Final Results

e-district.net PLC
18 June 2001


PART 1

Embargoed: 07:01 hrs 18 June 2001





                       E-DISTRICT.NET PLC FINAL RESULTS

                    (for the year ended 31 December 2000)



  * Investigations have confirmed substantial overstatement of registered
    users, page impressions and revenues
  * Action being taken against Steven Laitman, former CEO, for damages
  * Detailed review completed of company's strategic assets and marketing
    position based on corrected traffic and usage
  * New strategy to concentrate on delivery of pay-per-play and
    subscription-based interactive community and entertainment products for
    digital television (DTV)
  * Premium voice telephony and mobile phone SMS services to complement DTV
    products
  * Contract extension signed with NTL to launch pay-per-play and similar
    services on their cable DTV platform
  * New contracts signed with ONdigital and Kingston Communications to
    extend services to their terrestrial and ADSL-based DTV platforms
  * Preparing content, community and advertising offerings to take full
    advantage of the future commercial opportunities of enhanced TV services
  * Cash as of 31 May is over £10.5 million with monthly operating costs at
    approximately £200k



Frank Lewis, Chairman and Acting Chief Executive said:



'Despite continued expansion of the company's activities in developing its
interactive television services, and a successful listing in March 2000 on the
Alternative Investment Market, the financial year to 31 December 2000 has
proved extremely difficult. We faced the challenge of a significant downturn
affecting valuations in the technology sector, followed by the discovery of
financial irregularities.



Following this discovery the Board embarked on a detailed review of the
company's strategic assets and its market positioning. A focused strategy has
been developed to exploit fully the company's core competencies in the
delivery of interactive, community and entertainment products for DTV. We are
working with our key strategic partners to deliver a range of new
entertainment services to extend and improve our existing offering. In
addition, we are actively pursing further partnership opportunities with both
platform operators and traditional media content owners.



By embedding our content, community and advertising offerings into the wider
services of our platform partners, we believe we will be well prepared for the
future commercial opportunities presented by the advent of enhanced TV. The
Board has taken steps to ensure that the company's technology, people and
processes are up to the task ahead. We now have a solid foundation from which
to develop the business.'



For further information, please contact:

Graham Prince/Victoria Jackson          020-7457-2345
Gavin Anderson & Company




                             Chairman's Statement



Despite continued expansion of the Company's activities in developing its
interactive television services and a successful listing in March 2000 on the
Alternative Investment Market, the financial year to 31 December 2000 has
proved extremely difficult, due to the discovery of financial irregularities.



Post balance sheet events



The Company announced on 19 February 2001 that it was undertaking a full
investigation, together with its external advisers, into these financial
irregularities.



The Company also announced that it had suspended Steven Laitman, Chief
Executive, with effect from 18 February 2001 and subsequently, on 23 February
2001, an injunction was served on him freezing his assets, and proceedings
were commenced against him for damages. On 28 February 2001, Mr Laitman was
given notice of summary termination of his employment contract with the
Company. Mr Laitman has also been dismissed as a director of the Company.
Additionally, e-district suspended two senior managers within the technical
department, both of whom subsequently resigned.



The Fraud Squad of the Metropolitan Police has been notified and is
investigating.



The Company has received reports from Cap Gemini Ernst & Young and
PricewaterhouseCoopers Forensic Services.



The reports have established the substantial overstatement of registered
users, page impressions and revenues. The investigations have also identified
evidence of collusion within the Company in connection with these
overstatements. No-one implicated in such collusion remains within the
Company.



The investigations have established that revenues were overstated by altering
the Company's internal monthly reports, which showed the level of business
conducted with the Company's sales agencies. In addition, supporting
documentation, both written and electronic, including debtor confirmations
provided to the auditors, was fabricated or altered to substantiate the false
revenue.



Furthermore, a substantial majority of the monies received by the Company's
bankers and recorded in the Company's records as being received from sales
agencies was in fact received from bank accounts linked to Mr Laitman, with
fabricated supporting documentation indicating that such receipts were from
sales agencies. Approximately £980,000 has been received in this way between
(and including) November 1999 and February 2001 and credited against false
trade debtors.



