• Turnover up to £2.66 million (2001: £0.33m).

• Operating loss (before goodwill amortisation and impairment) £2.63m (2001: £2.05m loss).

• £450,000 raised by Channelfly via a private placing in January 2002.

• Disposal of Student Broadcast Network ("SBN"), a provider of professional radio programming targeted at the UK’s student audience to Campus Media plc, which made its debut on AIM on Tuesday.

• At Admission to AIM on 26 February 2002, Campus Media had a market capitalisation of £5.3m.

• Channelfly retains a 40.51% stake in Campus Media.

• Channelfly received £600,000 repayment from Campus Media as part of £823,000 inter-company loan from SBN. The remainder of the loan is due for repayment in 2004.

Adam Driscoll, Chief Executive, Channelfly plc Tel: 020 7691 4555

Emma McCaffrey/ Paul McManus, Binns & Co PR Ltd Tel: 020 7786 9600

The year ended 31 July 2001 represented the Group’s first full year of trading on the Alternative Investment Market. It was a financial period that showed strong sales progress, to £2.66 million (2000: £0.33 million) reflecting the various acquisitions made in the last two years and the continued build up of a broadly based multi media music Group, with business streams promoting new music through a variety of media platforms and talent management.

In my last report to shareholders in April 2001 I said that Channelfly was entering the second half of its financial year forecasting growth across all of its business units. More particularly, I indicated that the acquisitions of Stephen Budd Management, Supervision Management and Popex.com had completed the Group’s stable of music production and development facilities and that the task was now to create value from the Group’s estate through cross marketing opportunities and to develop individual business units and intellectual property rights.

The second half of the year and the period between the financial year end on 31 July and my writing this report has seen us make good on that aim in a number of areas.

Nevertheless, we have to acknowledge that a combination of difficult trading conditions and initially over-optimistic forecasts about the rate with which we could deliver growth in acquired businesses has led to the Group not achieving the targets that we set for the financial year.

Whilst the final results are broadly in line with the guidance that the Board gave on 12 July 2001, I remain disappointed that we were unable to achieve all of the goals we set ourselves at the time of Channelfly’s flotation in November 1999.

However, it is easy to overlook the considerable amount accomplished by the Channelfly management team since we floated what was effectively a start-up business in November 1999.

Foremost, we have built Channelfly into a group encompassing a number of distinct but complementary business areas, growing substantial turnover from a number of revenue streams. In recent months, we have also begun to demonstrate how we can derive shareholder value from these businesses and are now beginning to deliver some of the exciting development opportunities that were identified.

In the areas of radio broadcasting and live music promotion we have made considerable strides which are detailed later and we remain confident of the possibilities for us to deliver growth across our businesses.

We have also secured a position at the heart of the UK music industry, developing a recognisable brand and working relationships with all the major and independent record labels in the country.

Naturally, the principal goal is to take the business into profitability – a process that we declared at the time of the flotation would take up to three years. We continue to make progress towards that target.

The consolidated audited profit and loss account for the Channelfly group shows an operating loss before amortisation and impairment of goodwill of £2.63 million for the year ended 31 July 2001 (2000 : £2.05 million). The loss before tax for the year ended 31 July 2001 of £5.40 million (2000 : £2.08 million) reflects the charging of £0.35 million (2000 : £0.11 million) in respect of amortisation of acquired goodwill under the Group’s previously stated amortisation policy, and a further charge of £2.53 million (2000 : £nil) which we have elected to make in relation to one-off write-downs in the carrying value of goodwill in relation to a number of acquisitions.

These acquired businesses were loss-making when acquired by the Group. Whilst the directors have confidence in the longer term sustainability of these businesses, we have recognised that a combination of the initially over optimistic growth forecasts for the acquired businesses, difficult market conditions and the extra time needed for some of our businesses to reach profitability coupled with the fact that these businesses were acquired using our shares when they were more highly valued than they are today, lead us to take the decision to write down the value of some of this acquired goodwill.

It is important to note that all of the businesses to which these write-downs relate were largely acquired using Channelfly’s ordinary shares rather than Group cash balances.

In line with projections outlined at the time of the flotation, no dividends have been paid or are proposed. The retained loss for the year has been funded from reserves.

The trading update given by the Group on 12 July 2001 detailed to a considerable extent the reason for the level of operating losses incurred. Whilst three of our business units exceeded market expectations in terms of revenue growth for the period, three of the business units experienced a shortfall in revenues. Two other business units were within existing market forecasts.

The largest anticipated shortfall was incurred at Channelfly Productions, the Group’s production unit responsible for filming music artists and gathering rights in their material. Sales at SBN (the Student Broadcast Network) our radio division, whilst ahead of target in the first half, fell in the second half. This was as a direct result of well documented difficult trading conditions in the UK radio advertising market. As a consequence, there was an overall annual shortfall against forecast at SBN. Nevertheless, developments at SBN since the year end have enabled the Group to demonstrate that in a difficult market we have still been able to build value in this subsidiary. Details of the disposal of SBN to Campus Media Plc on 26 February 2002 are given below.

