Interim Report for January through September 2000

11/2/2000 3:59 AM EST

· Net sales totalled KSEK 4,029 (1,182).

· A net result, including financials, for the period of KSEK -83
026 (-34,382) was reported.

· The company has contracts currently valued at MSEK 100 to 150.
The company has MSEK 312 in cash and bank balances.

· During the third quarter, Effnet sharpened its focus on a
technology/software licensing business model. The reason for this focus
is the rapidly growing market for network equipment based on standard
components, as well as proprietary high-end solutions. Effnet's
technology perfectly matches the technology trend for Internet Protocol
(IP) networking and IT security/data protection. The company plans to
provide its router/firewall hardware solutions to third parties such as
Ingram Micro Sverige AB.

· The company recruited a VP sales, marketing & business
development in North America and a VP sales & marketing in EMEA.

· In September, Effnet's wholly owned subsidiary Wkit Security AB
closed its first major deal, marking the successful entry into the
highly concentrated CD-ROM production market (the annual worldwide
market is estimated at 8.9 billion disks). The Danish CD-ROM
manufacturer SDC DanDisc signed a contract to license the SecureIT copy
protection software for its production of CD-ROM media. SDC DanDisc is
the largest manufacturer of audio-visual media in Northern Europe, with
half a million CDs per day production capacity. This licensing agreement
is estimated to generate MSEK 50 over a five-year period.
·
Effnet provides core technologies for Internet Protocol (IP) networking
and IT security/data protection. The company develops, markets sells and
distributes these network technologies designed to resolve bottlenecks
and improve security in communications via the Internet, thereby
creating maximum benefit to the customer. Effnet operates in four
locations: Stockholm, Luleå, Håverud and Silicon Valley (Mountain View,
California). Shares in Effnet Group AB are quoted on the "New Market"
List of the Stockholm Stock Exchange.

To find out more about Effnet, please visit our Web site at:
http://www.effnet.com/


The Evolving Electronic Marketplace
The year 2000 started with a nervous Y2K obsession and proceeded to a
roller-coaster ride on the stock market. The same stocks that a few
months ago were the darlings of the investment community, are now being
criticised for lack of profitability.

Though some semiconductor and systems companies just posted less than
expected results, the outlook for the next few years is encouraging:
according to the Electronics Industries Association of Japan, the global
semiconductor market is expected to rise in value by 20 percent in
calendar 2001 from a year earlier to $250 billion. This is encouraging
news to the
silicon component manufacturers, the buyers of the IP processing
technology that is Effnet's core competence.

With the silicon component manufacturers pressed to reduce costs and
time to market, they can no longer afford the time or overhead of
themselves creating the many IP packet-processing features their
customers specify. They must look elsewhere to acquire this expertise.
And when they look, they see Effnet.

Effnet in the Internet Economy
Effnet brings to market network products, technologies and services that
resolve bottlenecks and enhance security in Internet communications. The
goal is to become a leading provider of core technologies for the
Internet infrastructure.

Effnet offers patented and award winning technologies. During the last
quarter, Effnet has started aligning operations to support the new
business strategy, and is pursuing extensive discussions with technology
and software licensing prospects.

Effnet has identified four initial areas for its IP networking
technology:

1. The network processor market (estimated at $2.8 billion in
2004).
2. The rest of the total programmable communications processor
market (estimated at $16 billion in 2004).
3. The mobile communication market, with Ericsson, Motorola,
Nokia, Samsung, Siemens and others.
4. The router and firewall markets, conservatively estimated at
$14 billion in 2004.

The EffnetEdgetm Toolkit
Effnet offers its technology in the form of the EffnetEdgetm Toolkit
modules and the firewall/router stack. For example, earlier this year,
the Company signed its first round of licensing agreements with leading
independent network processor and communication chip vendors in North
America and Europe.

Three steps are normally involved in a licensing agreement.

1. Effnet's technology is reviewed at the design stage of each
customer's next generation product. After approval Effnet receives a
licensing fee.
2. Effnet's technology is integrated with the customer's product
as the design enters final stages and the product is built.
3. Once the customer's product is launched and sales are made,
Effnet receives a percentage of every sale, generally in the 5 to 15
percent range. This creates an ongoing, building royalty stream of
income for Effnet over the life of that product.

Before the customer adopts the Effnet technology into its products a
thorough analysis is made by the customer to ensure the end user need
for the technology.

New Markets
The recent development of the Effnet technology, e.g. the IP Header
Compression, will extend the customer base comprising broadband and
mobile Internet customers.

The Company's subsidiary, Wkit, continues to sell data security products
and services to customers whose products or networks require extreme
security. One example is the recently closed licensing deal with SDC
DanDisc.

Combining the reach and superiority of Wkit with Effnet's focus on IP
packet processing speed and security, is clearly expressed in Effnet's
keywords Speed, Security, Innovation.

Sales
Effnet's net sales during the period totalled KSEK 4,029 (1,182), which
is an increase of KSEK 2,847 compared with the same period last year.
Effnet's third quarter sales amounted to KSEK 313 (593).

Financial Result
The Group's result after financial items was a deficit of KSEK -83,026 (-
34,382). The result for the third quarter was a deficit of -33,840 (-
12,355).

Sales and marketing expenses have increased by KSEK 522 compared to the
second quarter 2000. Selling and marketing expenses amounted to KSEK
32,304 (13,314).

