Interim Report for January-March 2001

Interim Report for January-March 2001 Events during the period · Continued focus on the commercialization of Effnet technology according to the new strategy. · Net sales totaled KSEK 1 075 (1 940). · An operating deficit of KSEK -30 256 (-20 180) and a deficit of KSEK -28 265 (-15 753) after financial items were reported. · Liquid assets amounted to KSEK 247,465. · The number of employees totaled 75 at the close of the period, an increase of 17 compared with same period previous year. · Marika Philipson was appointed CFO and Executive vice president of Effnet Group. · A share option program for all employees that was accepted by an extra general meeting in November 2000 was launched in February. · Events after the close of the period · Effnet has signed a licensing agreement with Agere Systems (former Lucent Microelectronics regarding Effnet's Robust Header Compression (ROHC) technology. This is Effnet's first license agreement in the market for Mobile Internet Communications. · Effnet and University of Arizona announced in April a joint research project in high-performance Internet Protocol (IP) packet forwarding and firewalling for IPv6. · Effnet opened a new research and development facility for advanced technologies for IP in Tucson, Arizona. The Effnet labs will be developing the next-generation IP within Effnet´s technology as well as Multicast IP fast-forwarding. · Örjan Grinndal has been appointed CEO Effnet Group AB. Tony Svensson, previously CEO of Effnet Group AB, has returned to Silicon Valley as full time CEO of Effnet, Inc. Marika Philipson has been named interim CEO until Örjan Grinndal assumes his post on May 7. · Bo Hagerf has been appointed VP of Engineering. His job will be to lead all product development activities within the company, and to coordinate research activities. · Effnet innovates and licenses award-winning key technologies that resolve data speed, efficiency and security challenges in Internet Protocol (IP) networking and IT security. Effnet's modular IP packet processing technology -- the EffnetEdgetm Toolkit -- as well as its complete firewall and router technology for hardware manufacturers, enable optimized performance. The wholly owned subsidiary, Wkit Security, offers data encryption and copy protection technologies, and security audit services for public and private sector companies. With more than 75 employees, the Effnet group operates in Stockholm, Luleå and Håverud, Sweden, and Tucson, Arizona and in Silicon Valley, California. Effnet Group AB shares are traded on Sweden's Nya Marknaden (symbol: EFFN). Read more about Effnet at www.effnet.com. Read about Wkit at www.wkit.com. The development of the network market The emergence of the Internet, as a network of networks, has changed the rules of the game for manufacturers of network equipment. Prior to that, manufacturers of servers, routers, processor chips and related equipment could design and build products that offered varying levels of speed. The market was dominated by LANs (local area networks) and WANs (wide area networks). Manufacturers could offer levels of security that were good enough for the needs of these isolated networks and their users. Through the Internet, all the LANs and WANs instantly became virtually "connected" to each other. Additionally, the ability to view graphics on the formerly text-only Internet created a deep demand on bandwidth. The result is a acute awareness of the need for both efficient speed and optimal data security without sacrifice on either side of the equation. This increasing bandwidth, combined with the growth in broadband communication, exponentially increases the demand for fast and secure Internet access. Over the next few years, electronic commerce, mobile Internet and expansion in broadband use are expected to drive up the number of users and the volume of information on the Internet. As the Internet expansion progresses, new bottlenecks will be discovered that will be difficult to resolve using traditional technologies. These bottlenecks identify some of Effnet's opportunities for business. Furthermore, security aspects will become more important, along with maintaining and improving performance levels. Effnet in the network market Until recently, manufacturers of networking components focused either on speed or on security. Today, the