DXN Digitalfx International, Inc.

LAS VEGAS, Aug. 14 /PRNewswire-FirstCall/ -- DigitalFX International, Inc. (AMEX:DXN), a streaming video and digital communications company, announced today its results for the quarter ended June 30, 2008. The Company reported revenue of $3.8 million for the quarter ended June 30, 2008, down from $6.2 million for the same quarter in 2007. In addition, the Company reported a net loss of $1.9 million for the quarter ended June 30, 2007, as compared to a reported loss of $47,000 for the quarter ended June 30, 2007. This equates to a loss per share for the current quarter of ($0.08) on weighted average shares outstanding of 24.9 million. Mr. Craig Ellins, Chief Executive Officer for DigitalFX International, Inc. said, "The Company has taken significant steps to control costs and overhead expenses. We have reprioritized a number of initiatives as we strive for simplification and product solidification. As such, the Company recently revised its personnel structure by reducing resources in non-core areas and enhancing personnel focused on the delivery of our new initiatives. In addition, we have decreased spending on other areas, including outside consultants and legal fees. We expect that our operating expenses will continue to decrease through these ongoing efforts. We believe these changes have not inhibited our ability to deliver initiatives or services. On the contrary, with our restructure, we are completing initiatives at a much quicker pace." "We also reviewed the issues which have stalled our growth this year, including overcomplicating the product offerings and order taking processes delivered to our customer base. We are taking steps to correct these actions." Ellins concluded. The Company reported the following significant actions it has taken or intends to take to drive growth in its subscriber base and revenues: -- In response to market research, we have introduced an enhanced, simplified and potentially more lucrative affiliate compensation plan. This plan is designed to significantly increase acquisition and retention of affiliates through the elimination of upfront costs. -- The launch of new email product with "flash capture" feature is expected in August, 2008. This feature makes our video mail product accessible by Mac users and precludes the requirement to have Microsoft's ActiveX program installed on the user's computer. We believe that with this launch, we have eliminated a major product issue that will in turn increase our customer's satisfaction with the product and reduce technical support costs. -- Launch of expanded retail sales operations focused on the helloWorld(R)-in-a-Box and FirstStream(TM)-in-a-Box products. These product offerings will provide a high quality, private labeled webcam and streaming video service from the respective Studios. During the third quarter of 2008, we expect to market these products to big box retailers as introduced to us through the affiliate network and in turn, drive growth in revenue derived from these sales and through an increase in the helloWorld(R) subscriber base. -- Launched an infomercial campaign of our VMdirect affiliate opportunity. In the third quarter of 2008, we expect to add a special TV promotion that allows users to profit from our services and products for an entry fee of only $29.00 and $9.95 per month with our Web Affiliate program on helloWorld. The Company believes this low cost entry level will encourage people to join our organization quickly and provide a natural upgrade path to more robust packages. -- The launch our Internet Telephony service, helloPhone, onto helloWorld(R) for our customer base is expected in the first part of the fourth quarter of 2008. This service offers virtually an unlimited and free video enabled telephone service to all paying subscribers to use among members. Competitive rates are charged for calls outside the membership base. -- The re-launch of the existing helloWorld(R) site is expected in the fourth quarter of 2008 to include news, weather, and sports video feeds, as well as to allow for extensive user page editing functionality, for increased site stickiness. -- Streamlined customer communications through delivery of new weekly newsletters to our marketing base, delivery of monthly newsletters to our customer base, offering more meaningful weekly news webcasts, and simplified messages within our Affiliate Administration Center. -- Introduced new spam filters, reducing unwanted mail by up to 80%. For the quarter ended June 30, 2008, the Company reported that it had not satisfied the financial covenants included in the Amended and Restated Senior Secured Convertible Notes issued as of November 30, 2007, and such failure constitutes a default under such Notes. About DigitalFX International, Inc. DigitalFX International, Inc. (AMEX:DXN) markets web-based products such as streaming live and on-demand video, video email and digital storage that because of their extremely low cost for the first time brings the next generation Internet revolution to individuals through its http://www.helloworld.com/ website and small and medium-sized