Unaudited Condensed Consolidated Interim Statements of Cash Flow For the six months ended 31 December 2015

Transcription

1 Unaudited Condensed Consolidated Interim Statements of Cash Flow For the six months ended 31 December 2015 Cash flows from operating activities 6 months ended 6 months ended Year ended 31 December 31 December 30 June US$ US$ US$ Net Income/(Loss) 1,115,586 (858,844) 257,493 Depreciation and amortisation 861, ,862 1,463,013 Income tax expense 23,561 33,469 73,239 Stock Options Plan charge 273, , ,092 Fair value difference on warrant - - (301,555) Adjustment to reconcile net income to net cash provided by operating activities: Changes in assets and liabilities: Accounts receivable (12,832) 1,893,303 83,452 Related party receivables (246,244) (1,716,166) (127,168) Prepayments and other assets (26,473) (192,085) 63,836 Accounts payable (399,879) (667,272) 1,096,280 Related party payables 177, ,200 Other liabilities 206,151 1,397,225 31,655 Deferred tax - net ,949 Net cash generated from operating activities 1,972, ,581 3,951,486 Cash flows from investing activities Acquisition of DSC business (440,000) - - Purchases of intangible assets (54,031) (381,156) (2,229,337) Purchases of computer and office equipment (123,352) (337,108) (311,103) Net cash used in investing activities (617,383) (718,264) (2,540,440) Cash flows from financing activities Revolving line of credit (1,721,825) (432,828) 775,617 Proceeds from exercise of share options - 46,800 46,840 Buy back of treasury shares (59,307) - - Dividend paid (1,132,930) (358,303) (992,604) Net cash used in financing activities (2,914,062) (744,331) (170,147) Net (decrease)/increase in cash (1,558,777) (524,014) 1,240,899 Cash at the beginning of the period 2,150, , ,581 Cash at the end of the period 591, ,567 2,150,480 Supplementary disclosures of Cash Flow Information Cash paid during the period for interest 88,591 41,387 64,524 Cash paid during the period for income tax The accompanying notes are an integral part of these condensed consolidated financial statements.

2 Notes to unaudited condensed consolidated interim financial statements 31 December 2015 (1) Nature of business Group and its operations Digital Globe Services, Ltd. (DGSL or the Company ) was incorporated in Bermuda on 9 November 2012 and admitted to the Alternative Investment Market (AIM) of the London Stock Exchange on 14 February The registered office of DGSL is located at 27 th floor, Millbank Tower, Millbank London SWIP 4QP. DGSL serves as a holding company for a global portfolio of companies in the internet based advertising and related technology business. DGSL has subsidiaries in the United States, Cyprus, Netherlands, Ireland and Pakistan. DGSL also owns and maintains the intellectual property (technology, brand name) associated with the business. "The Group" refers to DGSL and its subsidiaries. The Group is comprised of the Company and following subsidiaries: Subsidiary Location Nature of business Ownership at 31 December 2015 Digital Globe Services, Inc. USA Internet marketing for residential cable services 100% Telsat Online, Inc. USA Internet marketing for non-cable telco services 100% DGS Worldwide Marketing Limited Cyprus Holding company and global marketing (inactive) 100% DGS (Pvt.) Limited Pakistan Call centre and support services 100% DGS Worldwide BV Netherlands Global marketing 100% DGS Tech, Limited Ireland Tech support services 100% DGS EDU LLC USA Lead generation in the Education industry * DGS Auto LLC USA Motor vehicle licensing 100% DGS Lakeball LLC USA Internet marketing for commercial cable services 100% 7 Degrees LLC USA Digital marketing agency 100% * owned indirectly through Digital Globe Services, Inc. Digital Globe Services, Inc. (DGS, Inc.) US Digital Globe Services, LLC was formed on 23 May 2008 as a Delaware (US) entity and subsequently converted to a corporation (DGS, Inc.) in February The company provides a flexible and robust technology platform that enables digital directed marketing support to a variety of clients in the US. The company s major focus has been in the cable industry. The company manages web sales portals for clients in the US and drives consumer visits to these channels through internet based advertising as well as mobile click to call advertising. DGS, Inc. was previously owned by TRG Holdings, LLC (a US based subsidiary of The Resource Group International Limited (TRGIL)). As part of a group reorganisation, TRG Holdings, LLC sold its ownership in DGS, Inc. to TRGIL on 1 December 2012 for a consideration of $127,400. TRGIL transferred the shares in DGS, Inc. to DGSL in exchange for shares of the same value in DGSL. DGSL further transferred those shares to DGS Worldwide Marketing Limited (DGSML) in exchange for shares in DGSML. Assets and liabilities of DGS, Inc. were recognised in the consolidated financial statements at their carrying values (at the date of transfer) as the exchange took place between entities under common control. Telsat Online, Inc. (Telsat) US Telsat Online, LLC was formed by DGS, Inc. in October 2010 as a Delaware (US) entity. Effective February 2011, Telsat Online, LLC was converted into a corporation (Telsat Online, Inc.). Telsat provides the same services as DGS, Inc. to non-cable customers. As part of the Group reorganisation, DGS, Inc. sold its ownership in Telsat to TRGIL on 30 November 2012 for a consideration of $2,600. TRGIL transferred the shares in Telsat to DGSL in exchange for shares of the same value in DGSL. DGSL further transferred those shares to DGSML in exchange for shares in DGSML. Assets and liabilities of Telsat were recognised in the consolidated financial statements at their carrying values (at the date of transfer) as the exchange took place between entities under common control. On November 16, 2015 Telsat acquired call center assets and affiliate relationships from DSI Distributing, Inc. an Indiana corporation, for a purchase consideration of $440,000, specifically to further develop the client relationship with DirecTV. Refer to note 7 for details. DGS Worldwide Marketing Limited (DGSML) Cyprus DGSML