 2001

Sales revenue 15,092 12,361

Sales deductions (378) (257)

Changes in inventories 88 19

Work performed by the enterprise and capitalised 1,104 799

Other operating income 437 379

Total 16,343 13,302

Notes to the Consolidated Financial Statements

26

4.2 Cost of materials

(a '000) 2002 2001

Raw materials and consumables used, and purchased goods 6,834 4,859

Purchased services 44 83

Total 6,878 4,942

4.3 Staff costs

(a '000) 2002 2001

Salaries and wages 5,388 5,364

Social security 832 814

Total 6,220 6,178

4.4 Depreciation and amortisation

(a '000) 2002 2001

Intangible assets 613 482

Property, plant and equipment 370 286

Total 983 768

4.5 Depreciation and amortisation of current assets

In the previous financial year, these applied to unsaleable goods or obsolete raw materials.

4.6 Other operating expenses

(a '000) 2002 2001

Sales expenses 1,741 1,610

Advertising expenses 767 1,121

Regulatory expenses 519 561

Administrative expenses 2,604 2,352

Total 5,631 5,644

Notes to the Consolidated Financial Statements

27

4.7 Financial income

(a '000) 2002 2001

Other interest and similar income 168 442

Write-down of securities held as current assets 166 425

Interest and similar expenses 166 150

Total (164) (133)

4.8 Tax income

Tax income reported in the income statement comprises the following items:

(a '000) 2002 2001

Current income taxes 0 0

Deferred tax income 1,252 1,975

Total 1,252 1,975

Reconciliation from expected to effective tax income is as follows:

(a '000) 2002 2001

Profit before taxes (3,532) (4,848)

Tax at domestic tax rate (38.26%) 1,351 1,855

Difference due to foreign tax rates (9) (17)

Effect of consolidation accounting (90) 137

Effective tax income 1,252 1,975

5. NOTES TO THE BALANCE SHEET

5.1 Cash and cash equivalents

Cash and cash equivalents comprise short-term fixed-term deposits as well as current account deposits. Cash and cash

equivalents amounting to a 1,192 thousand have been provided as security in connection with a bank loan.

5.2 Securities held as current assets

All fixed-interest securities and participation interests were disposed of over the course of the financial year 2002.

5.3 Trade accounts receivable

(a '000) 2002 2001

Trade receivables attributable to the parent company 1,514 1,528

Trade receivables attributable to subsidiaries 101 12

Total 1,615 1,540

Notes to the Consolidated Financial Statements

28

5.4 Inventories

(a '000) 2002 2001

Materials and production supplies 972 1.311

Finished goods and merchandise 2.641 2.663

Total 3,613 3,974

5.5 Other current assets

(a '000) 2002 2001

Accrued interest income 0 42

Reinsurance 128 115

Tax refund claim 42 120

Other items 232 277

Total 402 554

5.6 Intangible assets and property, plant and equipment

A breakdown of intangible assets and property, plant and equipment is provided in the Fixed Assets Schedule.

5.7 Deferred taxes

The deferred tax assets are the result of tax loss carryforwards of curasan AG and its subsidiaries, with the exception of

GerontoCare GmbH (total of a 3,976 thousand), as well as the effects associated with the elimination of unrealised profits

and losses resulting from intragroup transactions (a 1,057 thousand).

5.8 Liabilities

Liabilities consist of amounts due to banks, trade accounts payable, and other liabilities. As security for the payables due

to banks, land charges have been agreed upon in the amount of a 1,125 thousand, as well as the pledge of a fixed-term

deposit. Details regarding the maturity of liabilities are presented in the schedule of liabilities.

Liabilities (a '000) 2002 Maturity Maturity from Maturity 2001

under 1 year 1 to 5 years over 5 years

Payables due to banks* 1,575 308 1,094 172 2,508

Trade accounts payable 2,259 2,259 0 0 1,676

Other liabilities 1,247 828 419 0 840

Total 5,081 3,395 1,513 172 5,024

* Security: Land charge Pledge/dep.

Notes to the Consolidated Financial Statements

29

5.9 Trade accounts payable

(a '000) 2002 2001

Trade payables attributable to parent company 2,222 1,629

Trade payables attributable to subsidiaries 37 47

Total 2,259 1,676

5.10 Other provisions

The carrying amount of other provisions at the beginning and the end of the reporting period is displayed in the following

schedule:

Breakdown and movements

(a '000) 2002 Utilised Reversal Additions 2001

Staff-related provisions 250 267 69 250 336

Risks of litigation 150 60 0 49 161

Other items 111 144 0 111 144

External year-end accounting costs 71 66 0 71 66

Total 582 537 69 481 707

5.11 Other liabilities

(a '000) 2002 2001

Tax liabilities 289 84

Social security 144 135

Purchase price of interests in enterprises 419 419

Other items 395 203

Total 1,247 841

The purchase price for interests in enterprises is payable within seven years in revenue-related instalments; on the balance

sheet this item is carried under non-current liabilities.

5.12 Retirement benefit obligation

This item consists of a retirement benefit obligation for a member of the Management Board. The obligation has been

reinsured by means of life insurance.

6. OTHER INFORMATION

6.1. Financial instruments

Primary financial instruments in the form of cash, receivables and liabilities are included within the balance sheet. These

financial instruments are, by nature, subject to default and interest-related risks. The Company is mainly exposed to an

increased level of default-related risk in connection with trade accounts receivable – particularly as part of its export

activities. These risks are counteracted by means of credit investigations and systematic dunning procedures (collection of

accounts receivable).

The Company had no derivative financial instruments as at the balance sheet date.

6.2 Other financial obligations

Other financial obligations are attributable to rental and maintenance agreements as well as leasing obligations. These

obligations are due as follows:

(a '000) 2003 2004 to 2007 after 2007 Total

Rental and maintenance agreements 328 785 40 1,153

Leasing obligations 498 442 0 940

Total 826 1,227 40 2,093

6.3 Segment reporting

a) Segment revenues and results

(a '000) Pharma Bio N.A.* Total

Segment revenue 2002 11,004 5,338 0 16,342

Segment revenue 2001 8,159 5,142 0 13,301

Segment result 2002 (1,178) (1,488) (701) (3,367)

Segment result 2001 (2,255) (1,618) (841) (4,715)

(a '000) Germany Abroad N.A.* Total

Segment revenue 2002 14,345 1,997 0 16,342

Segment revenue 2001 11,759 1,542 0 13,301

Segment result 2002 (1,099) (1,567) (701) (3,367)

Segment result 2001 (2,304) (1,569) (841) (4,715)

* N.A. – not allocated

In the financial year 2002, the method used for the calculation of segment results was revised by the Company. The

alterations to this calculation method affect comparability with the previous year, and therefore the previous year's figures

have been recalculated.