businesses via its http://www.firststream.com/ website. The company also markets proprietary communication and collaboration services, and social networking software applications, including its flagship product, called the Studio. For more information about DigitalFX, please visit us at http://www.digitalfx.com/. To receive public information, including press releases, conference calls, SEC filings, profiles, investor kits, News Alerts and other pertinent information, please click on the following link: http://www.b2i.us/irpass.asp?BzID=1407&to=ea&s=0 FORWARD-LOOKING STATEMENTS The information contained herein includes forward-looking statements. These statements relate to future events or to our future financial performance, and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward- looking statements. Examples of forward-looking statements include statements related to additional reductions in operating expenses due to cost cutting measures, steps to be taken to improve growth, and the launch of new products and services. You should not place undue reliance on forward-looking statements since they involve known and unknown risks, uncertainties and other factors which are, in some cases, beyond our control and which could, and likely will, materially affect actual results, levels of activity, performance or achievements. Any forward-looking statement reflects our current views with respect to future events and is subject to these and other risks, uncertainties and assumptions relating to our operations, results of operations, growth strategy and liquidity. We assume no obligation to publicly update or revise these forward-looking statements for any reason, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future. The safe harbor for forward-looking statements contained in the Securities Litigation Reform Act of 1995 protects companies from liability for their forward looking statements if they comply with the requirements of the Act. DigitalFX International, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (In thousands, except share data) June 30, December 31, 2008 2007 Assets (unaudited) Current assets: Cash and cash equivalents $946 $5,319 Accounts receivable 305 50 Inventories, net 571 849 Prepaid bandwidth charges, affiliate 237 51 Prepaid expenses and other assets 627 411 Deferred income taxes, net 360 45 Total current assets 3,046 6,725 Restricted cash - 2,000 Investment in and convertible secured promissory note due from related party - 225 Investments, net 1,026 1,102 Deferred financing costs 400 961 Property and equipment, net of accumulated depreciation and amortization of $747 and $576, respectively 661 628 Deposits, merchant processors 700 789 Other assets 12 12 Deferred income taxes, net 607 1,995 Total assets $6,452 $14,437 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $141 $383 Accrued expenses 878 1,114 Accrued commissions 1,569 1,619 Capital lease obligation, current 44 - Convertible notes payable, net 2,634 - Total current liabilities 5,266 3,116 Capital lease obligation 105 - Convertible Notes Payable, net - 5,600 Total liabilities 5,371 8,716 Commitments and Contingencies Stockholders' equity: Preferred stock, $0.01 par value, 5,000,000 shares authorized, no shares issued and outstanding - - Common stock, $0.001 par value, 100,000,000 shares authorized, and 24,927,710 and 24,919,710 shares issued and outstanding, respectively 25 25 Additional paid in capital 13,006 12,882 Other comprehensive income (loss) 5 (286) Accumulated deficit (11,955) (6,900) Total stockholders' equity 1,081 5,721 Total liabilities and stockholders' equity $6,452 $14,437 DigitalFX International, Inc. and Subsidiaries Condensed Consolidated Statements of Operations (In thousands, except share and per share data, unaudited) Three months Ended Six Months Ended June 30, June 30, 2008 2007 2008 2007 Revenues $3,804 $6,159 $8,621 $12,557 Cost of revenues 693 905 1,693 1,870 Gross profit 3,111 5,254 6,928 10,687 Commission expenses 1,710 2,695 3,526 5,514 Other operating expenses 2,812 2,725 5,274 5,235 Operating income (loss) (1,411) (166) (1,872) (62) Other income (expense): Unrealized loss on investment (51) - (490) - Unrealized loss on investment in company owned by related party (325) (325) Loss on modification of debt - - (1,920) - Financing costs, net (127) - (428) - Other income, net (1) 57 8 127 Other income (expense), net (504) 57 (3,155) 127 Income (loss) before provision for income taxes (1,915) (109) (5,027) 65 Provision (benefit) for income taxes 27 (62) 28 56 Net income (loss) $(1,942) $(47) $(5,055) $9 Net income (loss) per share: Basic $(0.08) $0.00 $(0.20) $0.00 Fully diluted $(0.08) $0.00 $(0.20) $0.00 Weighted average shares outstanding: Basic 24,927,710 23,777,305 24,923,710 23,639,876 Fully diluted 24,927,710 23,777,305 24,923,710 24,044,601 DATASOURCE: DigitalFX International, Inc. CONTACT: Investor Relations: , or Mickey Elfenbein, Chief Operating Officer, DigitalFX International, Inc., +1-702-938-9300 Web site: http://www.digitalfx.com/ http://www.helloworld.com/ http://www.firststream.com/

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