was incorporated by DGSL in November DGSML is engaged in global marketing of DGS, Inc. DGSML also procures back office services for DGS, Inc. under a global services agreement. The operations of DGSML were closed on 26 June 2013 and transferred to DGS BV. Furthermore, the shares in DGS Inc. and Telsat were sold to DGS Worldwide BV (DGSBV) on 1 July 2013 at a value of $1. (Entity is currently inactive) DGS (Pvt.) Limited (DGSPL) Pakistan DGSPL was incorporated by DGSL in October DGSPL provides call centre and other back office services to DGSBV under a global services agreement. After the incorporation of DGSPL, all the employees who were in service agreement with TRG (Private) Limited (an associated company at that time) and working on DGS, Inc. business were employed by DGSPL on 1 December DGS Worldwide BV (DGSBV) Netherlands DGSBV was incorporated by DGSL in June DGSBV is engaged in global marketing of DGS, Inc. DGSBV also procures call centre and other back office services for DGS, Inc. under a global services agreement. DGS Tech, Limited (DGSTL) Ireland

3 DGSTL was incorporated by DGSL in June DGSTL is engaged in tech services of DGS, Inc. DGSTL also procures other back offices services for DGS, Inc. under a global services agreement. DGS EDU LLC (DGS, EDU) US The Education business of Ampush Media was acquired by the Group on 31 October A separate entity was formed (DGS EDU LLC) to acquire the assets and trading business. DGS Auto LLC (DGS, Auto) US DGS Auto was incorporated on 11 March DGS Auto provides motor vehicle registration for residents in partnership with the State of California Department of Licensing. DGS Lakeball LLC (DGS, Lakeball) US DGS Lakeball LLC was incorporated on 12 May 2015 in Delaware. DGS Lakeball, also known as ClearConnect, purpose is to procure and sell commercial leads for DGS Inc. core cable customers. DGS 7 Degrees LLC (DGS, 7 Degrees) DGS 7 Degrees LLC was incorporated on 13 September 2015 in Delaware to serve as a mobile first digital marketing agency specializing in the delivery of outsourced online customer, lead, app install and engagement acquisition across social and search platforms primarily to small and medium sized businesses. (2) Summary of significant accounting policies (a) Statement of compliance and basis of presentation The accompanying condensed unaudited consolidated half year financial statements consolidate the results of the Company and its subsidiaries (together referred to as the Group). They have been prepared in conformity with accounting principles generally accepted in the United States of America (US GAAP). The accounting policies have been applied consistently to all periods presented in the unaudited consolidated financial statements. The amounts presented are in United States Dollars ($). (b) Going Concern The Group is continuing to establish itself as the leading international provider of outsourced online customer acquisition services, through its focus on having the premier technology platform for pricing and procuring digital advertising on a cost effective basis. The Group s global profile, together with its ability to innovate and diversify, provides it with a firm foundation for ongoing success. This was demonstrated in the first half of the 2016 fiscal year where, through operational discipline, cost control and execution, we were able to have the best six month revenue performance in the history of the company, as well as the best EBITDA performance. The Group s net profit for the period was $1.1 million (2014: loss of $0.9 million). As at 31 December 2015 the Group had net assets of $11.7 million (2014: $10.3 million) and net current assets of $5.8 million (2014: $5.3 million). The Group net cash position has strengthened considerably since the beginning of the year. DGS finished the six months with $0.521 million in cash, vs cash of $0.358 million and an additional $2.93 million of available capacity on the line of credit. The Board has reviewed cash flow forecasts up to and including the period to 31 December These forecasts take into account revenue, which has already been contracted, and revenue which is expected to occur as a result of ongoing negotiations and business development/marketing initiatives. Additionally, the forecasts were stress-tested under various scenarios should any losses in clients or revenue occur, and confirmed that the company is viable and will continue under a variety of circumstances. The Directors believe there is sufficient cash to pay all of our liabilities as they fall due. All financial covenants are forecast to be satisfied over the period and have been certified by our existing financial partner. The Group is well placed to manage business risk effectively and the Board reviews the Group s performance against budgets and forecasts on a regular basis, to ensure action is taken where needed. Our current banking facility is set to renew on April 1, 2016 and anticipate increasing the total capacity of the line to $4 million for more flexibility should acquisition opportunities arise and to cover increases in working capital as revenues continue to expand. The directors fully expect to continue the relationship into 2017 at existing or more favorable terms. The bank has expressed interest to keep the line in place and would like to continue to expand our relationship. In the process of moving to our existing lender, DGS had engaged multiple financial institutions, all of whom showed strong interest in working with DGS. The DGS Group has multiple options in ensuring there is sufficient financial backing to support the ongoing concern. The Directors therefore are confident that the Group has adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in the preparation of accounts. (c) Principles of consolidation The unaudited consolidated financial statements include the financials of DGSL and its subsidiaries. All significant intercompany balances and transactions have been eliminated on consolidation. (d) Revolving line of credit On 31 March 2015, DGS, Inc. entered into an agreement with Heritage Bank whereby DGS, Inc. and DGS EDU were granted a revolving line of credit loan facility to be used for working capital and general business purposes. The maximum balance outstanding cannot exceed $3 million. The Facility is a receivables finance facility secured by a charge over the assets of DGS Inc. and DGS EDU LLC. The Facility is a senior, secured working capital, demand note with an interest rate of the greater of The Wall Street Journal (WSJ) Prime Rate or 5.75%, for a period of one year ending 31 March The Facility may be renewed by mutual agreement of the parties. The Company is not guaranteeing any payments under the Facility. As with any facility, there are a number of standard covenants which must be adhered to, including reporting and financial".