Notes to the Consolidated Financial Statements

30

b) Segment assets

(a '000) Pharma Bio Total

Segment assets 2002 8,773 5,622 14,395

Segment assets 2001 9,055 5,113 14,168

(a '000) Germany Abroad Total

Segment assets 2002 11,744 2,651 14,395

Segment assets 2001 11,349 2,819 14,168

6.4 The Management Board

In the year under review, the Management Board comprised:

– Mr. Hans Dieter Rössler, Bessenbach (Chairman)

– Mr. Helmut Trahmer, Worms

Total remuneration for the Management Board amounted

to a 376 thousand in the financial year 2002 (FY 2001:

a 367 thousand, of which a 20 thousand variable).

6.5 The Supervisory Board

In the year under review, the Supervisory Board comprised:

– Dr. Detlef Wilke, Wennigsen (Chairman);

Managing Partner of Dr. Wilke & Partner Biotech

Consulting GmbH, Wennigsen

– Mr. Hans-Günter Niederehe, Mainz (Vice Chairman),

self-employed management consultant

– Dr. Konstantin Rogalla, Hamburg;

Managing Partner at Pflüger, Schulz, Rogalla

Unternehmensberatung GmbH, Hamburg

The Supervisory Board received remuneration in the finan-

cial year 2002 in the amount of a 67 thousand (FY 2001;

a 66 thousand).

The Supervisory Board members are also members of the

following Supervisory Boards and committees:

Dr. Detlef Wilke (Chairman)

– Faustus Forschungs Cie. Translational Cancer Research

GmbH, Leipzig

Mr. Hans-Günter Niederehe

– GenPharmTox BioTech AG, Martinsried, until 31 August

2002

Dr. Konstantin Rogalla

– INSTRUCT AG, Munich

6.6 Directors' Holdings

As at 31Dec.2002, the executive bodies of the company held

the following shares in curasan AG (share volumes in '000):

Notes to the Consolidated Financial Statements

31

Management Board 2002 Additions Disposals 2001

Hans Dieter Rössler 2,300 32 0 2,268

Helmut Trahmer 1 0 18 19

Supervisory Board

Dr. Detlef Wilke 12 0 0 12

The stock options granted to the Management Board and employees at the time of the Company's IPO have lapsed.

6.7 Corporate Governance Code

The Supervisory Board and the Management Board issued a declaration of conformity in accordance with Section 161 AktG

(German Stock Corporation Act) and have made these details permanently accessible to shareholders via the corporate website.

6.8 Disclosures in accordance with WpHG (Securities Trading Act)

In the financial year 2002, the following reports were published in accordance with the WpHG (Securities Trading Act):

6.8.1. (in April 2002)

Pursuant to Section 41 Paragraph 2 Sentence 1 WpHG, Mr. Hans Dieter Rössler, Bessenbach-Keilberg, has informed us

that, as at April 1, he is entitled to 45.25% of the voting rights in the Company.

As at April 1, 2002, the percentage of voting rights in curasan AG belonging to 3i Group plc, London, and to be counted

additionally amounted to 11.72 %. Of the aforementioned figure, 5.87% of the voting rights are to be counted to 3i Group

plc. in accordance with Section 22 Paragraph 1 Number 1 WpHG.

As at April 1, 2002, the percentage of voting rights of 3i Investments plc, London, amounted to 11.74%. Of the afore-

mentioned figure, 11.74% of the voting rights are to be counted to 3i Group plc in accordance with Section 22 Paragraph

1 Number 6 WpHG.

As at April 1, 2002, the percentage of voting rights of 3i Europartners II LP, London, amounted to 5.87%.

As at April 1, 2002, the percentage of voting rights of 3i Europartners II GP Ltd., London, amounted to 5.87%. Of the afore-

mentioned figure, 5.87% of the voting rights are to be counted to 3i Europartners II LP, in accordance with Section 22

Paragraph 1 Number 1 WpHG.

As at April 1, 2002, the percentage of voting rights of 3i Holdings plc, London, amounted to 5.87%. Of the aforementioned

figure, 5.87% of the voting rights are to be counted to 3i Holdings plc, in accordance with Section 22 Paragraph 1 Number

1 WpHG.

Kleinostheim, April 2002 The Management Board

6.8.2. (in April 2002)

As at April 23, 2002, the percentage of voting rights in curasan AG belonging to 3i Group plc, London, and to be counted

additionally moved below the threshold of ten per cent and now stands at 9.86%. Of the aforementioned figure, 4.93%

of the voting rights are to be counted to 3i Group plc., in accordance with Section 22 Paragraph 1 Number 1 WpHG.

As at April 23, 2002, the percentage of voting rights of 3i Investments plc, London, moved below the threshold of ten per

cent and now stands at 9.86%. Of the aforementioned figure, 9.86% of the voting rights are to be counted to 3i Group

plc., in accordance with Section 22 Paragraph 1 Number 6 WpHG.

As at April 23, 2002, the percentage of voting rights belonging to 3i Europartners II LP, London, moved below the threshold

of five per cent and now stands at 4.93%.

Notes to the Consolidated Financial Statements

32

Notes to the Consolidated Financial Statements

33

As at April 23, 2002, the percentage of voting rights belonging to 3i Europartners II GP Ltd., London, moved below the

threshold of five per cent and now stands at 4.93%. Of the aforementioned figure, 4.93 % of the voting rights are to be

counted to 3i Europartners II LP, in accordance with Section 22 Paragraph 1 Number 1 WpHG.

As at April 23, 2002, the percentage of voting rights of 3i Holdings plc, London, moved below the threshold of five per

cent and now stands at 4.93%. Of the aforementioned figure, 4.93% of the voting rights are to be counted to 3i Holdings

plc, in accordance with Section 22 Paragraph 1 Number 1 WpHG.

Kleinostheim, April 2002 The Management Board

6.8.3 (in June 2002)

As at June 14, 2002, the percentage of voting rights in curasan AG belonging to 3i Group plc, London, moved below the

threshold of five per cent, and the aforementioned entity now holds no shares in the Company.

