Interim Results

20 March 2015

Digital Globe Services, Ltd.

(the "Company" and together with its subsidiaries "DGS")

Interim Results

Digital Globe Services, Ltd. (AIM: DGS), a leading provider of online customer, lead, and inquiry acquisition and digital marketing solutions for large, consumer-facing organisations, is pleased to announce interim results for the six months ended 31 December 2014. Except where stated, comparative figures are stated for the six months ended 31 December 2013.

Financial highlights:

· Revenue increased 4% to $18.4 million (2013: $17.7 million; 2012: $11.1 million)

o Further revenue diversification, with top five clients accounting for 65% of sales (2013: 77%)

· Gross profit decreased by 11% to $5.6 million (2013: $6.3 million; 2012: $4.0 million)

· Adjusted EBITDA* decreased by 78% to $0.5 million (2013: $2.3 million; 2012: $1.4 million), with adjusted EBITDA* margin of 3% (2013: 13%; 2012: 12%)

· Adjusted earnings per share (basic) loss of ($0.03) (2013: gain $0.03; 2012: ($0.09))

· Cash on hand at 31 December 2014 of $0.4 million.

*EBITDA is earnings before interest, taxes, depreciation and amortisation. "Adjusted EBITDA" excludes foreign exchange gains or losses, extraordinary items, non-cash Employee Stock Option Plan charges, warrants and non-recurring severance costs.

Operational highlights:

· Expansion into Business Services with design and launch of DGS Commercial Business Link, a proprietary platform deployed by three of the four largest US cable operators.

· Investment in technical infrastructure improved operational effectiveness of dgsAPI, the Company's proprietary SaaS platform for its affiliate and dealer networks which improved the financial performance of the program.

· Extended utilisation of proprietary dgSMART analytics platform to dgsEDU business and across other Digital Media tactics including social media advertising.

· Opening and staffing of San Francisco office to support social media and additional advertising services.

Jeff Cox, CEO of Digital Globe Services,commented:

"With ongoing expansion of our products and service offerings, we continue to grow our revenue in an environment where our major US cable and satellite partners are engaged in transformative mergers. We continue to invest in our dgSMART platform to drive efficiencies in advertising spend and ensure that we attract and convert high value subscribers on behalf of our partners. We believe investments in infrastructure and people in the first half of fiscal 2015 will improve our position even more in the new communications environment emerging amongst our core Partners.

Additionally, we have improved our position in new verticals whose impact will be material in the second half of fiscal 2015. The Board is confident that the Company has reacted decisively to the changing market place and has invested wisely to maximize opportunities. We are pleased with the greater diversification of our lead sources and revenues. We continue to be one of the top performers in the communications industry by procuring valuable, long-term subscribers to our partners' services, as well growing our education vertical, where we are diversifying our client base in the not-for-profit segment. Strengthening our performance, expanding our dgSMART and dgsAPI Platforms and adding new products and services to an expanding customer base will continue to be our focus.

While revenue growth and profitability in the first half were impacted by the delays in completion of client mergers and our investment programme, we are encouraged by business volumes in new geographies, activities and verticals in our third quarter. In the second half of 2015, we expect to maintain year over year revenue and deliver gross margin approaching that of the first half of 2014 with EBITDA margin percentage returning to the double digits.

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Overview of DGS

Founded in 2008 with offices in London, Bermuda, Netherlands, USA and Ireland, DGS is a specialist provider of outsourced online customer, lead, and inquiry acquisition and digital media solutions for large, consumer-facing corporations. DGS delivers customers to its clients through optimised paid search, search engine optimization, mobile, integrated websites, e-mail, social media and contact centre support, receiving a fee for each customer acquired for its clients.

DGS is seeking to establish itself as the leading international provider of outsourced online customer, lead and inquiry acquisition, services, through its focus on having the premier technology platform in the industry. By using its optimising technology platform, dgSMART, and its experience of website management and digital media customer acquisition, efficient contact centre operations and other process expertise, DGS is able to acquire customers and achieve conversion rates that deliver profitable, high quality customers and valuable leads and inquiries to its clients. 

DGS employs over 600 staff in Europe, North America and Asia. The Company currently has over 100 direct and indirect client relationships globally, many of which are with companies in the US Fortune 500.