4 The reporting covenants relate to the submission of signed annual financial statements and submission of quarterly financial statements (management accounts) within 60 days of the close of the fiscal quarter. The Company must also submit a borrowing base certificate, accounts receivable and accounts payable every 15 days and a compliance certificate, along with quarterly financial statements, stating whether any event of default has occurred. The financial covenants relate to a minimum asset coverage ratio of 1.5:1, measured quarterly and a six months rolling adjusted EBITDA within 75% of the projections in the Borrower Financial Plan and Parent Guarantee by the Company. During the last six months company was fully compliant with all covenants. (e) Trade accounts receivable Trade accounts receivable are carried at original invoice amount based upon the installation reports issued by the Group s clients as part of the revenue recognition process. Credit is extended to customers based on an evaluation of a customer s financial condition; collateral has not been required to date. Trade accounts receivable are generally payable within one month of installment by the customer. Trade accounts receivable outstanding longer than the contractual payment terms are considered past due. Management estimates, where applicable, an allowance for doubtful accounts, which adjusts gross trade accounts receivable to its net realisable value. Judgments are made by the Group based on historical trends and future expectations. The Group writes off trade accounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited to the allowance for doubtful accounts. The Group does not generally charge interest on past due receivables. Management has determined that no allowance for doubtful accounts is necessary at 31 December (f) Property and equipment Property and equipment are recorded at cost less accumulated depreciation and impairment, if any. Depreciation is computed using the straight-line method based on the estimated useful lives of the assets. The estimated useful lives are as follows: Computer and Office Equipment Electrical Equipment Furniture and Fixtures Lease Hold Improvements Estimated useful life 3 years 3 years 5 years 10 years Expenditure for maintenance, repairs and improvements that do not prolong the useful life of an asset are charged to the statement of income as incurred. Additions and improvements that substantially extend the useful life of the asset are capitalised. Upon sale or other disposition of assets, the cost and related accumulated depreciation and amortisation are removed from the respective accounts, and the resulting gain or loss, if any, is included in the consolidated statement of income. The Group evaluates the impairment of property and equipment in accordance with ASC 360, Property, Plant and Equipment. ASC 360 states that an impairment of long-lived assets has occurred whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability is measured based on net, undiscounted expected cash flows. Assets are considered to be impaired if the net, undiscounted expected cash flows are less than the carrying amount of the assets. Impairment charges are recorded based upon the difference between the carrying value and the fair value of the asset. Based on the assessment of impairment indicators for long-lived assets, the Group did not record any impairment on long-lived assets during the six months ended 31 December (g) Intangible assets Intangible assets are stated at cost less accumulated amortisation and impairment in value, if any, and amortised on a straight-line basis over their useful lives. Intangible assets relate to the purchase of a BPO Suite Enterprise Call Centre Management System and the licenses and services associated therewith and are being amortised over a period of 3 to 5 years. As part of the acquisition of the Education business of Ampush Media, customer based intangibles, customer lists, software and intellectual property were acquired and are amortised over their useful economic lives of 6 years (for customer based intangibles) and 4-5 years (for software), respectively. There is also a non-compete covenant, which is being amortised over the period of the non-compete term (i.e. 2 years). As part of DSC Distribution Inc. acquisition, customer based intangibles, customer lists and software and intellectual property were acquired and are being amortised over their remaining useful life of 13 years (for customer based intangibles) and between 2-5 years (for property and equipment). There is a non-compete agreement for a term of 2 years meeting the recognition criteria of ASC 805, but does not have a material value. (h) Goodwill Goodwill is an asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognised. Goodwill is reviewed for impairment at least annually. In September 2011, the FASB issued ASU , Testing Goodwill for Impairment, which provides an entity the option to perform a qualitative assessment to determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount prior to performing the two-step goodwill impairment test. If this is the case, the two-step goodwill impairment test is required. If it is more-likely-than-not that the fair value of a reporting is greater than its carrying amount, the two-step goodwill impairment test is not required. The company adopted this guidance in If the two-step goodwill impairment test is required, first, the fair value of the reporting unit is compared with its carrying amount (including goodwill). If the fair value of the reporting unit is less than its carrying amount, an indication of goodwill impairment exists