The costs of product and technology development, reported on a current
basis, amounted to KSEK 27,694 (16,131). Expenses have increased by KSEK
993 compared to the second quarter 2000.

Administrative expenses amounted to KSEK 31,306, an increase of KSEK
1,780 compared to the second quarter 2000.

Financial Position
Effnet's equity-to-assets ratio at 30 September 2000 was 95.5 % (85.9
%). Liquid assets, including current investments, totalled KSEK 311,959
(36,709).

Capital Expenditure
Capital expenditure during the period totalled KSEK 6,473 (1,133),
consisting mainly of computer equipment expenditures.

Personnel
The number of employees at the close of the period totalled 87 (50). The
average number of full time employees at the close of the period
totalled 76 (39).

Outlook for 2000/2001
The near and intermediate term outlook is best assessed via the major
deals under active consideration in our technology licensing business.

· With three licensing deals closed during this year, we still
have an additional half dozen deals under active discussion and more in
earlier stage discussions. Our goal is that one will materialise as a
contract in this fiscal year and that several others will materialise
early next year. The total available opportunity in the processor space
is estimated at nearly $12 billion in 2001, growing to $19 billion for
2004. Effnet's available market can be expected to fall in the $50 to
150 million range in 2004, considerably less in 2001.

· The IP processing opportunity in mobile communications is
clearly huge, but no usable estimates are presently available.

· The firewall and router opportunity that is available to Effnet
through its licensing model is estimated at $25 million in 2001, growing
to $70 million in 2004.

· In the security business, there are several large projects
being actively pursued. Our aim is that at least one of these will be
placed under contract this fiscal year or the first quarter of next
year. The SDC Dandisc contract marks our successful entry into a huge
market. Annually, there are some 8.9 billion data disks produced world
wide that need copy protection. Our customer and several prospects
regard our SecureIT protection scheme as the most secure, easiest to use
and most cost effective protection software available. SecureIT is sold
according to our new business model: revenues are proportional to the
number of disks protected over the lifetime of the licensing contract.
With 15 companies controlling 98 percent of the world wide output, the
CD production market is highly concentrated. This means that a small
company, such as Effnet, can reach and cultivate all the significant
prospects with modest investments in sales and support.

· The goal is to be listed on the O-list by 1Q 2001. We expect to
have all prerequisites in place for submission to the Stockholm Stock
Exchange by 30 November. Among the exchange's requirements is to add
individuals with board experience from Swedish public companies. We have
decided to meet such requirements with individuals with world class
international experience growing high technology companies. We are
currently in final negotiations with several such candidates.

Financial Calendar
Final report for fiscal year 2000 will be released 14 February 2000. The
financial calendar for fiscal year 2001 will be released 30 November
2000.

The Company's auditor has not audited this interim report.

Stockholm, 2 November 2000

Effnet Group AB (publ)

Tony Svensson
CEO

For further information, please contact:

Tony SvenssonPhone: +46-(0)708-33 89 40
CEO

Lars LundeborgPhone: +46-(0)73-920 63 01
CFO




Consolidated Profit and 2000 1999 1999
Loss Account
(Summary) (KSEK '000) January - January - January -
September September December

Net sales 4 029 1 182 2 272
Cost of goods sold - 2 793 - 364 - 714

Gross profit 1 236 818 1 558

Selling expenses - 32 304 -13 314 - 23 395
Administrative expenses - 31 306 - 5 958 - 8 944
Research and development - 27 694 - 16 131 - 21 309
costs
Other operating - 8 893 -26 2 285
income/expenses

Operating result - 98 961 - 34 611 - 49 805

Financial items, net 15 935 229 1 312

Result after financial - 83 026 - 34 382 - 48 493
items

Tax 0 0 93
Minority interest in result 0 0 11
for the period

Result for the period - 83 026 - 34 382 - 48 389



Consolidated 2000 1999 1999
Balance Sheet (Summary) (KSEK 30 September 30 September 31 December
'000)

Assets

Intangible fixed assets 178 296 0 0
Tangible fixed assets 9 208 1 538 1 798
Current assets 15 179 4 255 5 414
Cash & bank balances 311 959 36 709 386 979

Total assets 514 642 42 502 394 191

Shareholders' equity &
liabilities

Shareholders' equity 491 245 36 500 385 922
Minority interest 0 0 58
Provisions 95 95 95
Long term liabilities 500 0 0
Current liabilities 22 802 5 907 8 116

Total shareholders' equity & 514 642 42 502 394 191
liabilities



Consolidated Cash 2000 1999 1999
Flow Statement (KSEK
'000)
January - January - January -
September September December

Cash flow from day-to-day - 71 448 - 33 915 - 48 191
operations
Changes in working capital - 589 - 1588 2 645
Investments - 6 473 - 1 133 - 1 170
Financing 3 489 70 127 428 037
Change in liquid assets -75 021 36 667 381 321



Per-share data (adjusted to reflect 2000 1999 1999
new share issues)
Amounts in KKSEK 30 30 31
September September December

Number of shares at close of period 54 599 100 46 054 525 52 054
525
Average number of shares 52 652 001 38 994 350 42 096 370
Earnings per share - 1.58 - 0.88 - 1.15
Earnings per share after full - 1.42 - 0.84 - 1.08
dilution
Shareholders' equity per share 9.33 0.94 9.17
Shareholders' equity per share after 8.38 0.89 8.58
full dilution