Chairman and CEO Review

Financial Review

In the six months ended 31 December 2014, the Group produced revenue of $18.4 million, an increase of 4% on the comparable period. This growth was driven primarily from the addition of the EDU business and new geographical and vertical sources. We diversified our revenue over the period, with our top five clients accounting for 65% (2013: 77%) of revenue, as we continue to enter new verticals and broaden our customer base. Revenue from clients outside of the top 5 increased by 56% to $6.4 million (2013: $4.2M).

Our increase in costs is primarily driven by investments in call centre personnel and infrastructure and increase in lead costs from affiliates. Negative impacts to EBITDA were the result of an increase in call centre costs to support forecasted call volumes that did not materialise as a consequence of stasis from the merger activity amongst the Company's three largest clients. Action was taken in the second quarter to realign call centre costs to current and expected activity levels. The benefit of these cost realignments will be realised in the second half.

Gross profit for the first half decreased by 11% to $5.6 million (2013: $6.3M), largely due to a higher mix of lower margin leads from affiliates. Adjusted EBITDA* declined by 78% to $0.5 million (2013: $2.3M), with an adjusted EBITDA* margin of 3% (2013: 13%). This reflected overall modest revenue growth against fixed overheads and increased expenses from call centre headcount and in sales operations and technology investments.

*A reconciliation of "Adjusted EBITDA" is shown below:

We continue to expand our revenue base and invest in infrastructure including software licenses and architecture for unified, multi-vertical financial reporting systems as well as in dgSMART, our proprietary marketing analytics platform. These investments support our anticipated client and vertical expansion as well as a growing opportunity in social and mobile media.

As we invest in our European and new vertical expansion, we expect to incur increased capital expenditures and higher operating costs. As these businesses grow revenue, the gross margins should approach levels comparable to those historically seen in the more mature core North American business, from fiscal year 2016 onwards.

We have made significant investment in key areas of the business, bolstering the team in enterprise wide software, technology and sales and technical support to ensure our facilities and infrastructure reflect the dynamic and innovative business environment in which we operate. Sales, General & Administrative Expense ("SG&A") increased by 20% from the prior half year, due to investments in key personnel in sales operations and technology to drive further revenue. These investments are driving efficiencies and lowering SG&A expense in the second half of 2015.

The principal capital expenses in the period were the planned enhancements to our internal reporting systems and additional investment in the now commercially viable dgsAPI dealer network platform. This platform enables local businesses (e.g., local electronics stores) to access offers, pricing and installation times through an application.

The DGSEdu business has contributed to gross profit in line with our expectations since its acquisition in November 2013, adding additional customers to our core client base. With a focus on the emerging not-for-profit lead generation segment, the Edu business is generating increased gross profit and efficiencies from our optimisation efforts and the expanded use of the dgSMART platform in this market.

We continue to look for acquisition opportunities that complement our existing business and provide growth opportunities in new verticals and geographies. We believe that in the current climate of increased competition in search advertising, coupled with the stasis produced by the merger activity of our US cable and satellite clients, additional acquisition opportunities may be available within the next twelve months.

The Group continues to produce positive cash flow from operations and had a cash balance of $0.4 million as of 31 December 2014. The Company is confident of its ability to access additional debt facilities to manage any near term working capital needs.

Dividend

In line with the Company's dividend policy, DGS endeavours to pay dividends twice annually, subject to the Company bye-laws, business requirements and appropriate reserves accounting for investment in the Company's growth. With respect to this interim results period, the Company has determined that it will not declare an interim dividend. The final dividend will be reviewed at fiscal year-end. 

Operational Review

Strategy

The Company's success is underpinned by the continued execution of its three-pillared growth strategy, namely, growing within the existing US cable and telecoms business, expanding into new geographies and adding contiguous industry verticals. In this context, DGS has:

· Continued to expand its business opportunities from the core US cable client base, expanding our US Telecom consumer businesses, continued to grow revenue in the business to business sector with our Commercial Business Links Platform and grown within the satellite television industry.

· Materially grown revenue in new geographic locations. We also made progress with several large consumer facing organisations outside of the US and expect additional contracts in the second half of 2015.