5 for the reporting unit and the entity must perform step two of the impairment test (measurement). Under step two, an impairment loss is recognised for any excess of the carrying amount of the reporting unit s goodwill over the implied fair value of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation and the residual fair value after this allocation is the implied fair value of the reporting unit goodwill. Fair value of the reporting unit is determined using a discounted cash flow analysis. If the fair value of the reporting unit exceeds its carrying amount, step two does not need to be performed. Digital Globe Services, Inc. s goodwill was recorded as a result of a business combination that occurred in prior years. The Group reviews its recorded goodwill for impairment on an annual basis, or more often if indicators of potential impairment exist, by determining if the carrying value of each reporting unit exceeds its estimated fair value. The Group performs impairment analysis annually in accordance with ASC 350 Intangibles Goodwill and Other. Goodwill is considered to be impaired if it is determined that the carrying amount of the net assets of the reporting unit exceeds its fair value. (i) Long-lived assets Long-lived assets, other than goodwill, are evaluated for impairment when events or changes in the business circumstances indicate that the carrying amount of the assets may not be fully recoverable through projected undiscounted future operating cash flows or appraised values. The Group concluded that there was no evidence of impairment of long-lived assets for the six months ended 31 December (j) Use of estimates and judgments The preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and related disclosures of contingent assets and liabilities in the consolidated financial statements and accompanying notes. Although management believes its estimates, assumptions and judgments are reasonable, they are based upon information presently available. Due to the inherent uncertainty involved in making those estimates, actual results reported in future periods could differ from those estimates. Significant estimates include the chargebacks and cancellation rates used in recording receivables and recognising revenue. (k) Stock options The Company accounts for stock based compensation under ASC 718, Compensation Stock Compensation ( ASC 718 ). ASC 718 requires the measurement and recognition of compensation expense based on estimated fair values for all share-based awards made to employees and directors, including stock options. The Company uses the Black-Scholes Option Pricing Model to determine the fair value of the stock options. The expense for the options is recognised on a straight line basis over the requisite service period. (l) Income Taxes The Group recognises deferred tax assets on deductible temporary differences and deferred tax liabilities on taxable temporary differences. Temporary differences are the differences between the reported amount of assets and liabilities and their tax bases. As those differences reverse, they enter into the determination of future taxable income included on the tax return. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax asset will not be realised. Deferred tax assets and liabilities are measured using the enacted tax rates that will apply to taxable income in the periods the deferred tax item is expected to be settled or realised. Taxable temporary difference relates primarily to amortisation of intangibles and depreciation, whereas deductible temporary difference relates to net operating losses. The Group recognises the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognised in the financial statements is the largest benefit that has a greater than 50 per cent likelihood of being realised upon ultimate settlement with the relevant tax authority. Increases or decreases to the unrecognised tax benefits could result from management's belief that a position can or cannot be sustained upon examination based on subsequent information or potential lapse of the applicable statute of limitation for certain tax positions. The Group may, from time to time, be assessed for interest or penalties by major tax jurisdictions. In the event the Group receives an assessment of interest and/or penalties, the interest would be classified as interest expense while the penalties would be classified as operating expense. Management evaluated the Group s tax positions and concluded that the Group had taken no uncertain tax positions that require adjustment to the consolidated financial statements. The Group is no longer subject to income tax examination by the US federal, state of Colorado or local tax authorities for years before (m) Earnings per share Basic earnings per share is computed using the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed using the weighted average number of common and potentially dilutive shares outstanding during the period. Potentially dilutive shares consist of the incremental common shares issuable upon the exercise of common stock options and warrants. Potentially dilutive shares are excluded from the computation if their effect is antidilutive. (n) Foreign currency transactions and translation The functional currency of the Group is the United States (US) dollar. Assets and liabilities denominated in foreign currencies are translated at the rate of exchange prevailing at the balance sheet date. Transactions in foreign currencies are recorded at the rate ruling at the date of transaction. Net gains and losses resulting from foreign exchange transactions are included in the Statement of Income. The effects of exchange rate fluctuations on translating foreign currency assets and liabilities into US dollars are included as part of the accumulated other comprehensive loss component of Stockholders Equity.