As at June 14, 2002, the percentage of voting rights in curasan AG belonging to 3i Investments plc, London, moved below

the threshold of five per cent, and the aforementioned entity now no longer manages shares in the Company.

Kleinostheim, June 2002 The Management Board

7. DISCUSSION OF MATERIAL DIFFERENCES BETWEEN INTERNATIONAL ACCOUNTINGSTANDARDS AND GERMAN COMMERCIAL LAW WITH REGARD TO PRINCIPLES OFACCOUNTING, MEASUREMENT AND CONSOLIDATION

The consolidated financial statements of curasan AG for the financial year ended 31 December 2002 have been prepared in

accordance with International Accounting Standards (IAS), which, pursuant to Section 292a HGB, exempts the Company

from preparing consolidated financial statements in accordance with the German Commercial Code. The significant dif-

ferences between HGB and IAS accounting principles that are applicable to curasan AG are listed below:

7.1 Deferred taxes for the carryforward of losses pursuant to IAS 12:

Pursuant to HGB, a tax refund claim arising from the carryforward of tax losses may not be capitalised. Pursuant to IAS

12, a tax refund claim should be recognised for the carryforward of unused tax losses and unused tax credits to the extent

that it is probable that they can be utilised.

7.2 Development costs of internally generated drug approvals:

Pursuant to HGB, development costs related to internally generated drug approvals may not be capitalised. In accordance

with IAS 38, they must be recognised as assets if certain requirements are met.

Kleinostheim, 28 February 2003

Hans Dieter Rössler Helmut Trahmer

Fixed Assets Schedule for the Financial Year 2002 (gross analysis)

34

FIXED ASSETS SCHEDULE FOR THE FINANCIAL YEAR 2002 (GROSS ANALYSIS)

Acquisition/Manufacturing Costs

Carried forward Balance

a 1 Jan. 2002 Additions Disposals Reclassifications 31 Dec. 2002

I. Intangible assets

1. Concessions, industrial

property rights and similar

rights and values, as well

as licences thereto 4,945,836.48 1,037,404.77 17,265.04 928,144.49 6,894,120.70

2. Software 285,202.74 3,108.66 0.00 11,543.47 299,854.87

3. Goodwill 1,004,294.47 0.00 0.00 0.00 1,004,294.47

4. Prepayments 1,002,310.36 469,987.23 0.00 (939,687.96) 532,609.63

7,237,644.05 1,510,500.66 17,265.04 0.00 8,730,879.67

II. Property, plant and

equipment

1. Land and leasehold rights

and buildings 1,887,281.08 0.00 0.00 0.00 1,887,281.08

2. Technical equipment, plant

and machinery 103,814.53 30,410.96 854.00 0.00 133,371.49

3. Other equipment, furniture

and fixtures, and office

equipment 1,566,005.50 166,805.54 6,230.00 79,223.34 1,805,804.38

4. Plant under construction 76,957.29 2,266.05 0.00 (79,223.34) 0.00

3,634,058.40 199,482.55 7,084.00 0.00 3,826,456.95

10,871,702.45 1,709,983.21 24,349.04 0.00 12,557,336.62

Fixed Assets Schedule for the Financial Year 2002 (gross analysis)

35

Depreciation and Amortisation Net book value

Carried forward Balance Balance Balance

1 Jan. 2002 Additions Disposals 31 Dec. 2002 31 Dec. 2002 31 Dec. 2001

1,335,225.86 440,991.25 0.00 1,776,217.11 5,117,903.59 3,610,610.63

91,210.93 43,998.41 0.00 135,209.34 164,645.53 193,991.81

225,036.56 127,767.41 0.00 352,803.97 651,490.50 779,257.91

0.00 0.00 0.00 0.00 532,609.63 1,002,310.36

1,651,473.35 612,757.07 0.00 2,264,230.42 6,466,649.25 5,586,170.71

266,860.99 79,447.12 0.00 346,308.11 1,540,972.97 1,620,420.09

59,436.44 11,797.82 0.00 71,234.26 62,137.23 44,378.09

793,292.94 279,063.90 0.00 1,072,357.84 733,446.54 772,712.56

0.00 0.00 0.00 0.00 0.00 76,957.29

1,119,590.37 370,308.84 0.00 1,489,900.21 2,336,556.74 2,514,468.04

2,771,063.72 983,065.91 0.00 3,754,130.63 8,803,205.99 8,100,638.74

Auditor's Report

36

“We have audited the consolidated financial statements, comprising the balance sheet, the income statement, and the statement of

changes in shareholders’ equity and cash flows as well as the notes to the financial statements, prepared by the curasan AG, Kleinost-

heim, for the business year from 1 January 2002 to 31 December 2002. The preparation and the content of the consolidated financial

statements are the responsibility of the Company's executive board. Our responsibility is to express an opinion whether the consolidated

financial statements are in accordance with International Accounting Standards (IAS) based on our audit.

We conducted our audit of the consolidated financial statements in accordance with German auditing regulations and generally

accepted standards for the audit of financial statements promulgated by the Institut der Wirtschaftsprüfer in Deutschland (IDW). Those

standards require that we plan and perform the audit such that it can be assessed with reasonable assurance whether the consolidated

financial statements are free of material misstatements. Knowledge of the business activities and the economic and legal environment

of the Group and evaluations of possible misstatements are taken into account in the determination of audit procedures. The evidence

supporting the amounts and disclosures in the consolidated financial statements are examined on a test basis with the framework of the

audit. The audit includes assessing the accounting principles used and significant estimates made by management, as well as evaluating

the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements give a true and fair view of the net assets, financial position, results of operations

and cash flows of the Group for the business year in accordance with IAS.

Our audit, which also extends to the group management report prepared by the executive board which is a summarised management

report over the actual position of curasan consolidated as well as the actual position of curasan AG for the business year from 1 January

2002 to 31 December 2002, has not led to any reservations.

In our opinion, on the whole the group management report together with the other disclosures in the consolidated financial statements

provides a suitable understanding of the Group’s position and suitably presents the risks of future development. In addition, we confirm

that the consolidated financial statements and the group management report for the business year from 1 January 2002 to 31 December

2002 statisfy the conditions required for the Company’s exemption from its obligation to prepare consolidated financial statements and

the group management report in accordance with German law.

Without qualifying our opinion we point out that the balance sheet includes deferred tax assets of 3,976 (a 000) based on tax losses

brought forward from the parent company as well as individual losses of subsidiary companies. These amounts can only be realised if

the Group business plan is met, which indicates profitability and positive cash flows from 2003 onwards. Furthermore, increased risks

exist in the export market.