The results of the investigations show that the reported numbers for revenues
have been substantially overstated. The revenues reported in the financial
statements for the 17 months ended 31 December 1999 were £781,571. Based
solely on information obtained from the sales agencies during the
investigation, these revenues were in fact only £96,938. In addition, the
revenues reported in the unaudited half year report for the six months ended
30 June 2000 were £1,038,069. Based on information obtained from the sales
agencies during the investigation, these revenues were in fact only £32,872.



Cap Gemini Ernst & Young was engaged to examine details of current and
historical registered users and page impressions. Historical data on the
Company's databases is only available back to February 2000. Cap Gemini Ernst
& Young carried out a comparative analysis of data on the Company's databases
against the published traffic details in respect of registered users and page
impressions. Its findings were that data contained within the Company's
systems did not reconcile with the published traffic details. Cap Gemini Ernst
& Young was not able to verify the accuracy of the data.



Your Board deeply regrets the significant adverse impact on the Company
resulting from the irregularities and collusion referred to above. The Board
believes that the actions taken in respect of Mr Laitman and the two
implicated senior managers have been decisive.



Prospects and strategy



As soon as was practicable following the discovery of the irregularities
outlined above, the Board, supported by Cap Gemini Ernst & Young, embarked on
a detailed review of the Company's strategic assets and its market positioning
based on corrected traffic and usage. In doing so, the Company has held
extensive discussions with its key strategic platform partners in the UK,
which have demonstrated the success of its entertainment and community
products (currently delivered under the 'LeisureDistrict' brand) in attracting
a significant proportion of their respective user bases. Interactive TV has
been a significant focus for the company since its inception and so this
confirmation was a key element of the review.



Market research conducted by Oftel in July 2000 has shown that games are the
most popular category of interactive service used by digital television ('DTV
') viewers in the UK. According to the Company's systems, 80% of registered
users accessing the Company's services in the four months to 31 May 2001 were
using interactive television in the UK.



A focused strategy has been developed over the past three months in order to
fully exploit the Company's core competencies in the delivery of successful
interactive community and entertainment products for DTV. With over 50% of the
UK population expected to be using DTV by 2003 (Forrester, January 2001), this
represents a major opportunity in terms of value generation.



We are working closely with our key strategic partners, including the UK's two
major cable companies, to deliver a range of exciting new entertainment
services, which will significantly extend and improve our existing offering.
These services are of high quality and are strongly differentiated from other
offerings available via our partners' DTV services. In most cases, they will
be offered to users on a 'pay-per-play' or subscription basis. These will be
complemented by a range of premium voice telephony and mobile phone SMS
services, including messaging services and competitions. It is on this basis
that we expect to be able to generate sustainable, growing revenues over the
coming months.



The Company has developed a detailed product launch plan for the next year and
beyond; a number of announcements will be made over the coming months in
relation to the launch of these products with our partners.  We have also been
active in developing relationships with new partners that will enable the
delivery of our product across DTV and similar platforms in the UK and Europe,
including digital terrestrial, satellite and ADSL services.



The Board has taken steps to ensure that the Company's technology, people and
processes are up to the task outlined above. In particular, the Company has
invested in improved technology infrastructure to ensure that existing service
levels are maintained, new products delivered and detailed logging of user
activity can be captured. In combination with refinement of the Company's
proprietary systems software, this logging will assist greatly in enabling
external validation of usage statistics. The Company's senior management and
operational structures have been restructured in order to maximise efficiency
and ensure that both new and existing processes and controls are fully
effective. As for any business of this type, people are key to success and, in
the course of restructuring, we have significantly augmented our capabilities
through the hiring of key technology and other operational staff. Our overall
headcount remains at around 40 people.



As Chairman, I am full of admiration for the way staff and management at every
level have responded to the difficulties of the past few months and on the
Board's behalf I would like to thank everyone for their dedication and effort.



With over £10.5 million in cash at 31 May 2001, and monthly operating costs of
approximately £200k, your board is determined to drive home its competitive
advantage in order to enhance shareholder value. We are actively pursuing
strategic partnership opportunities with both platform operators and
traditional media content owners to ensure that we are able to achieve our
short, medium and long-term objectives.