6 (o) Fair value measurements The carrying value of cash, accounts receivable, accounts payable and accrued expenses approximates their fair value due to the relatively short-term nature of these financial instruments. The Company utilises valuation techniques that maximise the use of observable inputs and minimise the use of unobservable inputs to the extent possible. The Company determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorised in one of the following levels: Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date. Level 2 Inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability. Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date. The following table presents the placement in the fair value hierarchy of assets and liabilities that are measured at fair value on a recurring basis at 31 December 2015 and 2014 as well as 30 June 2015: Fair value measurements at reporting date using Quoted prices in active Significant markets for other Significant identical observable Unobservable 31 December assets inputs Inputs 2015 (Level 1) (Level 2) (Level 3) $ $ $ $ Assets: Trade accounts receivable 10,213, ,213,539 Related party receivables 516, ,628 Other assets 334, ,974 Total 11,065, ,065,141 Liabilities: Accounts payable 4,394, ,394,060 Revolving line of credit 70, ,476 Warrant 43,335-43,335 - Related party payables 427, ,938 Other liabilities 1,725, ,725,655 Total 6,661,464-43,335 6,618,129 Fair value measurements at reporting date using Quoted prices in active Significant markets for other Significant identical observable Unobservable 31 December assets inputs Inputs 2014 (Level 1) (Level 2) (Level 3) $ $ $ $ Assets: Trade accounts receivable 8,390, ,390,856 Related party receivables 1,859, ,859,382 Other assets 611, ,274 Total 10,861, ,861,512 Liabilities: Accounts payable 3,030, ,030,387 Related party payables 634, ,301 Revolving line of credit 583, ,856 Other liabilities 2,682, ,682,760 Total 6,931, ,931,304

7 Fair value measurements at reporting date using Quoted prices in active Significant markets for other Significant identical observable Unobservable 30 June assets inputs Inputs 2015 (Level 1) (Level 2) (Level 3) $ $ $ $ Assets: Trade accounts receivable 10,200, ,200,707 Related party receivables 270, ,384 Other assets 318, ,227 Total 10,789, ,789,318 Liabilities: Accounts payable 4,793, ,793,939 Revolving line of credit 1,792, ,792,301 Warrant 43,335-43,335 - Related party payables 250, ,200 Other liabilities 1,315, ,315,013 Total 8,194,788-43,335 8,151,453 The Company s accounting policy is to recognise transfers between levels of the fair value hierarchy on the date of the event or change in circumstances that caused the transfer. There were no transfers into or out of level 1 for the six months ended 31 December (p) Recent accounting pronouncement In May 2015, the FASB published ASU , Fair Value Measurement (Topic 820), Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent) (a consensus of the FASB Emerging Issues Task Force). The amendments in this Update remove the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. The amendments also remove the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the net asset value per share practical expedient. Rather, those disclosures are limited to investments for which the entity has elected to measure the fair value using that practical expedient. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. In May 2015, the FASB published ASU , Business Combinations (Topic 805), Pushdown Accounting (Amendments to SEC Paragraphs Pursuant to Accounting Bulletin No. 115). This Accounting Standards Update amends various SEC paragraphs pursuant to the issuance of Staff Accounting Bulletin No In June 2015, the FASB published ASU , Technical Corrections and Improvements. The amendments in this Update cover a wide range of Topics in the Codification. The amendments generally fall into one of the types of amendments listed below. 1. Amendments Related to Differences between Original Guidance and the Codification. 2. Guidance Clarification and Reference Corrections. 3. Simplification. 4. Minor Improvements. The amendments in this Update that require transition guidance are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, Early adoption is permitted, including adoption in an interim period. All other amendments will be effective upon the issuance of this Update. In July 2015, the FASB published ASU , Plan Accounting: (Topics 962), Plan Accounting Defined Contribution Pension Plans, and (Topic 965), Plan Accounting Health and Welfare Benefit Plans, require fully benefit-responsive investment contracts to be measured at contract value. Those Topics also require an adjustment to reconcile contract value to fair value, when these measures differ, on the face of the plan financial statements. Fair value is measured using the requirements in Topic 820, Fair Value Measurement. Under the amendments, fully benefit-responsive investment contracts are measured, presented, and disclosed only at contract value. A plan will continue to provide disclosures that help users understand the nature and risks of full benefit-responsive investment contracts. The amendments in this update are effective for fiscal years beginning after December 15, Earlier Application is permitted. In August 2015, the FASB published ASU , Business Combinations (Topic 805), Simplifying the Accounting for Measurement. The amendments in this Update require that an acquirer recognise adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The amendments in this Update require that the acquirer record, in the same period s financial statements, the effect on earnings of changes in depreciation, amortisation, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. The amendments in this Update require an entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognised as of the acquisition date. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The amendments should be applied prospectively to adjustments to provisional amounts that occur after the effective date of this Update with earlier application permitted for financial statements have not been issued.

