Interim Report 2001 Jan-Sept

11/12/2001 9:09 AM EST

Interim Report for January-September 2001

Effnet focuses according to plan

· Net sales during the nine-month period increased to KSEK 8 018
(4 029).

· The operating result improved to KSEK -85 830 (-98 961) and the
company posted a result after financial items of KSEK -78 606 (-83 026).

· The average negative cash flow per month declined significantly
in the third quarter compared to the first quarter 2001, decreasing by
28% from KSEK -9 174 to KSEK -6 627.

· Liquid assets amounted to KSEK 201 259 at close of the period,
equivalent to SEK 3.66 per share.

· The number of employees totaled 63 (87) at the close of the
period, a decrease of 24 compared to one year earlier.

· Effnet increased its focus on completing products for Header
Compression (HC) for the wireless network, mobile Internet and IP
telephony markets.

· The program for increased organizational efficiency introduced
in the second quarter proceeded. The effects of the actions taken are
despite some lump-sum costs a significantly decreasing burn-rate and a
lower general cost level during the third quarter.

Events after the end of the period

· Norman Rasmussen stepped down as Chairman of the Board of
Directors. Magnus Ryde, an Effnet board member since November 2000, was
elected interim Chairman until the next shareholders' meeting.

· Wkit Security AB announced that the new version of their copy
protection software, Don't Bother Burn, DBB 3.0 for CD-ROM, is ready for
commercial use. The company will now focus on selling the software to
computer game and CD manufacturers.

· Effnet decided to phase-out the IT securities services function
currently offered from Wkit Security AB in Håverud, Dalsland. This
measure is estimated to reduce Effnet's costs by SEK 8.4 million on an
annual basis.

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 focuses on software
development in Robust Header Compression (ROHC), a technology viewed as
becoming essential for providers of IP-based wireless networks. Effnet's
wholly owned subsidiary, Wkit Security, develops copy protection
software. The Effnet group employs approx. 60 persons. 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.

THIRD QUARTER 2001

The Market
The market slowdown encountered by the telecom sector and many network
market participants continued through the third quarter. Customers
postpone decisions around larger license deals even if the interest in
the technology is great. However, the demand for improved accessibility
is still expected to spark a growing need for wireless, mobile Internet

Operations
The hesitant and expectant atmosphere in the marketplace has affected
Effnet`s ability to close deals. In spite of the sluggish market, Effnet
has not pulled back on its product development and completion efforts,
and it continues to approach prospective buyers. This tenacity will
provide Effnet a strong position when the market turns.

Focus on Header Compression (HC)
In accordance with the program introduced at the end of the second
quarter, Effnet has continued focusing resources on the development of
its Header Compression solutions. Effnet believes Robust Header
Compression (RoHC) will be essential for vendors producing an all-IP
wireless community.
Interoperability testing that ended at the beginning of the third
quarter resulted in the successful verification of functionality between
different vendors with completed RoHC implementations. Siemens, Nokia,
Ericsson and Effnet participated in the testing. Effnet was the only
independent vendor that participated in the test that today is selling
its RoHC solution to other manufactures.
During the next few months, Effnet will launch a number of new HC
(Header Compression) products for wireless as well as wired IP telephony
in the frontline of HC- technology. These products will be highly
competitive alternatives to in-house development for any company in the
network and communications infrastructure industries.

Cost-cutting program
The cost-cutting and efficiency program launched at the end of the
second quarter has resulted in a significantly reduced burn-rate as well
as increased focus and more effective utilization of the company
resources.

The negative cash flow per month in the third quarter was 28% lower
than in the first quarter 2001.

Cash flow per month each quarter 2001(KSEK)
1st quarter 2001 - 9 174
2nd quarter 2001 - 8 775
3rd quarter 2001 - 6 627

The lower cost base and improved cash flow combined with an increased
efficiency and productivity in the organization will put the company in
a strong position when the market turns.

The Effnet organization
Effnet has significantly reduced the number of employees compared to
the same period last year. Over a period of one year the number of
employees has decreased from 87 to 63.
Norman Rasmussen, Chairman of the Board of Directors, stepped down
shortly after the end of the quarter. Mr. Rasmussen will remain as a
member of the board, where he has served since November 1998. Magnus
Ryde, an Effnet board member since November 2000, was elected interim
Chairman until the next shareholders' meeting

Wkit Security AB
A new version of the CD copy protection software Don't Bother Burn, DBB
version 3.0, was finalized during the third quarter and launched on
November 7. A number of manufacturers have evaluated and shown
considerable interest in DBB 3.0 and Wkit will begin marketing and
selling the product immediately.
Effnet intends to phase-out the IT securities services function
currently offered from Wkit Security AB in Håverud, Dalsland and focus
on marketing and sales of DBB from Effnet´s Stockholm office. The
measure is estimated to reduce costs by SEK 8.4 million per year and
have a very limited impact on revenues. The closure of operations in
Håverud may cause a need for write-offs during fourth quarter 2001. The
write-off amount is estimated to approx. SEK 3 million.