Without qualifying our opinion we point out that the liquidity situation of the Group is strained. The business plan prepared by the

executive board indicates the need for additional cash during 2003, which according to management, may be financed by various

alternatives. If these financing alternatives can not be realised and the business plan can not be met, the continuing existence of the

parent company and subsidiaries will be threatened.”

Frankfurt am Main, 13 March 2003

PKF PANNELL KERR FORSTER GMBH

Wirtschaftsprüfungsgesellschaft

W. Hofmann M. Jüngling

Wirtschaftsprüfer Wirtschaftsprüfer

(Certified Public Accountant) (Certified Public Accountant)

AUDITOR'S REPORT

FINANCIAL STATEMENTS OF

curasan AG (HGB)

Financial Statements of curasan AG (HGB)

BALANCE SHEET FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2002 (HGB)

Assets 31 Dec. 2002 a 31 Dec. 2002 (a '000)

A. Non-current assets

I. Intangible assets

1. Concessions, industrial property rights and similar rights

and values, as well as licences thereto 4,575,095.17 2,741

2. Software 164,645.53 194

3. Prepayments 532,609.63 1,002

Total 5,272,350.33 3,937

II. Property, plant and equipment

1. Land and leasehold rights and buildings 1,540,972.97 1,620

2. Technical equipment, plant and machinery 54,671.34 33

3. Other equipment, furniture and fixtures, and office equipment 666,748.15 70

4. Prepayments 0 77

Total 2,262,392.46 2,431

III. Financial assets

1. Shares of subsidiary companies 4,793,207.69 4,793

Total 12,327,950.48 11,161

B. Current assets

I. Inventories

1. Raw materials and production supplies 944,835.71 1,277

2. Work in progress 154,662.33 0

3. Finished goods and merchandise 2,645,214.45 2,723

Total 3,744,712.49 4,000

II. Receivables and other assets

1. Trade accounts receivable 1,513,874.77 1,528

2. Receivables from subsidiary companies 2,072,099.05 1,446

3. Other assets 263,525.33 486

– thereof due in more than one year

141,961.70 a (FY 2001: 131 a ’000)

Total 3,849,499.15 3,460

III. Securities 0 3,575

IV. Cash on hand, deposits at banks 1,278,586.31 1,582

Total 8,872,797.95 12,617

C. Prepaid expenses 61,524.14 79

21,262,272.57 23,857

Financial Statements of curasan AG (HGB)

39

Liabilities and Equity 31 Dec. 2002 a 31 Dec. 2002 (a '000)

A. Equity

I. Issued capital 5,000,000.00 5,000

II. Capital reserves 21,931,203.12 21,931

III. Accumulated loss (11,831,023.07) (8,896)

– Conditional capital a 400 000

Total 15,100,180.05 18,035

B. Provisions

1. Provisions for pensions 195,142.00 178

2. Other provisions 555,760.00 700

Total 750,902.00 878

C. Liabilities

1. Payables due to banks 1,574,609.55 2,508

– thereof due in more than one year

308,149.91 a (FY 2001: 1,007 a ’000)

2. Trade accounts payable 2,221,527.01 1,629

– thereof due in more than one year

2,221,527.01 a (FY 2001: 1,629 a ’000)

3. Payables due to subsidiary companies 497,260.13 13

– thereof due in more than one year

497,260.13 a (FY 2001: 13 a ’000)

4. Other liabilities 1,117,793.83 793

– thereof due in more than one year

699,173.60 a (FY 2001: 375 a ’000)

– of which for taxes

129,283.41 a (FY 2001: 97,629.60 a ’000)

– of which for social security

94,242.02 a (FY 2001: 112,075.65 a ’000)

Total 5,411,190.52 4,944

21,262,272.57 23,857

Financial Statements of curasan AG (HGB)

40

INCOME STATEMENT (HGB) FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2002

31 Dec. 2002 a 31 Dec. 2001 (a '000)

1 Revenue 14,257,293.89 11,854

2 Increase in inventories of finished goods and

work in progress 87,229.05 26

3 Other operating income 1,145,128.90 420

15,489,651.84 12,300

4 Cost of materials

a) Cost of raw materials and supplies and

purchased goods 6,964,135.85 4,779

b) Cost of purchased services 45,396.36 82

7,009,532.21 4,861

5 Staff costs

a) Salaries and wages 4,438,639.93 4,551

b) Social security, pension and other benefit costs 692,439.96 696

– of which for retirement benefits

19,331.79 a (FY 2001: 23 Ta)

(5,131,079.89) (5,247)

6 Depreciation and amortisation

a) of non-current intangible assets and property,

plant and equipment 826,617.22 590

b) of current assets to the extent that they exceed the

corporation's usual depreciation or amortisation 0 485

7 Other operating expenses 5,645,898.80 5,417

8 Income from profit and loss transfer agreement 173,928.25 119

9 Other interest and similar income 356,669.40 442

– thereof affiliated companies

188,7211.71 a (FY 2001: 0 Ta)

10 Write-down of securities held as current assets 166,577.40 426

11 Interest and similar expenses 166,534.18 149

12 Loss from ordinary activities (2,925,990.21) (4,314)

13 Other taxes 8,711.06 8

14 Net loss for the period 2,934,701.27 4,322

15 Loss carried forward 8,896,321.80 4,574

16 Accumulated loss 11,831,023.07 8,896

Notes

41

1. GENERAL INFORMATION

Since 20 July 2000, curasan AG has been a public company

listed within the Geregelter Markt (Regulated Market), for-

mally within the Neuer Market and in future within the

Prime Standard segment, of the Frankfurt Stock Exchange.

The registered office of the Company is in Kleinostheim.

The Company is entered in the commercial register at

Aschaffenburg District Court under reference HRB 4436.

The object of the Company is the production and distri-

bution of drugs, medical products and diagnostics.

As a publicly listed company, curasan AG is defined as a

large corporation, in accordance with Section 267 Paragraph

3 HGB.

The income statement is presented on the basis of the ex-

penses-by-nature method, unchanged from the previous year.

The financial statements have been prepared in euros (a)

for the first time. The comparative figures for the pre-

ceding financial year have been translated at the official

exchange rates.

2. ACCOUNTING POLICIES

Intangible assets acquired against a financial considera-

tion are carried at acquisition cost and amortised using the

straight-line method based on the best estimate of the

useful life of the asset. Within this context, a useful life in

the range from three to ten years has been assumed. The

depreciation periods follow those periods stipulated by

taxation requirements.