industry is seeing a convergence of these two requirements. Effnet`s solutions are capable of high security without sacrificing performance. In pace with the rapid expansion of broadband and mobile Internet, the Company's technology will become even more attractive. The long-term goal is to become a leading provider of core technologies for the network and communications industries. First quarter 2001 Effnet has during the first quarter experienced an increasing interest in its technology, despite the slowdown affecting companies in the network market. Effnet is negotiating with potential licensees for its technology. Negotiations during the first quarter with Agere Systems (the former Lucent Microelectronics) resulted in a signed contract beginning of April. This is Effnet's first license agreement in the market for Mobile Internet Communications. Effnet´s technology is considered to have great potential on the mobile communications market. Effnet´s Header Compression technology has received a great deal of interest in this market. To assure a position in the frontline of Internet Protocol technology, Effnet opened a research laboratory in Tucson, Arizona. Effnet is also an active participant in a project with the University of Arizona Computer Science Department concerned with research and development of high-performance Internet Protocol (IP) forwarding and fire-walling for IPv6, the next generation IP. Effnet has reinforced its management team in line with the new strategy. Marika Philipson was during the period appointed CFO and executive vice president of Effnet Group. After the close of the period, Örjan Grinndal was appointed CEO of Effnet Group AB. Marika Philipson will act as interim CEO until Örjan Grinndal assumes his post on May 7. Furthermore, Bo Hagerf has been appointed VP of Engineering. Tony Svensson, previously CEO of Effnet Group AB, has returned as full time CEO of Effnet Inc, Silicon Valley. Effnet is involved in a dispute with two former executives and founders of Wkit Security AB, a data security company acquired in 2000. The dispute has to do with certain performance-related clauses in the purchase contract. Financial result Effnet's net sales during the period totaled KSEK 1 075 (1 940). The Group reports an operating deficit of KSEK -30 256 (-20 180). The Group's result after financial items was a deficit of KSEK -28 265 (-15 753). The strengthening of the sales and marketing organization in Europe and North America continued during the first quarter. Selling and marketing expenses amounted to KSEK 9 130 (8 264). The costs of product and technology development, reported on a current basis, amounted to KSEK 9 670 (6 031). The development of Effnet's technology platform is advancing with an increased focus on technology for mobile communications. Administrative expenses amounted to KSEK 10 794 (7 386). The increase reflects the build-up of a full functional organization. Effnet is striving for lower company costs. Total costs decreased significantly in comparison with the fourth quarter of 2000. As planned, all costs increased compared to the first quarter of last year. The main reasons were that the costs in Wkit Security AB were not consolidated into the books the first quarter last year and that Effnet Inc. was in an early development phase. Total depreciation during the first quarter amounted to KSEK -1 043 (- 217) of which depreciation of goodwill was KSEK -487 (0). Financial position Effnet's equity-to-assets ratio at 31 March 2001 was 96.0 % (97.6 %, same period last year). Liquid assets, including current investments, totaled KSEK 247 465 (369 733). Capital expenditure Capital expenditure during the period totaled KSEK 754 (1 164) and consisted mainly of expenditure on computer equipment. Personnel The number of employees at the close of the period totaled 75, which is an increase of 17 persons in comparison with the same period last year (58). The average number of full time employees at the close of the period totalled 72 (48), including 7 (5) in the USA. A new incentive program for employees was launched in February. An Extra General meeting in November accepted the incentive program, which comprised 2,1 million share options. Of the total option program 815 000 options were distributed in February 2001 at strike price 10 SEK per share. Financial calendar Interim report