· Accelerated entrance into new relevant verticals, including continued growth in the DGSEdu business, which we acquired in November 2013. We recently entered into the wireless vertical with one of the largest wireless carriers in the US where we are selling both wireless services and wireless handsets nationally. We are aggressively targeting additional sectors including the rapidly growing Home Automation and Automotive Services business.

Client wins

We continue to grow and diversify the client base, particularly within our core US telecoms business, including the addition of one of the largest wireless carriers in the US as well as relationships with some of the largest mobile phone device producers. For the six months ended 31 December 2014, revenue outside of our top five clients increased to 35% of total revenue, up from 23% for the comparable period.

We increased revenue within the affiliate channel in the first half of the year and expect profitable growth in the second half of fiscal 2015 having renegotiated affiliate agreements. DGS utilises sub-affiliates to help drive additional volume with the Group's main clients. As our relationships expand into wireless and other verticals, we expect this volume to grow. These third party affiliates run their own marketing campaigns and have historically sent their leads to the Group's call centres whereby the Group closes the sale and sends the lead to its clients. This process will continue, and with the significant enhancements the Company has made to its dgsAPI affiliate network platform, we can also leverage growth and new revenue from affiliates who use the dgsAPI platform to expand their own businesses, often without the Company incurring any direct labor expense.

Product and Service Development

We continue to invest in our internal financial systems, proprietary technology platforms and technology development teams, to capitalise on growing momentum and favourable market trends. Strong IP is a key differentiator for us, as it enables us to more effectively acquire and deliver high quality customers to our clients. We recently completed our enhanced dgsAPI, our proprietary SaaS platform, which provides affiliates, agnostic to location or device, secure access to our order entry system and the ability to submit customer orders for specific Partners' services, reducing our labor costs and diversifying our source of leads.

In addition, we have enhanced our internal Customer Relationship Management (CRM) tool to significantly improve the accuracy while reducing the time an agent takes to submit an order. We also released version 2.0 of our Commercial Business Links platform allowing small business leads to be aggregated across Partners, providing a better customer experience and a more efficient process.

Organisational Changes

We expect our offices in London to expand to support growing business development and operations in Europe. Additionally, we have expanded our San Francisco, California office and centralised the marketing organisation in this office so that we are close to the Silicon Valley advertising platforms. This allows us to attract and retain the best on-line marketing talent available and continue to expand our business with Facebook, Twitter, Bing and Google.

People

We made a number of important organizational fortifications over the past six months. In December, we strengthened the Operations group by bringing on Fred Lutz as Chief Operating Officer. Fred has over 20 years of operations experience in the telecommunications sector in both the content and distribution sides of the industry. Most recently, Fred served as Executive Vice President of Operations at AXS TV & HD Net Movies, entrepreneur Mark Cuban's networks based in Denver, Colorado with studios in New York and Los Angeles. Fred's primary responsibility is to continue to grow profitable revenue through sales and operational excellence.

In December, Michael Darwal was promoted to Chief Marketing Officer. Mr. Darwal joined the Group immediately after the acquisition of DGS Edu in November 2013 and was hired to grow the Company's San Francisco based marketing operations. Most recently, Michael spent three years as the General Manager for Ampush Media, Inc., scaling the company in the online performance marketing space from under 10 to 100+ employees. Previous experience included roles as Vice President of Finance and Controller for Sundia Corporation, business unit management, corporate development and accounting for Del Monte Foods, Inc., as well as a variety of finance and accounting positions with Progressive Insurance, Co. early in his career. Michael graduated summa cum laude from The Ohio State University's Max M. Fisher College of Business with a Bachelor of Science in Accounting and Management Information Systems.

DGS, Edu

DGS Edu, the business unit acquired in November 2013, is performing well and contributing positively to Company earnings. We have added numerous new names to the client roster, including several not-for-profit US based universities.

Market

The largest impact on our market today is the merger and acquisition activity of our three largest clients, Comcast, Charter and Time Warner Cable, who are collectively engaged in one of the largest transactions in the cable industry in over twenty years. We anticipated revenue stasis when this merger was announced in late fiscal year 2014, and that stasis continues. As we have seen in our Partners own results for the last two quarters, subscriber growth has materially slowed. We anticipate the merger activity amongst Comcast, Charter and Time Warner Cable to be completed by the end of fiscal year 2015. We expect to be in a leading position to help the new entities regain their momentum and deliver on renewed customer acquisition.