Property, plant and equipment are recognised on the basis

of acquisition cost or production cost less depreciation on

a systematic basis. Depreciation is calculated using the

straight-line method. The depreciation periods follow those

periods stipulated by taxation requirements. Depreciation

rates vary from 4% to 25%. Low-value assets as defined by

Section 6 Paragraph 2 EStG (Income Tax Act) are written

down fully in the year of purchase and shown as disposals.

Financial assets are carried at acquisition cost.

Inventories are measured at the cost of purchase or cost of

conversion. Materials and production supplies as well as

goods are measured at their cost of purchase less an ap-

propriate deduction. Finished goods are measured at their

cost of conversion. The costs of conversion of inventories

include costs directly related to the units of production

and a systematic allocation of fixed and variable pro-

duction overheads that are incurred in converting

materials into finished goods, which includes depreciation

of fixed assets associated with conversion. An appropriate

amount of administration overheads is also included. Bor-

rowing costs are not included in the costs of conversion.

The cost of conversion of finished goods is also subject to

an appropriate deduction. Work in progress is measured

pro rata in accordance with the stage of completion.

Inventories that are unsaleable or obsolete are written

down to the appropriate amount.

Receivables and other assets are measured at the lower of

nominal or realisable value at the balance sheet date.

Receivables that are subject to specific risks are written

down on an item-by-item basis. A general bad-debt allow-

ance covers the overall risk associated with trade accounts

receivable.

Cash and cash equivalents are carried at their nominal

values.

Retirement benefit obligations are recognised using the

so-called actuarial "Teilwertmethode" (expense allocated

from date of entry into service) on the basis of an assumed

rate of interest of 6%.

NOTES TO THE FINANCIAL STATEMENTS, FINANCIAL YEAR 2002

Other provisions take into account all liabilities of uncertain

timing or amount. They are carried at the amount that is

deemed appropriate following a reasonable commercial

assessment.

The liabilities are carried at the total amount payable.

3. FOREIGN CURRENCY TRANSLATION

The amounts of receivables or liabilities denominated in

foreign currencies are translated using either the exchange

rate on the day of the original business transaction or the

higher or lower exchange rate at the balance sheet date.

Losses arising from fluctuations in the exchange rate at

the balance sheet date are accounted for accordingly.

4. NOTES TO THE BALANCE SHEET

Changes in non-current assets are reported in a separate

fixed assets schedule.

Independent valuation reports are available confirming the

carrying amounts of significant approval rights included

under intangible assets.

Financial assets include curasan AG holdings, as listed

below.

In order to prevent excessive debt, curasan AG has issued

letters of subordination in relation to curasan Benelux b.v.

and Pro-tec Medizinische Produkte GmbH; they are limited

until 31 March 2003, and it is likely that they will have to

be renewed after this date.

All entities are included as subsidiaries in the consolidated

financial statements as at 31 December 2002, prepared in

compliance with IAS principles and thus falling under the

exemption clause of Section 292a HGB.

The value of the holding in GerontoCare GmbH is based

principally on approval rights held by the aforementioned

entity. The value of these rights is supported by an inde-

pendent valuation report.

All trade receivables are due within one year.

Receivables from subsidiary companies include merchandise-

related as well as financial receivables, incl. interest since

2002, in the amount of a 1,323 thousand (FY 2001: a 828

thousand) due from Curasan Benelux b.v. Financial

receivables due from Pro-tec Medizinische Produkte GmbH

amount to a 723 thousand (FY 2001: a 483 thousand).

All receivables associated with subsidiary companies are

due within one year.

Based on future corporate planning, the carrying amounts

of receivables due from subsidiary companies are assumed

not to be impaired.

Of the other assets, a 142 thousand (FY 2001: a 131

thousand) have a remaining term of more than one year.

At the balance sheet date, the share capital of the Company

amounted to a 5,000,000, divided into 5,000,000 bearer

shares with a nominal value of a 1.00 each.

Subject to the agreement of the Supervisory Board, the

Management Board has a mandate to increase the share

capital in one or more stages in the period up to 30 June

Notes

42

Name and location Ownership interest Equity Net profit / (loss)

curasan Benelux b.v. Barneveld/Netherlands 100 % (1,049) (227)

GerontoCare GmbH, Kleinostheim 100 % 3,707 0

Pro-tec Medizinische Produkte GmbH, Kleinostheim 100 % (629) (257)

Titanium Innovations GmbH, Kleinostheim 100 % 9 (11)

Notes

43

2005 by up to a total of a 2,250,000, through the issue of

new bearer shares against contribution in cash or in kind

(Authorised Capital I). Subject to the agreement of the

Supervisory Board, the Management Board has a further

mandate to increase the share capital in one or more

stages in the period up to 30 June 2005 by up to a total of

a 250,000, through the issue of new bearer shares against

contribution in cash (Authorised Capital II). The Manage-

ment Board has not yet used these mandates to increase

share capital.

Based on a resolution passed by the General Meeting of

Shareholders of 3 July 2000, the share capital can be con-

ditionally increased by up to a 400,000 through the issue

of up to 400,000 shares (Conditional Capital). The purpose

of the conditional capital increase is solely to secure share

subscription rights (so-called stock options) within the

curasan stock option plan 2000. Those holding stock options

are members of the Management Board (20% – 80,000

bearer shares) and employees of curasan AG and its sub-

sidiaries (80% – 320,000 bearer shares).

Following a decision by the General Meeting of Shareholders

on 27 June 2002, the Management Board was given a

mandate, subject to the agreement of the Supervisory

Board, to acquire, in the period up to 23 December 2003,

in one or more stages, shares of the Company for purposes

other than trading in its own shares, and to dispose of

them again, even after the end of the above-mentioned

period, as a whole or in part, observing the principle of

equal treatment or in return for the acquisition of com-

panies, providing the acquisition was in the interest of the

Company, or to call them in without any further decision

by the General Meeting of Shareholders. The acquired

shares may not exceed 10% of the Company's share capital

(a 5,000,000). To date, the Management Board has not

made use of this mandate.

Other provisions mainly include provisions for remaining

holidays (a 82 thousand), bonus payments (a 110 thou-

sand), invoices not yet received (a 80 thousand), litigation

costs and severance pay (a 150 thousand) as well as audit

and consultancy fees (a 65 thousand).

A schedule of liabilities and security provided is included in

the table presented below.