8 In November 2015, the FASB published ASU , Income Taxes (Topic 740), Balance Sheet Classification of Deferred Taxes. The amendments in this Update will align the presentation of deferred income tax assets and liabilities with International Financial Reporting Standards (IFRS). IAS 1, Presentation of Financial Statements, requires deferred tax assets and liabilities to be classified as noncurrent in a classified statement of financial position. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. In January 2016, the FASB published ASU , Recognition and Measurement of Financial Assets and Financial Liabilities, intended to improve the recognition and measurement of financial instruments. The amendments address certain aspects of recognition, measurement, presentation and disclosure of financial instruments. The ASU on recognition and measurement will take effect for public companies for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The adoption of these standards does not have a material effect on the Group's unaudited consolidated interim financial statements. (q) Revenue recognition In regards to Digital Globe Services, Inc. and Telsat Online, Inc., revenue is recognised based on actual monthly installations and activation of cable services ordered through Digital Globe Services, Inc. at the end-customers home or business address. Once an order is placed through Digital Globe Services, Inc., the order is transferred to the client for activation and installation. The client then schedules the service to be activated at the end-customers address, and once successfully activated, the data is entered into the client database, which results in the payable to Digital Globe Services, Inc. On a monthly basis, each client reconciles their internal database for all ordered services and determines which activations are deemed payable for that month and sent to Digital Globe Services, Inc. via a monthly payment file. This may include activations from prior months, but are deemed payable after reconciliation. Revenue is then recorded based on the total number of installations recognised in a given month, multiplied by the commission rate as stated in the agreement with the client. Total installations are reported to Digital Globe Services, Inc. via monthly payment files detailing total installations and total commission value based on final product mix within the month. The payment files provide detailed payment information on total commissions earned by Digital Globe Services, Inc. net of chargebacks and cancellations. The revenue of Digital Globe Services, Inc. recorded in the financial year ended 30 June 2014 and through the interim period ending 31 December 2014 includes a portion of revenue for the period from 1 Jan 2014 through 30 June This includes but is not limited to submitted orders which were deemed to have installed after a given period and hence we were not given credit for, in accordance with the terms of the contract with our largest customer. DGS has engaged an independent audit firm to review the data as part of an audit, as allowed under the terms of the same contract which is anticipated to be conducted before the end of the current fiscal year. Utilizing data provided by our largest customer, the expected revenue from underpayment has been determined to be $1.3M. The revenue was recorded in the financial statements in the financial year ended 30 June In regards to DGS EDU LLC, revenue is accrued for and recognised on a monthly basis based on the leads, clicks and data delivered during the month, net of the historical return/disqualification rate, with any adjustments to confirmed invoicing occurring during the preceding month. Net adjustments are generally less than 1%. The policy is different from that of the core business, since the revenue is both earned and can be reliably estimable. Revenue from core business is not deemed to be earned until the service has been installed, due to certain factors existing in those contracts. In regards to DGS Auto LLC, revenue is recognised as soon as the service is rendered based exclusively on merchant activity at the time of sale. In regards to the DGS Inc. subsidiary, 7 Degrees LLC, revenue is recognised as commission earned as a percentage of total marketing dollar spent on behalf of the client, when the related advertisement appears before the public and intimated to the agency. The only other revenue is in relation to IP royalty income and back office services provided, which is eliminated on consolidation. (r) Search engine and lead generation expenses The Group s most significant operating costs are the click through fees associated with bidding on key words or phrases with various internet search engines. The most significant vendor used is Google Inc. These expenses are recognised on an accrual basis based on the number of click-throughs for the period. The fees charged by the Search Engines vary depending on day and time but typically range from $1.00 to $3.00 per click. Although the Group has entered into service agreements with various Internet search engines, these agreements do not require either party to make a long-term commitment and can be terminated at any time. The Group utilises sub-affiliates to generate additional volume in conjunction with the Group s main clients. These third party affiliates run their own marketing campaigns and send their leads to the Group s call centres whereby the Group closes the sale and sends the lead on to its clients. Compensation for sub-affiliate leads varies by partner, but they are typically paid a bounty per lead, which, when converted, generates a bounty by the company s clients. (s) Warrant Warrants are initially measured at fair value at the measurement date which is the date on which the warrant instruments are made. Subsequently these warrants are re-measured at their fair value at the reporting date with any change being recognised in the consolidated statement of income. (t) Segment reporting The information being presented to and reviewed by the chief operating decision maker (i.e. the Group s Chief Executive Officer) is divided into two segments: the Education business (EDU) and the company's usual business (INC). These are hence being identified as reportable segments - EDU being the customer acquisition business for the educational institutions (universities); and INC being the customer acquisition business for other customers. The DGS INC segment comprises of communications industry customers as well as the Group s Telsat business which caters for customers outside the cable industry, specifically for satellite and telecommunications service providers.