Frank Lewis
Chairman
18 June 2001

Chief Executive's Statement





With the notice of termination of employment given to Steven Laitman on 28
February 2001, the Board approved that I should take on the responsibility of
acting CEO. It is your Board's intention that a new CEO be appointed as soon
as practicable and actions are being undertaken to achieve that end.



As noted in my Chairman's statement, the substantial problems outlined have
prompted a review by the Company of the key drivers of our business model.
Cap Gemini Ernst & Young was appointed by us to evaluate the findings of our
review and, in so doing, has carried out detailed analysis of the market for
DTV interactive services, our positioning, key competitors and our revenue
models. It is the Directors' view that:



  * There is an extremely fast-growing global market for interactive DTV
    services, particularly for entertainment and community products, and that
    the UK is presently the leading market in the world for such services. The
    forecast value of all UK interactive DTV services coupled with wireless
    services is forecast to exceed £13 billion by 2005 (Jupiter, 2000), of
    which entertainment, subscription services and premium voice telephony
    services are a significant element.



  * Our key strategic assets in competing in this market include our
    existing relationships with UK platform operators, a large cross-platform
    registered DTV user base and the ability to create compelling interactive
    TV content and functionality. Nevertheless, we must continue to upgrade
    our technology infrastructure and core skills in order to maintain a
    competitive advantage.



  * According to the Company's systems, approximately 304,000 registered
    users of our services were active in the four months to 31 May 2001. The
    number of unique users active in the month has grown by an average
    compound monthly growth rate of 24% in the year to 31 May 2001. These
    figures have neither been independently reviewed nor audited. It is our
    intention to commence external verification of usage statistics and
    external reporting thereon as soon as is practicable.



  * We are one of only a few significant UK players in this space although
    our offering contains many differentiated features, including our
    requirement for each user to register a unique identity and password,
    enabling personalisation of services and offers, and our capability to
    enable those users to interact across different networks and technology
    platforms.



  * The market for advertising on iTV is currently limited and has been
    adversely affected by the fall-off in banner advertising popularity and
    rates on the Internet. In the short term, sustainable revenue is more
    likely to be generated by pay-per-play games, subscription services and
    premium rate telephony services. In the medium to long term, however,
    advertising is likely to be a significant revenue stream delivered through
    an enhanced TV environment, as described below, and driving meaningful
    added value services to existing TV advertisers.





  * Our success over the next twelve months will be strongly dependent on
    maintaining close working relationships with key platform operators in
    order to ensure that new and enhanced products are fully supported and
    marketed, and that the rewards are shared.



  * Our success in the longer term will be dependent on the continued
    success of our platform partners in extending their DTV roll-outs, our
    ability to continue to attract third party developers in creating new
    content for our interactive portal services and our success in migrating
    core elements of our functionality to enhanced TV applications (i.e. the
    delivery of interactive services such as chat, synchronised and displayed
    on-screen simultaneously with broadcast television programming).



We have worked with Cap Gemini Ernst & Young in developing a strategy for
success based on these findings and, over the course of the past three months
have achieved considerable success in executing the first legs of this
strategy.



Strategic partners



As noted in my Chairman's statement, we have developed much closer working
relationships with our existing key platform operator partners, encompassing
carriage and joint marketing of new and existing products, including
pay-per-play games and similar services. On 15 June 2001, we extended our
contract with NTL formalising such a relationship. We are also in advanced
discussions with a second major UK cable platform operator. Finally, we have
signed new contracts with ONdigital and Kingston Communications, to extend our
services to their respective terrestrial and ADSL-based digital television
platforms. These contracts were signed on 16 May 2001 and 26 January 2001
respectively.



We continue to provide interactive content for a number of US cable companies
and for the Sega Dreamcast games console platform through arrangements with
Worldgate Communications and Planetweb in the US. It is, however, our
intention to concentrate our efforts in the burgeoning UK market over the
balance of the year and we are pursuing further distribution and marketing
arrangements with UK DTV platform operators. We are also in discussions with
several European platform operators with a view to launching non-English
language products in 2002.