In addition to those revenue shortfalls the Group incurred higher than expected costs in relation to a number of areas of its business. Some of those additional costs relate to non-recurring items such as charges associated with converting to digital broadcasting, integration costs resulting from acquisitions and investments relating to the expansion of the Barfly Club business.

The Directors have taken steps to reduce significantly the costs associated with the non-performing business units and also to reduce central overhead costs.

During 2001 we added three businesses to the group – Stephen Budd Management (SBM), SuperVision Management and Popex. SBM has brought substantial turnover (only a small proportion of which falls into the July 2001 numbers reported here) and ongoing revenues from producers working on a diverse spread of projects many of which are bringing chart success. SuperVision has brought us management rights in artists who are generating interest from a number of industry sources and Popex has generated consistent growth in the online medium.

The Fly magazine

The Fly magazine continues to grow its revenues and latest Audit Bureau of Circulation (ABC) figures show that the magazine is maintaining its position as the second highest circulated monthly music magazine in the UK with a circulation of 105,313 copies per issue.

Barfly Club, the original cornerstone of the business, has continued to maintain its position with its London facility seen as a key venue in the UK for showcasing the best emerging artists. In April 2001 we opened a second Barfly venue in Cardiff and added a third in Sheffield in September 2001. Both of these new venues have been highly successful and have multiplied turnover from that division. The Directors remain confident in the Group’s ability to continue to develop the Barfly business and are currently exploring significant opportunities to further extend the Barfly network in 2002.

In spite of difficult trading conditions in the radio advertising market, Channelfly has made considerable strategic advances in relation to SBN, the student radio business. During 2001 we began to implement a strategy that will enable SBN to build a national Digital Audio Broadcast (DAB) network alongside the existing and growing analogue network that is delivered via SBN’s agreements with student stations around the UK. In 2001 SBN was invited to join a consortium with GWR, SMG, The Wireless Group and Carphone Warehouse, amongst others, to bid for a London digital license. As a result of the consortium winning that license SBN has been available London-wide on the London III digital multiplex since January 2002, thereby opening up a new audience of 300,000 London students to SBN’s radio services. In October 2001 SBN came to an agreement with GWR Group, one of the UK’s largest radio businesses which secured carriage for SBN’s services on all of GWR’s wholly owned NOWdigital multiplexes around the UK.

On 26 February 2002 Channelfly disposed of SBN Limited to Campus Media Plc for new shares in that company. The sale had been conditionally agreed at the end of January 2002 but was subject to Campus Media successfully concluding a round of fundraising and listing on the AIM market of the London Stock Exchange. This was achieved with a gross sum of £2.5 million being raised.

Campus Media is led by an experienced management team with a proven track record in the UK radio and media landscape. Following the disposal and placing Channelfly retains a 40.51% stake in Campus Media Plc that, at Admission, had a market capitalisation of £5.3 million. Additionally Channelfly has received £0.6 million from the placing proceeds that are being used to repay part of the £0.8 million inter-company balance that existed between SBN and Channelfly at the point of the disposal. The remainder of the loan is due for repayment in 2004.

The directors of Channelfly consider that this represents a significant achievement in relation to the Group’s investment in SBN, which was acquired by us in February 2000 for £1.3 million in Channelfly shares. The transaction has enabled Channelfly to obtain external investment for the development of SBN and removes the need for Channelfly to fund the ongoing working capital requirements of SBN. With new funding and high profile management in place, SBN now has the potential to rapidly develop into a valuable niche national radio broadcaster.

During 2001 Channelfly led a consortium that has applied for an analogue FM license covering the East Midlands region. The consortium included GWR Group Plc, Mean Fiddler Music Group Plc and the owners of the Rock City venue in Nottingham. It is expected that the Radio Authority will make a decision on the award of this license in the third quarter of 2002.

In January 2002 the Group successfully concluded a placing of new shares with new and existing shareholders raising £0.45 million. The repayment of £0.6 million in relation to the Group’s inter-company balances with SBN Limited as detailed above means that the Group has received over £1 million in additional funding in the first two months of 2002.

These funds will be used to continue the development of the Group’s businesses with the short-term aim of delivering profitability across all of those businesses.

Channelfly remains, in the view of the Directors, a business with strong foundations and massive potential for growth, and we look forward to delivering further upon that potential. I would like to express my gratitude to the staff of all of the Group businesses for their tenacity and loyalty in the face of difficult trading conditions in commercial and financial markets.

ADAM DRISCOLL

Chief Executive Officer

28 February 2002