Liabilities in a 2002 Maturity Maturity from Maturity over 2001

within 1 year 1 to 5 years 5 years

Payables due to banks* 1,574 308 1,094 172 2,508

Trade payables 2,222 2,222 1,629

Payables due to subsidiary companies 497 497 13

Other liabilities 1,118 699 419 794

Total 5,411 3,726 1,513 172 4,944

* Security: Land charge, Pledge/dep.

The payables due to subsidiary companies include trade accounts payable due to GerontoCare GmbH, in the amount of

a 490 thousand (FY 2001: receivable of a 134 thousand). Trade payables due to Titanium Innovations GmbH amount to

a 7 thousand (FY 2001: a 13 thousand). All liabilities associated with subsidiary companies are due within one year.

Other operating expenses of a 517 thousand (FY 2001:

a 512 thousand) are attributable to expenses at subsidiary

companies, mainly for the use of drug licences.

The write-down of securities held as current assets to their

fair value at the date of disposal amounted to a 166 thou-

sand (FY 2001: a 425 thousand).

6. EMPLOYEES

In addition to the two members of the Management Board,

the Company employed 95 members of staff on average in

the course of the financial year 2002 (FY 2001: 84).

7. THE MANAGEMENT BOARD

In the year under review, the Management Board comprised:

– Mr. Hans Dieter Rössler, Bessenbach (Chairman)

– Mr. Helmut Trahmer, Worms

Total remuneration for the Management Board amounted

to a 376 thousand in the financial year 2002, of which

a20 thousand variable (FY 2001: a 367 thousand, of which

a 20 thousand variable).

A pension obligation exists for one of the members of the

Management Board; an appropriate pension provision has

been recognised. The allocation for 2002 amounted to

a 17 thousand.

8. THE SUPERVISORY BOARD

In the year under review, the Supervisory Board comprised:

– Dr. Detlef Wilke, Wennigsen (Chairman); Managing Partner

of Wilke & Partner Biotech Consulting GmbH, Wennigsen

– Mr. Hans-Günter Niederehe, Mainz (Vice Chairman),

self-employed management consultant

– Dr. Konstantin Rogalla, Hamburg; Managing Partner at

Pflüger, Schulz, Rogalla Unternehmensberatung GmbH,

Hamburg

Notes

44

Other financial obligations are attributable to rental and maintenance agreements as well as leasing obligations. These

obligations are due as follows:

Obligations (a '000) 2003 2004 to 2007 after 2007 Total

Rental and maintenance agreements 221 571 40 832

Obligations under leases 438 417 0 855

Total 659 988 40 1,687

5. NOTES TO INCOME STATEMENT

The geographical breakdown of sales revenue by region is outlined below.

Revenue (a '000) 2002 2001

Sales revenue Germany 12,680 10,711

Sales revenue Abroad 1,956 1,400

14,636 12,111

Sales deductions (378) (257)

Total 14,258 11,855

Notes

45

In the financial year 2002, the Supervisory Board received

remuneration in the amount of a 67 thousand (FY 2001;

a 66 thousand). The Supervisory Board members are also

members of the following Supervisory Boards and commit-

tees:

Dr. Detlef Wilke (Chairman)

– Faustus Forschungs Cie. Translational Cancer Research

GmbH, Leipzig

Mr. Hans-Günter Niederehe

– GenPharmTox BioTech AG, Martinsried (until 31 August

2002)

Dr. Konstantin Rogalla

- INSTRUCT AG, Munich

9. OTHER INFORMATION

Financial risk is mainly associated with trade receivables.

Within the area of trade receivables, accounts payable by

customers located abroad represent a sizeable amount of

overall receivables. In one case, the local currency of a

customer depreciated. Due to these special circumstances,

an extended term of payment was negotiated. The con-

comitant interest loss has been accounted for. The

Management Board has reasonable assurance to assume

that the level of receivables will decline in the future.

Within the area of exporting activities (billing in US dollars)

there are risks associated with currency fluctuations.

10. CORPORATE GOVERNANCE

The Supervisory Board and the Management Board issued

a declaration of conformity in accordance with Section

§ 161 AktG (German Stock Corporation Act) and have made

these details permanently accessible to shareholders via

the corporate website.

11. DISCLOSURES IN ACCORDANCE WITHWPHG (SECURITIES TRADING ACT)

In the financial year 2002, the following reports were pub-

lished in accordance with the WpHG (Securities Trading Act):

11.1. (in April 2002)

Pursuant to Section 41 Paragraph 2 Sentence 1 of WpHG,

Mr. Hans Dieter Rössler, Bessenbach-Keilberg, has informed

us that, as at April 1, he is entitled to 45.25 % of the voting

rights in the Company.

As at April 1, 2002, the percentage of voting rights in curasan

AG belonging to 3i Group plc, London, and to be counted

additionally amounted to 11.72 %. Of the aforementioned

figure, 5.87 % of the voting rights are to be counted to 3i

Group plc., in accordance with Section 22 Paragraph 1

Number 1 WpHG.

As at April 1, 2002, the percentage of voting rights of 3i

Investments plc, London, amounted to 11.74%. Of the

aforementioned figure, 11.74 % of the voting rights are to

be counted to 3i Investments plc, in accordance with

Section 22 Paragraph 1 Number 6 WpHG.

As at April 1, 2002, the percentage of voting rights of 3i

Europartners II LP, London, amounted to 5.87 %.

As at April 1, 2002, the percentage of voting rights of 3i

Europartners II GP Ltd., London, amounted to 5.87%. Of the

aforementioned figure, 5.87 % of the voting rights are to

be counted to 3i Europartners II LP, in accordance with

Section 22 Paragraph 1 Number 1 WpHG.

As at April 1, 2002, the percentage of voting rights of 3i

Holdings plc, London, amounted to 5.87%. Of the

aforementioned figure, 5.87 % of the voting rights are to

be counted to 3i Holdings plc, in accordance with Section

22 Paragraph 1 Number 1 WpHG.

Kleinostheim, April 2002

The Management Board

11.2. (in April 2002)

As at April 23, 2002, the percentage of voting rights in

curasan AG belonging to 3i Group plc, London, and to be

counted additionally moved below the threshold of ten per

cent and now stands at 9.86%. Of the aforementioned

figure, 4.93 % of the voting rights are to be counted to 3i

Group plc., in accordance with Section 22 Paragraph 1

Number 1 WpHG.