Our partnership model is being extended to include third party content
developers and technology vendors. Over the course of the year, we have worked
with a leading developer of educational CD-ROMS, books and similar products,
to create a range of 'edutainment' content for launch on interactive TV. We
expect to build many more similar partnerships focusing on the delivery of iTV
entertainment content based on well-known brands and characters.


Product development and related revenue streams



While the company continues to operate a PC Internet service, it is clear
that, based on corrected usage information, this represents a declining
proportion of our total registered user base. We do not believe that a
relatively small-scale entertainment website product can be profitable,
because the demand for banner advertising has fallen, and creating content
that can be charged for is difficult in the PC arena, which offers a glut of
free services.



Accordingly, product development is focused on core entertainment and
community properties which recent trends have indicated are commercially
viable within the specialised DTV market and which can be monetised via a user
payment model.  We are moving rapidly to launch a suite of premium single and
multi-player games on a cross-platform basis, which will sit within and
alongside our existing LeisureDistrict service. A unified payment mechanism
has been developed for this purpose, which will be complemented by integrated
billing in conjunction with partners as their respective technologies allow.



In addition, our successful moderated chat products are in the process of
being re-engineered as a segmented range of free and premium offerings
providing a mixture of special interest 'channels' with supporting user
profile and instant messenger features. We will also shortly be launching a
range of premium voice telephony and SMS products which range from simple
novelty lines to sophisticated voice and mobile services, all fully integrated
with our community functionality.



By concentrating on revenue streams, which recent trends indicate are
commercially viable in the wider DTV market, and enhancing successful elements
of our existing service to create new revenue-generating opportunities, we
expect to minimise our exposure to fluctuations in the advertising market.
Nevertheless, we believe that the advertising opportunities represented by
interactive TV are substantial. Accordingly, we have formed a creative team
capable of cost-effectively producing encapsulated interactive TV environments
(known as 'microsites') for advertisers. We have developed a means of
targeting delivery for a range of ad formats across different platforms,
providing an attractive mixture of reach, targeting and affordable production
costs to advertisers. Later in the year, advertisers will be able to capture
data provided by users within our microsites as a means of response-based
advertising and market research.



It is vital that we fuse our content, community and advertising offerings and
embed them as deeply as possible into the wider offerings of our platform
partners. In so doing we will be well-prepared for the advent of enhanced TV
services, combining interactive services such as those outlined above with
ordinary television programmes. This will signal another dramatic wave of
growth and change and represents a huge commercial opportunity.



Technology, people and processes



As noted in my Chairman's statement, the company has invested in its
technology infrastructure in order to cater for growth, improve the breadth of
our service and provide improved measurability for all interested parties.



We have recently completed a project with Cap Gemini Ernst & Young's UK
technology team to lay the foundations for the continued development of our
systems software in order to ensure that we can maintain a scalable and
flexible technology base in the support of new product development.



Our ability to capture, store and report on large quantities of usage data has
been greatly enhanced. This will enable more complete logging of user activity
on the service and, in conjunction with an ongoing effort to rationalise the
company's software infrastructure, we expect this to enable external
verification of several key performance metrics. It will also enable us to
provide important information for advertisers and partners, including average
user session durations, as well as valuable management information. This work
has already started and we are now in the process of evaluating providers of
verification services in order to commence external reporting thereon as soon
as is practicable.



A significant restructuring process has been undertaken with a view to
strengthening the company's operational management layer and addressing
certain skill gaps in relation to our strategy going forward. This
restructuring has been carried out in concert with an internal business
process re-engineering initiative. Although there has been little impact on
the company's overall headcount, there has been a significant re-definition of
functional grouping within the business and individual roles and
responsibilities. This has improved internal communication and the
effectiveness of the company's system of internal controls.



We recognise that the company's top-level management must be augmented and
re-organised in order to meet the challenges ahead. This process is underway
and announcements will be made in due course.



Conclusions



It has been a difficult period. After our flotation in March 2000, our shares
were caught in the significant downturn that affected valuations in the
technology sector. This downturn continued right through to the discovery of
irregularities and consequent suspension of our shares.