Global digital marketing budgets are expected to continue to grow by double digits over the next several years, primarily driven by increases in social media and mobile adoption. Our market for online customer lead generation continues to evolve. Businesses across all sectors and geographies are increasingly aware of the growing significance of the online sales channel as their customers increasingly buy more products and services over the internet. While we have seen considerable consolidation activity within our marketplace, the landscape of digital marketing providers remains highly fragmented. We believe we can continue to grow market share given DGS' market leading dgSMART technology platform and proven ability to deliver high-value subscribers in both residential and commercial services. We believe that the traditional paid search market is maturing and that new and innovative digital media lead generation methods are appearing. DGS has seen a significant increase in customer acquisition through a variety of other digital media and is seeing positive results and expects more optimisation as our dgSMART platform evolves.

Summary and Outlook

We continue to be a recognized leader in the growing Global Digital Media advertising industry. While our segment has experienced several, material dynamics in the first half of fiscal 2015, we remain confident that we will continue to grow profitable revenues. We have continued to grow in an environment where our largest clients are merging and we have made good operational progress in the first half of fiscal 2015. The integration of the acquired DGS Edu business has been a success, adding profitable income and adding to the customer base.

Early indicators in the second half of fiscal 2015 tell us that our investment in the dgsAPI platform has improved the profitability of our affiliate channel and business development efforts in new verticals and in different geographic locations are positive.  We continue to focus on the three pillars of growth: growing and expanding within the core US telecoms business, expanding into new geographies and entering new industry verticals. With a strong financial position and healthy pipeline of new business opportunities, the Board is confident in the Company's continued success.

While revenue growth and profitability in the first half were impacted by the delays in completion of client mergers and our investment programme, we are encouraged by business volumes in new geographies, activities and verticals in our third quarter. In the second half of 2015, we expect to maintain year over year revenue and deliver gross margin approaching that of the first half of 2014 with EBITDA margin percentage returning to the double digits.

Unaudited Condensed Consolidated Interim Statements of Income

For the six months ended 31 December 2014

The accompanying notes are an integral part of these condensed consolidated financial statements.

Unaudited Condensed Consolidated Interim Balance Sheets

The accompanying notes are an integral part of these condensed consolidated financial statements.

Unaudited Condensed Consolidated Statements of Stockholders' Equity

For the six months ended 31 December 2014

The accompanying notes are an integral part of these condensed consolidated financial statements.

Unaudited Condensed Consolidated Interim Statements of Cash Flow

For the six months ended 31 December 2014

The accompanying notes are an integral part of these condensed consolidated financial statements.

Notes to unaudited condensed consolidated interim financial statements

31 December 2014

(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 2013. The registered office of DGSL is located at 27th floor, 21-24 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. "The Group" refers to DGSL and its subsidiaries.

The Group is comprised of the Company and following subsidiaries:

* 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 2011. 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. 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.

DGS Worldwide Marketing Limited (DGSML) - Cyprus

DGSML was incorporated by DGSL in November 2012. 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.

DGS (Pvt.) Limited (DGSPL) - Pakistan

DGSPL was incorporated by DGSL in October 2012. 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 2012.

DGS Worldwide BV (DGSBV) - Netherlands

DGSBV was incorporated by DGSL in June 2013. DGSBV is engaged in global marketing of DGS, Inc.

DGS Tech, Limited (DGSTL) - Ireland

DGSTL was incorporated by DGSL in June 2013. DGSTL is engaged in IP licensing and technology services.

DGS EDU LLC (DGS, EDU) - US

The Education business of Ampush Media was acquired by the Group on 31 October 2013. A separate entity was formed (DGS EDU LLC) to acquire the assets and trading business.

Notes to unaudited condensed consolidated interim financial statements

31 December 2014

(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 seeking 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 media advertising on a cost effective basis. The Group's global profile, together with its ability to innovate and diversify, provide it with firm foundations for ongoing success even though the recent, short term environment presented some headwinds in the broader industry.