As at April 23, 2002, the percentage of voting rights of 3i

Investments plc, London, moved below the threshold of ten

per cent and now stands at 9.86%. Of the aforementioned

figure, 9.86 % of the voting rights are to be counted to 3i

Investments plc, in accordance with Section 22 Paragraph

1 Number 6 WpHG.

As at April 23, 2002, the percentage of voting rights be-

longing to 3i Europartners II LP, London, moved below the

threshold of five per cent and now stands at 4.93%.

As at April 23, 2002, the percentage of voting rights be-

longing to 3i Europartners II GP Ltd., London, moved below

the threshold of five per cent and now stands at 4.93%. Of

the aforementioned figure, 4.93 % of the voting rights are

to be counted to 3i Europartners II LP, in accordance with

Section 22 Paragraph 1 Number 1 WpHG.

As at April 23, 2002, the percentage of voting rights of 3i

Holdings plc, London, moved below the threshold of five

per cent and now stands at 4.93%. Of the aforementioned

figure, 4.93 % of the voting rights are to be counted to 3i

Holdings plc, in accordance with Section 22 Paragraph 1

Number 1 WpHG.

Kleinostheim, April 2002

The Management Board

11.3 (in June 2002)

As at June 14, 2002, the percentage of voting rights in

curasan AG belonging to 3i Group plc, London, moved

below the threshold of five per cent, and the afore-

mentioned entity now holds no shares in the Company.

As at June 14, 2002, the percentage of voting rights in

curasan AG belonging to 3i Investments plc, London, moved

below the threshold of five per cent, and the afore-

mentioned entity now no longer manages shares in the

Company.

Kleinostheim, June 2002

The Management Board

Kleinostheim, 13 March 2003

Hans Dieter Rössler Helmut Trahmer

Notes

46

Auditor's Report

47

AUDITOR'S REPORT

“We have audited the annual financial statements, together with the bookkeeping system and the management report

which is a summarised management report over the actual position of the group and the actual position of curasan AG,

Kleinostheim, for the business year from 1 January 2002 to 31 December 2002. The maintenance of the books and records

and the preparation of the annual financial statements and management report in accordance with German commercial

law and supplementary provisions in the articles of incorporation are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the annual financial statements, together with the bookkeeping system and

the management report based on our audit.

We conducted our audit of the annual financial statements in accordance with § 317 HGB ("Handelsgesetzbuch”: German

Commercial Code”) and the generally accepted standards for the audit of financial statements promulgated by the Institut

der Wirtschaftsprüfer in Deutschland (IDW). Those standards require that we plan and perform the audit such that

misstatements materially affecting the presentation of the net assets, financial position and results of operations in the

annual financial statements in accordance with German principles of proper accounting and in the management report are

detected with reasonable assurance. Knowledge of the business activities and the economic and legal environment of

the Company and evaluations of possible misstatements are taken into account in the determination of audit procedures.

The effectiveness of the internal control system and the evidence supporting the disclosures in the books and records, the

annual financial statements and the management report are examined primarily on a test basis within the framework of

the audit. The audit includes assessing the accounting principles used and significant estimates made by management,

as well as evaluating the overall presentation of the annual financial statements and management report We believe that

our audit provides a reasonable basis for our opinions.

Our audit has not led to any reservations.

In our opinion, the annual financial statements give a true and fair view of the net assets, financial position and results

of operations of the Company in accordance with German principles of proper accounting. On the whole the management

report provides a suitable understanding of the Company’s position and suitably presents the risks of future development.

Without qualifying our opinion we point out that the balance sheet includes amounts totalling 2,047 (a 000) due from

two group companies. These amounts can only be realised if the planned results and cash flows of these companies are

realised in the future. Furthermore, increased risks exist in the export market.

Without qualifying our opinion we point out that the liquidity situation of curasan AG is strained. The business plan

prepared by the executive board indicates the need for additional cash until October 2003, which according to

management, may be financed by various alternatives. If these financing alternatives cannot be realised and the business

plan cannot be met, the continuing existence of the company will be threatened.”

Frankfurt am Main, 13 March 2003

PKF PANNELL KERR FORSTER GMBH

Wirtschaftsprüfungsgesellschaft

W. Hofmann M. Jüngling

Wirtschaftsprüfer Wirtschaftsprüfer

(Certified Public Accountant) (Certified Public Accountant)

Fixed Assets Schedule for the Financial Year 2002 (gross analysis)

48

FIXED ASSETS SCHEDULE FOR THE FINANCIAL YEAR 2002 (GROSS ANALYSIS)

Acquisition/Manufacturing Costs

Carried forward Balance

a 1 Jan. 2002 Additions Disposals Reclassifications 31 Dec. 2002

I. Intangible assets

1. Concessions. industrial

property rights and similar

rights and values, as well

as licences thereto 3,760,411.85 1,361,732.91 17,265.00 928,144.49 6,033,024.25

2. Software 285,202.74 3,108.66 0.00 11,543.47 299,854.87

3. Prepayments 1,002,310.36 469,987.23 0.00 -939,687.96 532,609.63

5,047,924.95 1,834,828.80 17,265.00 0.00 6,865,488.75

II. Property, plant and

equipment

1. Land and leasehold rights

and buildings 1,887,281.08 0.00 0.00 0.00 1,887,281.08

2. Technical equipment,

plant and machinery 86,712.88 30,410.96 854.00 0.00 116,269.84

3. Other equipment, furniture

and fixtures, and office

equipment 1,469,892.49 149,990.59 6,231.00 79,223.34 1,692,875.42

4. Prepayments 76,957.29 2,266.05 0.00 (79,223.34) 0.00

3,520,843.74 182,667.60 7,085.00 0.00 3,696,426.34

III. Financial assets

1. Investments in subsidiaries 4,793,207.69 0.00 0.00 0.00 4,793,207.69

13,361,976.38 2,017,496.40 24,350.00 0.00 15,355,122.78

Fixed Assets Schedule for the Financial Year 2002 (gross analysis)

49

Depreciation and Amortisation Net book value

Carried forward Balance Balance Balance

1 Jan. 2002 Additions Disposals 31 Dec. 2002 31 Dec. 2002 31 Dec. 2001

1,019,697.19 438,231.88 0.00 1,457,929.07 4,575,095.17 2,740,714.68

91,210.93 43,998.41 0.00 135,209.34 164,645.53 193,991.81

0.00 0.00 0.00 0.00 532,609.63 1,002,310.36

1,110,908.13 482,230.29 0.00 1,593,138.42 5,272,350.33 3,937,016.85

266,860.99 79,447.12 0.00 346,308.11 1,540,972.97 1,620,420.09

53,907.88 7,690.62 0.00 61,598.50 54,671.34 32,805.00

768,878.08 257,249.19 0.00 1,026,127.27 666,748.15 701,014.49

0.00 0.00 0.00 0.00 0.00 76,957.29

1,089,646.95 344,386.93 0.00 1,434,033.88 2,262,392.46 2,431,196.87

0.00 0.00 0.00 0.00 4,793,207.69 4,793,207.69

2,200,555.08 826,617.22 0 3,027,172.30 12,327,950.48 11,161,421.41

In the year under review, the Management Board regularly

provided the Supervisory Board with detailed information,

both in written and verbal form, pertaining to the course

of business and the Company's state of affairs, as well as

all significant developments and events. The Supervisory

Board convened on four occasions; these meetings were

all attended by the full board.