9 The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The segment performance is evaluated based upon Net Income as well as EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortisation). The following table presents information of our various segments. DGS EDU DGS INC TOTAL 31 December 2015 $ $ $ Revenues from external customers 3,062,346 20,670,729 23,733,075 Revenues from major customers - Comcast Corporation - 6,723,184 6,723,184 Revenues from major customers - Charter Communications - 3,192,765 3,192,765 Revenues from major customers - Time Warner Cable - 2,925,832 2,925,832 Depreciation and amortisation 184, , ,622 Interest expense - 91,706 91,706 Segment (Loss)/Profit (154,353) 1,269,939 1,115,586 EBITDA 110,855 1,995,196 2,106,051 Income tax expense - 23,561 23,561 Segment assets 4,944,948 13,765,437 18,710,385 Expenditures for segment assets - 123, ,352 DGS EDU DGS INC TOTAL 31 December 2014 $ $ $ Revenues from external customers 3,505,894 14,902,773 18,408,667 Revenues from major customers - Comcast Corporation - 4,702,109 4,702,109 Revenues from major customers - Time Warner Cable - 2,490,338 2,490,338 Revenues from major customers - Charter Communications - 3,221,070 3,221,070 Depreciation and amortisation 197, , ,862 Interest expense - 44,182 44,182 Segment loss (116,606) (742,238) (858,844) EBITDA 160,858 (298,885) (138,027) Income tax expense - 33,469 33,469 Segment assets 5,034,263 12,446,047 17,480,310 Expenditures for segment assets - 337, ,108 DGS EDU DGS INC TOTAL 30 June 2015 $ $ $ Revenues from external customers 6,802,927 33,468,104 40,271,031 Revenues from major customers - Comcast Corporation - 10,630,775 10,630,775 Revenues from major customers - Time Warner Cable - 5,257,587 5,257,587 Revenues from major customers - Charter Communications - 5,736,587 5,736,587 Depreciation and amortisation 394,721 1,068,292 1,463,013 Interest expense - 70,862 70,862 Segment (loss)/profit (183,394) 440, ,493 EBITDA 371,755 1,824,690 2,196,445 Income tax expense , ,077 Other significant non-cash items - stock options plan charge - 756, ,092 Segment assets 5,079,740 15,201,978 20,281,718 Expenditures for segment assets 1, , ,103 Disclosed in the following table is the company s geographical information: Geographic Information 31 December December June 2015 Long-Lived Long-Lived Long-Lived Revenues Assets Revenues Assets Revenues Assets $ $ $ $ $ $ United States and Canada 23,733, ,053 18,408, ,914 40,271,031 81,235 Pakistan - 898,441-1,299,400-1,035,198 23,733,075 1,143,494 18,408,667 1,417,314 40,271,031 1,116,433 (3) Dividends During the six months ended 31 December 2015, the Group paid dividends of $1,132,930 (2014: $358,303) from a declared dividend

10 of $1,132,930. (4) Income taxes The tax provision consists of the following: 6 months ended 6 months ended Year ended 31 December 31 December 30 June $ $ $ Current tax expense 23,561 33, ,128 Deferred tax expense ,949 Total Income tax expense 23,561 33, ,077 The U.S. tax provision calculations include DGS, Inc, DGS Edu, LLC, Telsat Online, Inc, DGS Auto, LLC, DGS Lake Ball LLC and 7 Degrees LLC. Additionally, included in the provision are DGS Cyprus Limited, DGS Tech (Ireland) and DGS BV (Netherland). DGS Private Limited (Pakistan) is exempt from corporate income tax under Pakistan's tax laws, being an exporter of IT enabled services. DGSL (Bermuda based holding company) became a UK tax resident on 26 June 2013 and files its tax return in the UK. The Group recognizes deferred tax assets on deductible temporary differences and deferred tax liabilities on taxable temporary differences. Temporary differences are the differences between the reported amount of assets and liabilities and their tax bases. As those differences reverse, they enter into the determination of future taxable income included on the tax return. Management has evaluated the Group s tax positions and concluded that the Group had taken no uncertain tax positions that require adjustment to the consolidated financial statements. The Group recognizes interest and penalties related to uncertain tax positions in income tax expense. As of 31 December 2015, the Group had no provision for interest or penalties related to uncertain tax positions. The years are open to examination by the tax authorities. The following shows the nature and components of Group's deferred tax asset and liabilities: As at As at As at 31 December 31 December 30 June $ $ $ Deferred tax asset Net Operating Losses 2,537, ,515 1,856,716 Valuation Allowance (2,628,256) (612,752) (1,922,640) Amortization of intangibles 218,449 63, , , ,447 78,136 Deferred tax liabilities Depreciation (86,210) 23,429 (50,616) Amortization of intangibles (76,747) - (62,451) (162,957) # 23,429 (113,067) The valuation allowance at December 31, 2015 was primarily related to net operating losses, in the judgment of management, are not more-likely-than-not to be realized. In assessing the realisability of deferred tax assets, management considers whether it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carryback and carryforward periods), projected future