The Group's net loss for the period was $0.9 million (2013: profit of $0.8 million). As at 31 December 2014 the Group had net assets of $10.3 million (2013: $11.7 million) and net current assets of $5.3 million (2013: $6.8 million).

The Board has reviewed cash flow forecasts up to and including the period to 31 December 2015. These forecasts take into account revenue which is already contracted and revenue which is expected to occur as a result of ongoing negotiations and business development/marketing initiatives as projected through the end of the next fiscal year (FY2016).

The Directors believe there is sufficient operating cash to meet current obligations. The company is in progressed negotiations regarding new facilities that will allow for an increase in the firm's borrowing capacity by accessing a greater portion of receivables as collateral. The Directors are confident a new replacement facility will be established soon, without any interruption to operations. All financial covenants for new and existing facilities are forecasted to be satisfied over the period. 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.

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) Cash and cash equivalents

The Group maintains bank balances, which, at times, may exceed federally insured limits. Balances are monitored and during the six months ended 31 December 2014, there were no instances in which this limit was breached. Cash and cash equivalents include cash in hand and cash at bank with original maturities of less than three months or available on demand.

(e) Revolving line of credit

On 27 March 2014, DGS, Inc. entered into an agreement with Eagle Bank whereby DGS, Inc. is being granted a revolving line of credit loan facility to be used for working capital and general business purposes. Further, on 11 September 2014, a similar agreement was entered into in relation to DGS EDU LLC. The maximum balance outstanding cannot exceed $3.5 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 5.5%, due on the earlier of 1 November 2014 or on demand. The Facility may be renewed by mutual agreement of the parties. As of 31 December 2014 the Facility line has been extended into the third quarter of FY2015, at which time a further extension may be granted. 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".

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 monthly report within 15 days after the end of each calendar month and a compliance certificate, along with quarterly financial statements, stating whether any event of default has occurred.

The financial covenants relate to cash flow coverage: DGS, Inc and DGS EDU LLC are required to maintain a ratio of at least 1.25 : 1, measured quarterly. The cash flow coverage ratio requirements did not change from last fiscal year. DGS, Inc and DGS EDU LLC have remained compliant with regards to all Eagle Bank financial covenants over the current period.

Notes to unaudited condensed consolidated interim financial statements

31 December 2014

(f) 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. Judgements 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 2014.

(g) 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:

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 2014.

(h) 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 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). During the six months ended 31 December 2014, costs incurred on development of inhouse software for internal use have been capitalised and are being amortised over its useful life of 3 years.

(i) 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 2011-08, 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 2012.

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 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. 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. 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.

Notes to unaudited condensed consolidated interim financial statements

31 December 2014

For the six months ended 31 December 2014, the Group performed a qualitative impairment analysis on 19 February 2015, in accordance with ASC 350, 'Intangibles -Goodwill and Other'. No impairment indicators were noted in the Group's analysis. 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.

(j) Use of estimates and judgements

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 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 2008.

(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.

(o) 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 2014.

Notes to unaudited condensed consolidated interim financial statements

31 December 2014

(p) 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 2014 and 2013 as well as 30 June 2014:

Notes to unaudited condensed consolidated interim financial statements

31 December 2014

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 2014.

(q) Recent accounting pronouncements

In May 2014, the FASB published ASU 2014-09, Revenue from Contracts with Customers (Topic 606), to supersede nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of the ASU is to recognise revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than required under existing U.S. GAAP including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. The ASU is effective for annual periods and interim periods within those annual periods beginning after 15 December 2015 using either of two methods: (i) retrospective to each prior reporting period presented with the option to elect certain practical expedients as defined within ASU 2014-09; or (ii) retrospective with the cumulative effect of initially applying ASU 2014-09 recognised at the date of initial application and providing certain additional disclosures as defined per ASU 2014-09.

In August 2014, the FASB published ASU 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40) Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern. The ASU requires that in connection with preparing financial statements for each annual and interim reporting period, an entity's management should evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity's ability to continue as a going concern within one year after the date that the financial statements are issued (or within one year after the date that the financial statements are available to be issued when applicable). ASU 2014-15 is effective for the annual period ending after 15 December 2016, and for annual periods and interim periods thereafter. Early application is permitted.

