DXN Digitalfx International, Inc.

LAS VEGAS, Nov. 17 /PRNewswire-FirstCall/ -- DigitalFX International, Inc. (AMEX:DXN), a multi-tier Web 2.0 digital media products distribution company announced today its results for the quarter ended September 30, 2008. The Company reported revenue of $2.7 million for the quarter ended September 30, 2008, down from $5.4 million for the same quarter in 2007. In addition, the Company reported a net loss of $1.9 million for the quarter ended September 30, 2008, as compared to a reported loss of $981,000 for the quarter ended September 30, 2007. This equates to a loss per share for the current quarter of ($0.08) on weighted average shares outstanding of 24.9 million. For the quarter ended September 30, 2008, the Company reported that it had not satisfied the financial covenants included in the Amended and Restated Senior Secured Convertible Notes issued as of November 30, 2007, and such failure constitutes a default under such Notes. The Company further reported that on November 14, 2008, Richard Kall, the Company's newly elected CEO and Chairman of the Board, in a show of confidence in the new business plan of the Company, invested $500,000 into the Company as part of a financial package that will include the restructuring of its Amended and Restated Senior Secured Convertible Notes. As previously reported, on October 15, 2008, Mr. Kall purchased an aggregate of $350,000 of the unpaid principal amount of the Company's Amended and Restated Senior Secured Convertible Notes. The Company is currently implementing a plan of diversification that will seek to introduce at least one new consumer product line in early 2009 to augment its present digital media products and, if possible, another line of consumables by the third quarter of fiscal 2009. Mr. Kall stated, "We are confident that with our new management team and new business plan in place, we shall soon see positive signs and excitement from our Affiliates in the field and a renewed sense of faith in the Company and its products. We strongly believe that we can put this quarter's results behind us and look forward to a bright and strong 2009." Mr. Abraham Sofer, the Company's President, added, "With Richard at the helm, we believe the Company will not only regain the support of the financial markets; it will also enjoy a new vision and life long expertise in network marketing and in providing invaluable guidance to affiliates on how to establish their very own successful home businesses." Sofer noted that the Company's technology is also the only one to provide a complete set of marketing tools for multi level companies. About DigitalFX International, Inc. DigitalFX International, Inc. (AMEX:DXN) markets web-based products such as streaming live and on-demand video, video email and digital storage that because of their extremely low cost for the first time brings the next generation Internet revolution to individuals through its http://www.helloworld.com/ website and small and medium-sized businesses via its http://www.firststream.com/ website. The company also markets proprietary communication and collaboration services, and social networking software applications, including its flagship product, called the Studio. For more information about DigitalFX, please visit us at http://www.digitalfx.com/. To receive public information, including press releases, conference calls, SEC filings, profiles, investor kits, News Alerts and other pertinent information, please click on the following link: http://www.b2i.us/irpass.asp?BzID=1407&to=ea&s=0 FORWARD-LOOKING STATEMENTS The information contained herein includes forward-looking statements. These statements relate to future events or to our future financial performance, and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Examples of forward looking statements include statements regarding the restructuring of the Company's Amended and Restated Senior Secured Convertible Notes, the implementation of a product diversification plan, the introduction of new products, improvements in the Company's relationship with its Affiliates and improved performance by the Company in 2009. You should not place undue reliance on forward-looking statements since they involve known and unknown risks, uncertainties and other factors which are, in some cases, beyond our control and which could, and likely will, materially affect actual results, levels of activity, performance or achievements. Any forward-looking statement reflects our current views with respect to future events and is subject to these and other risks, uncertainties and assumptions relating to our operations, results of operations, growth strategy and liquidity. We assume no obligation to publicly update or revise these forward-looking statements for any reason, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future. The safe harbor for forward-looking statements contained in the Securities Litigation Reform Act of 1995 protects companies from liability for their forward looking statements if they comply with the requirements of the Act. DigitalFX International, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (In thousands, except share data) September 30, December 31, 2008 2007 Assets (unaudited) Current assets: Cash and cash equivalents $ 365 $ 5,319 Accounts receivable 45 50 Inventories, net 506 849 Prepaid bandwidth charges, affiliate 245 51 Prepaid expenses and other assets 339 411 Income tax receivable 233 - Deferred income taxes, net - 45 Total current assets 1,733 6,725 Restricted cash - 2,000 Investment in and convertible secured promissory note due from related party - 225 Investments, net 1,035 1,102 Deferred financing costs 359 961 Property and equipment, net of accumulated depreciation and amortization of $840 and $576, respectively 568 628 Deposits, merchant processors 635 789 Other assets 12 12 Deferred income taxes, net - 1,995 Total assets $ 4,342 $ 14,437 Liabilities and Stockholders' Equity (Deficit) Current liabilities: Accounts payable $ 193 $ 383 Accrued expenses 678 1,114 Accrued commissions 1,417 1,619 Capital lease obligation, current 34 - Convertible notes payable, net 2,620 5,600 Total current liabilities 4,942 8,716 Capital lease obligation 105 - Total liabilities 5,047 8,716 Commitments and Contingencies Stockholders' equity (deficit): Preferred stock, $0.01 par value, 5,000,000 shares authorized, no shares issued and outstanding - - Common stock, $0.001 par value, 100,000,000 shares authorized, and 24,945,655 and 24,919,710 shares issued and outstanding, respectively 25 25 Additional paid in capital 13,180 12,882 Other comprehensive income (loss) 1 (286) Accumulated deficit (13,911) (6,900) Total stockholders' equity (deficit) (705) 5,721 Total liabilities and stockholders' equity (deficit) $ 4,342 $ 14,437 DigitalFX International, Inc. and Subsidiaries Condensed Consolidated Statements of Operations (In thousands, except share and per share data, unaudited) Three months Ended Nine Months Ended September 30, September 30, 2008 2007 2008 2007 Revenues $ 2,743 $ 5,425 $ 11,365 $ 17,987 Cost of revenues 645 910 2,338 2,782 Gross profit 2,098 4,515 9,027 15,205 Commission expenses 1,197 2,365 4,723 7,880 Other operating expenses 2,005 3,539 7,280 8,780 Operating loss (1,104) (1,389) (2,976) (1,455) Other (income) expense: Unrealized (gain) loss on investment (9) - 156 - Unrealized loss on investment in company owned by related party - - 325 - Loss on modification of debt - - 1,920 - Financing costs, net 127 - 555 - Other income, net - 71 317 203 Other expense, net 118 71 3,273 203 Loss before provision for income taxes (1,222) (1,318) (6,249) (1,252) Provision (benefit) for income taxes 734 (337) 762 (281) Net loss $ (1,956) $ (981) $ (7,011) $ (971) Net loss per share: Basic and fully diluted $ (0.08) $ (0.04) $ (0.28) $ (0.04) Weighted average shares outstanding: Basic and fully diluted 24,953,655 24,112,324 24,933,692 23,797,358 DATASOURCE: DigitalFX International, Inc. CONTACT: DigitalFX International, Inc., +1-702-938-9300; Investor Relations, Web Site: http://www.digitalfx.com/

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