taxable income, and tax-planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more-likely-than-not that the Group will realize the benefits of these deductible differences, net of the existing valuation allowances at December 31, The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced. At 31 December, 2015, group s U.S. federal and state net operating loss carry forward for income tax purposes is $5.50 million (30 June 2015: $4.23 million) which will begin to expire in Group s UK net operating loss carry forward for income tax purposes is $0.93 million (30 June 2015: $0.81 million). Group's Ireland and Cyprus net operating losses carry forward for income tax purpose are $1.13 million (30 June 2015: $0.66 million) and $0.06 million (30 June 2015: $0.06 million), respectively. These amounts are based on estimated amounts for the half year ended 31 December The income tax provision differs from the amount of income tax determined by applying the statutory tax rate to pretax income, due to the following: 6 months ended 6 months ended Year ended 31 December December June 2015

11 % $ % $ % $ Net Income / (loss) for the period 1,115,586 (858,844) 257,493 Total income tax expense 23,561 33, ,077 Net Income excluding income tax 1,139,147 (825,375) 662,570 Expected income tax expense using applicable tax rate (280,628) ,275 State taxes, net of federal effect (20,625) ,031 Foreign subsidiaries taxed at lower rate or tax exempt ,829 (97.37) 803, ,190,146 Non-deductible expenses / exempt income (17.93) (204,268) (468,985) (154.76) (1,025,375) Income tax expense/(credit) ,561 (4.05) 33, ,077 (5) Related party transactions The Group has service agreements for call centre and administrative services with subsidiaries of TRG. These agreements are in effect until terminated by either party and specify payments based on services performed. Expenses incurred for the six months ended 31 December 2015, under these service agreements totaled $319,699 (2014: $360,694) which is included in call centre costs, communication expense and selling, general and administrative costs in the accompanying consolidated statements of income. The net amounts due from these subsidiaries totaled $88,690 at 31 December 2015 (2014: $1,225,081). (6) Commitments and contingencies The Company and its subsidiaries are subject to lawsuits and claims filed in the normal course of business. Management does not believe that the outcome of any of the proceedings will have a material adverse effect on the Group s business results of operations, liquidity or financial condition. On 14 December 2015, DGS Edu, LLC, a member of the Group, was served with a complaint. DGS Edu has filed a motion to dismiss the complaint and as of the date hereof the Court has yet to decide the motion to dismiss. Management strongly believes that there are no cogent grounds for the complaint and therefore, intends to defend the action vigorously. The management is of the opinion that the complaint will be successfully settled in the favor of the company without any costs to the company. On the basis of the objective evidence available when the financial statements were approved, the management is confident that there is no need to recognise any provision since there is no obligation and the probability of outflow of resources is also considered to be remote. (7) Acquisitions On November 16, 2015, Telsatonline Inc., acquired select call center assets and affiliate relationships focused on servicing DirecTV from DSC Distributing Inc. The assets and trading business acquired were as follows: Provisional fair value of assets acquired Office furniture & Equipment 213,543 Customer based intangibles 367,300 Goodwill 54, ,093 The consideration paid was satisfied through a Closing Cash Consideration of USD 440,000 plus an Earn-Out Payment of up to USD 110,000 per each subsequent six month period contingent on certain Revenue targets being met, capped at a maximum total Earn- Out Payment no larger than USD 440,000. In the event that the 6 months Revenue earned by Telsatonline from or in connection with the Business between Closing and the subsequent four periods, comprising 24 months from the date of Closing, an additional amount will be paid. The maximum payout for each 6 month period is capped at USD 110,000. The Earn-Out shall be equal to 4% of Revenue as calculated on 6 month basis beginning from the first day of the month following the date of Closing ( Additional Consideration ). However, no Additional Consideration shall be due and owing for any of the 6 month periods in the event that Revenue is not equal to or greater than USD 2 million during such 6 month period. The fair value or Earn- Out was estimated at the valuation date to be $195,093. Revenues from DSI Distribution, Inc., in the period since acquisition amount to $437,302. Net loss is at $26,499 since the acquisition date and the adjusted EBITDA amounts to $7,561 as at 31 December (8) Earnings Per Share Basic EPS For the 6 months ended 31 December 2015 Income Shares Per-Share (Numerator) (Denominator) Amount Net Income 1,115,586 27,314,393 $ 0.041