In November 2014, the FASB published ASU 2014-17, Business Combinations (Topic 805) Pushdown Accounting (a consensus of the FASB Emerging Issues Task Force). The amendments in this Update provide an acquired entity with an option to apply pushdown accounting in its separate financial statements upon occurrence of an event in which an acquirer obtains control of the acquired entity. The amendments in this Update are effective on November 18, 2014.

In January 2015, the FASB published ASU 2015-01, Income Statement - Extraordinary and Unusual Items (Subtopic 225-20) Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items. This Update eliminates from GAAP the concept of extraordinary items. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after 15 December 2015.

In February 2015, the FASB published ASU 2015-02, Consolidation (Topic 810) Amendments to the Consolidation Analysis. The amendments in the ASU affect the following areas:

1. Limited partnerships and similar legal entities

2. Evaluating fees paid to a decision maker or a service provider as a variable interest

3. The effect of fee arrangements on the primary beneficiary determination

4. The effect of related parties on the primary beneficiary determination

5. The effect of related parties on the primary beneficiary determination

The amendments in this Update are effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after 15 December 2015.

The adoption of these standards does not have a material effect on the Group's unaudited consolidated interim financial statements.

Notes to unaudited condensed consolidated interim financial statements

31 December 2014

(r) 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 2014. 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 2014.

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 estimatable. Revenue from core business is not deemed to be earned until the service has been installed, due to certain factors existing in those contracts.

The only other revenue is in relation to IP royalty income and back office services provided, which is eliminated on consolidation.

(s) 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.

(t) 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.

(u) 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 customer outside the communications industry.

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).

Notes to unaudited condensed consolidated interim financial statements

31 December 2014

The following table presents information of our various segments.

*DGS, EDU was acquired on 31 October 2013.

Disclosed in the following table is the company's geographical information:

Notes to unaudited condensed consolidated interim financial statements

31 December 2014

(3) Dividends

During the six months ended 31 December 2014, the Group paid dividends of $358,303 (2013: $289,129) from a declared dividend of $992,604.

(4) Income taxes

The tax provision consists of the following:

The U.S. tax provision calculations include DGS, Inc, DGS Edu, LLC. and Telsat Online, Inc. Additionally, included in the provision are DGS Cyprus Limited, DGS Tech (Ireland) and DGS BV (Netherlands). 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 recognises interest and penalties related to uncertain tax positions in income tax expense. As of 31 December 2014, the Group had no provision for interest or penalties related to uncertain tax positions. The years 2010-2013 are open to examination by the tax authorities.

The following shows the nature and components of Group's deferred tax asset and liabilities:

The valuation allowance at 31 December 2014 is related to net operating losses, that in the judgement of management, are not more-likely-than-not to be realised. 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 realised. The ultimate realisation 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 realise the benefits of these deductible differences, net of the existing valuation allowances at 31 December 2014. The amount of the deferred tax asset considered realisable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced.

At 31 December 2014, group's U.S. federal and state net operating loss carry forward is $3.24 million (30 June 2014: $0.83 million) which will begin to expire in 2034. Group's UK net operating loss carry forward is $2.24 million (30 June 2014: $1.61 million). Group's Ireland and Cyprus net operating losses carry forward for income tax purpose are $0.27 million (30 June 2014: $0.03 million) and $0.05 million (30 June 2014: nil), respectively. These amounts are based on estimated amounts for the half-year ended 31 December 2014.

Notes to unaudited condensed consolidated interim financial statements

31 December 2014

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:

(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 2014, under these service agreements totaled $360,694 (2013: $691,128) which is included in call centre costs, communication expense and selling, general and administrative costs in the accompanying consolidated statements of income. The total amounts due from these subsidiaries totaled $1,859,382 at 31 December 2014, (2013: $143,216) which is included under assets as related-party receivables, on the accompanying balance sheet.

(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. As of 31 December 2014, the Group has no open lawsuit.

(7) Extraordinary items

During the six months ended 31 December 2014, the Group embarked upon a restructuring plan whereby various expenses were incurred as severance payments to employees who were laid off. These expenses were not regular operational expenses of the Group and hence were classified as extraordinary items.

Notes to unaudited condensed consolidated interim financial statements

31 December 2014

(8) Earnings Per Share