Transactions requiring authorisation were assessed by the

Supervisory Board and discussed with the Management

Board. Within this context, the main focus was on issues

relating to the financing of the parent company and indi-

vidual group entities, as well as the risk management of

the Group. Furthermore, the Supervisory Board held in-

depth discussions with the Management Board regarding

the progression of operating activities, both in Germany

and abroad. As in the past, the Supervisory Board also

discussed the business development of acquisitions carried

out in previous years as well as the profitability of indi-

vidual group entities. In the financial year 2002, no special

committees were established within the Supervisory Board.

Supported by regular reports, the Supervisory Board was

always in a position to make a sound judgement regarding

the commercial and financial state of the Company and

the Group.

The financial statements and consolidated financial

statements for the financial year ended 31 December

2002, as well as the combined management report of the

curasan Group, in conjunction with the accounting records,

were audited by PKF Pannell Kerr Forster GmbH, Wirt-

schaftsprüfungsgesellschaft, Frankfurt am Main (Germany),

as officially appointed auditors, and were granted an un-

qualified audit opinion.

The Supervisory Board examined the financial statements

and consolidated financial statements, as well as the

combined management report, and raised no objections.

In its resolution passed on 13 March 2003, the Super-

visory Board approved the financial statements prepared

by the Management Board and audited by PKF Pannell

Kerr Forster GmbH, Wirtschaftsprüfungsgesellschaft. The

2002 financial statements are thereby adopted. The Super-

visory Board supports the proposal by the Management

Board to carry forward the net loss for the year.

The Supervisory Board would like to express its thanks to

the Management Board and to all employees for their

committed contributions in the financial year 2002.

Kleinostheim, 13 March 2003

The Supervisory Board Dr. Detlef Wilke, Chairman

Report of the Supervisory Board

50

REPORT OF THE SUPERVISORY BOARD

Dr. Detlef Wilke, Chairman

MANAGEMENT BOARD

Hans Dieter Rössler

55 years of age; degree in business administration; CEO and Managing Director since 1988

Helmut Trahmer

47 years of age; degree in business administration (FH); CFO since 2000

SUPERVISORY BOARD

Dr. Detlef Wilke (Chairman)

Managing Partner at Dr. Wilke & Partner Biotech Consulting GmbH, Wennigsen

Hans-Günter Niederehe (stv. Vorsitzender)

Self-employed management consultant, Mainz.

Dr. Konstantin Rogalla

Managing Partner at Pflüger, Schulz, Rogalla Unternehmensberatung GmbH, Hamburg

Board Members of the Company

51

BOARD MEMBERS OF THE COMPANY

The Supervisory Board members

in the background (starting left):

Hans-Günter Niederehe,

Dr. Detlef Wilke,

Dr. Konstantin Rogalla

The Management Board

in the foreground:

Hans Dieter Rössler,

Helmut Trahmer

Anaesthesia: Elimination of pain induced by drugs (either local or general anaes-

thetics).

Anaesthetic: Drug that eliminates the sensation of pain.

Antibiotic: Anti-bacterial drug

Anti-infective: Drug that treats various types of infection (e.g. bacterial, viral and

fungal infections)

Bone regeneration material: Material with all the properties of bone replacement material but

which is also highly porous and is resorbed as the new bone grows.

Bone replacement material: Material that is not toxic (poisonous), immunogenic or allergenic, that

causes neither inflammation nor infection, and is thus suitable to be

inserted either permanently or temporarily at the site of a bone defect.

Fibrinolytics: Drugs that break down (or lyse) blood clots (thrombi or emboli); used

for heart attacks, pulmonary embolism, venous thrombosis and arterial

occlusions.

Generic drugs: Drugs no longer subject to patent protection and which can

consequently be offered at a much lower price.

Generics plus: Generic drugs containing an enhancement to the original preparation.

Hyaluronic acid: Highly viscous mucopolysaccharide; plays an important role in

lubricating joints.

Implantologist: Dentist specialising in implants.

Local anaesthetic: Drug that eliminates the sensation of pain in or from a specific part of

the body.

Opioids: A family of drugs that fights chronic pain; available on prescription only.

Orthopaedist: Doctor specialising in treating congenital or acquired deformities and

functional disorders of the spine and joints.

PRP: Platelet-rich plasma: contains autologous growth factors.

Tissue engineering: The growth of hard and/or soft tissue (skin and bones) in the laboratory.

Traumatology: The study of the causes, prevention and treatment of trauma.

Glossary

52

GLOSSARY

FINANCIAL CALENDAR

25 March 2003 Financial Statements Press Conference

25 March 2003 DVFA Analysts' Conference

13 May 2003 Publication of Interim Report for Q1

26 June 2003 General Meeting of Shareholders

12 August 2003 Publication of Interim Report for Q2

11 November 2003 Publication of Interim Report for Q3

IMPRINT

curasan AG

Lindigstraße 4

D-63801 Kleinostheim

Tel.: ++49 (0) 6027 4686-0

Fax: ++49 (0) 6027 4686-86

info@curasan.de

www.curasan.de

Concept, Text and Design:

ZIEGLER & ZIEGLER IR Consulting GmbH, Hamburg

Contact:curasan AG · Lindigstrasse 4 · 63801 KleinostheimTel. ++49 (0)6027 – 46 86 – 0 · fax +49 (0)6027 – 46 86 – 86info@curasan.de · www.curasan.de

Investor Relations:Ralph WintermantelTel. ++49 (0)6027 – 46 86 – 468 · fax +49 (0)6027 – 46 86 – 86ir@curasan.de