January - June 27 August 2001 Interim report January - September12 November2001 This Interim Report has not been audited by the Company's auditor. Stockholm, 25 April 2001 Effnet Group AB (publ) Marika Philipson Interim CEO For further information, please contact: Marika PhilipsonTel.: +46 (0)708 32 44 56 CFO, Interim CEO Consolidated Profit and Loss 2001 2000 2000 Account (Summary) (SEK '000) Notes Jan. - Jan. - Jan. - March March December Net sales 1 075 1 940 5 091 Cost of goods sold - 1 253 - 496 - 4 365 Gross profit -178 1 444 726 Selling expenses - 9 130 - 8 264 - 51 166 Administrative expenses - 10 794 - 7 386 - 37 067 Research and development - 9 670 - 6 031 - 41 571 costs Items affecting comparability 1 - - -153 129 Other operating -484 57 - 13 726 income/expenses Operating result - 30 256 - 20 180 - 295 933 Financial items, net 1 991 4 427 14 020 Result after financial items - 28 265 - 15 753 - 281 913 Tax 0 0 0 Result for the period - 28 265 - 15 753 - 281 913 Earnings per share, SEK 2 - 0,51 - 0.30 - 5.31 Earnings per share after - 0,51 - 0.30 - 5.31 dilution, SEK Consolidated 2001 2000 2000 Balance Sheet (Summary) (SEK '000) 31 March 31 March 31 December ASSETS Fixed assets Goodwill 18 983 - 19 470 Tangible assets 9 714 2 732 9 575 Financial assets 5 5 5 Total fixed assets 28 702 2 737 29 050 Current assets Inventories 1 043 495 1 262 Current receivables 6 259 8 462 9 672 Investments, interest bearing 212 311 301 197 167 101 Cash and bank balances 35 154 68 536 107 855 Total Current assets 254 766 378 690 285 890 TOTAL ASSETS 283 469 381 427 314 940 EQUITY & LIABILITIES Equity 3 272 209 372 178 300 046 Provisions 95 95 95 Current liabilities 11 165 9 154 14 799 TOTAL EQUITY & LIABILITIES 283 469 381 427 314 940 Consolidated Cash Flow Statement 2001 2000 2000 (SEK '000) Jan. - Jan. - Jan. - March March December Cash flow from day-to-day - 26 999 - 15 544 - 111 899 operations Changes in working capital 229 -2 446 -2 084 Investments - 754 - 1 164 - 7 682 Financing 0 1 804 9 508 Change in liquid assets - 27 524 -17 350 -112 157 Per-share data (adjusted to reflect new 2001 2000 2000 share issues) Amounts in SEK 31 March 31 March 31 December Shareholders' equity per share 4,95 7.15 5,46 Shareholders' equity per share after 4,95 6.78 5,46 full dilution Shareprice per share 3,69 126,00 11,80 Accounting principles and notes The Swedish Financial Accounting Standards Council's (SFASC) standard on interim reporting (RR20) has been used at the preparation of this interim report. The accounting principles used have not been changed in comparison to the principles used in the year-end report 2000. January 1, 2001 a number of new accounting standards came into force. The use of these standards has not meant any recalculation of net result or equity. The use of RR18, Earnings per share, means that the computation of average number of shares has been changed. The company has chosen not to use the new accounting standard on intangible assets from January 2001. No changes have been done regarding accounting estimates . Note 1. Items affecting comparability At year-end 2000 goodwill from the purchase of Wkit Security AB was written down with KSEK -153 129 . The amount was recorded as an item affecting comparability. Note 2. Earnings per share Earnings per share before and after dilution have been calculated from the results according to the income statements. Number of shares used in the 2001 2000 2000 calculations: 31 March 31 March 31 December Average number of shares 54 942 650 52 054 525 53 021 135 Number of shares at close of period 54 942 650 52 054 525 54 942 650 Share options outstanding give no dilution effect for any of the periods. At full utilization of share options 3 799 669 shares would be added at March 31, 2001. Note 3. Change in equity 2001 2000 2000 Amounts in SEK 31 March 31 March 31 December Opening balance 300 046 385 922 385 922 Result for the period -28 265 -15 753 -281 913 New issue - 1 804 195 483 Translation difference 428 205 554 Total equity 272 209 372 178 300 046 ------------------------------------------------------------ This information was brought to you by Waymaker http://www.waymaker.net The following files are available for download: http://www.waymaker.net/bitonline/2001/04/25/20010425BIT01600/bit0001.doc http://www.waymaker.net/bitonline/2001/04/25/20010425BIT01600/bit0002.pdf