Since that time, however, huge progress has been made in identifying the way
forward for the company and in creating and executing a plan to realise this
strategy. Alongside this, key organisational and technical infrastructure has
been put in place. We now have a solid foundation from which to develop the
business so as to capitalise on the opportunity represented by entertainment
and community services deliverable through DTV in accordance with the strategy
outlined above.









Frank Lewis
Acting Chief Executive
18 June 2001






Profit and loss account for the year ended 31 December 2000


                                           Year ended 31     17 months ended 31
                                           December 2000          December 1999
                                                                     (restated)
                               Note                    £                      £
Turnover                         2                39,703                 96,938
Cost of sales                                  (252,979)              (116,564)
Gross loss                                     (213,276)               (19,626)
Operating expenses               3           (2,626,130)              (368,276)
Operating loss                   4           (2,839,406)              (387,902)
Interest receivable              7               646,553                  4,305
Loss on ordinary activities                  (2,192,853)              (383,597)
before taxation
Tax on loss on ordinary          8                     -                      -
activities
Loss for the financial year     17           (2,192,853)              (383,597)

Loss per 10p share
- basic and diluted              9                (2.9p)                 (0.9p)



The results for the periods above are derived entirely from continuing
operations.



There is no difference between the loss on ordinary activities before taxation
and the loss for the periods stated above and their historical cost
equivalents.



Statement of total recognised gains and losses




                                 Notes      Year ended 31    17 months ended 31
                                            December 2000         December 1999
                                                        £                     £
For the year ended 31 December
Loss for the period                           (2,192,853)             (383,597)
Total recognised loss for the                 (2,192,853)             (383,597)
period
Prior year adjustments           1, 17          (444,656)                     -
Total losses recognised since                 (2,637,509)             (383,597)
last annual report




Balance sheet as at 31 December 2000


                                                             2000         1999
                                                                    (restated)
                                                Note             £           £
Fixed assets
Intangible assets                                10         33,829      62,818
Tangible assets                                  11        828,472      94,916
                                                           862,301     157,734
Current assets
Debtors                                          12        440,713      49,580
Cash at bank and in hand                                12,598,041      89,884
                                                        13,038,754     139,464
Creditors - Amounts falling due within one year  13    (1,062,253)   (224,300)

                                                       
Net current assets/(liabilities)                        11,976,501     (84,836)
Total assets less current liabilities                   12,838,802       72,898
Provisions for liabilities and charges           15       (94,016)            -
Net assets                                              12,744,786       72,898
Capital and reserves
Called up share capital                          16      7,675,807          86
Share premium account                            17      7,033,171     456,409
Capital redemption reserve                       17        455,331           -
Profit and loss account                          17    (2,419,523)    (383,597)
Equity shareholders' funds                       19     12,744,786      72,898



The financial statements were approved by the board of directors on 18 June
2001 and were signed on its behalf by:


F Lewis                                                       E A Abrams
Chairman                                                      Finance Director
                      


Cash flow statement for the year ended 31 December 2000


                                               Year ended 31 17 months ended 31
                                               December 2000     December 1999
                                                                     (restated)
                                       Note                £                 £
Net cash outflow from operating         21       (1,868,265)          (168,947)
activities
Returns on investments and servicing
of finance
Interest received                                   617,774              4,305
Net cash inflow from returns on                     617,774              4,305
investments and servicing of finance
Taxation                                            (20,682)                 -
Capital expenditure and financial
investment
Purchase of tangible fixed assets                  (914,440)           (15,047)
Net cash outflow from capital                      (914,440)           (15,047)
expenditure and financial investment
                                                   
Acquisitions
Purchase of assets and trade                               -          (200,966)
Net cash outflow for acquisitions                          -          (200,966)
Net cash outflow before management of            (2,185,613)          (380,655)
liquid resources and financing
                                                 
Management of liquid resources
Increase in short-term deposits with    23      (12,474,309)                 -
banks
Financing
Issue of ordinary share capital                   16,446,547           500,056
Expenses of share issue                          (1,738,733)           (43,561)
Repayment of loan                                   (14,044)                 -
New loan                                                   -            14,044
Net cash inflow from financing                    14,693,770           470,539
Increase in cash in the year            22            33,848            89,884

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