Financials

UNAUDITED FINANCIAL STATEMENTS FOR SECOND QUARTER OF FY2008

Profit and Loss Statement

The following paragraphs should be read in conjunction with our Profit and Loss statement for quarter ended 30 June 2008 as presented on Section 1(a) of this document:

Revenue:

China continued to be the largest contributor at 73.1% of 1Q08 revenue; maintaining the same percentage contribution as in 1Q07.

The Group's performance in 2Q08 and 1H08 demonstrate the early fruits of success of DMX's recent business re-alignment growth strategy – capitalizing on the convergent technological shifts underpinning the regional demand for digital media solutions, notably the Group's main market, China.

As anticipated, the Group's 2nd quarter FY08 ("2Q08") revenue continue to be buoyed by the increasing contribution from its Digital Media segment which accounted for approximately 30.5% of Group revenue. This represented an encouraging 46.9% year-on-year ("yoy") growth for DMX's Digital Media segment over 2Q07. For 1H08, Digital Media segment accounted for 29.4% of Group revenue, or 49.7% yoy growth from 1H07

The Group's new Vantage Managed Services division, which was recently launched in February 2008, continues to underscore its potential with 69.0% revenue growth in 1H08.

The top line performance in 2Q08 by Digital Media segment supplemented by the initial success of Managed Services division, served to compensate for the 5.8% lower revenue recorded by the Infrastructure Solution segment, in line with anticipated challenging market conditions in more mature markets.

As a result, the Group registered overall revenue growth in 2Q08 of 8.4% y-o-y to US$39.8m, which brought total revenue for 1H08 to US$77.8m, in line with 1H07's revenue.

Geographically, China continued to be the largest revenue contributor in 2Q08 at 69.5%, bringing its total contribution in 1H08 to 71.3%, and comparable to 70.8% in 1H07.

Gross Margin:

Gross margin grew to 26.56% in 2Q08; representing 1.65 percentage points improvement over 1Q08 – this is the best gross margin performance over the preceding five sequential quarters and is marginally higher than 2Q07. The higher percentage contribution from Digital Media and Managed Services during 1H08 brought the gross margin for 1H08 to 25.8%, which was in line with 1H07.

Expenses:

The Group persevered with cost-efficiency improvements through 2Q08: total operating expenses (distribution and administration) in 2Q08 at US$5.7m was similar to 1Q08 and approximately US$0.5m lower than 2Q07. For 1H08, despite recording US$0.5m higher depreciation expenses, the Group brought total operating expenses down to US$11.3m compared to US$11.6m in 1H07.

In 2Q08, other operating expenses rose US$1.9m to US$3.0m over the same period last year, due largely to an increase of US$1.8m in amortization of intangible assets. The Group incurred capital expenditure on software development activities to generate new products and add more features to its existing multi-media software during the last three years. Upon commercial deployment of the software, such expenditure was capitalised as intangible assets and amortized on a straight line basis over three years. Higher amortisation was thus incurred as the Group gained momentum in its commercial deployment of its software in the digital media market.

Earnings:

In view of the above, for 2Q08 the Group recorded a 10.1% sequential increase in quarterly Profit after tax ("PAT") to US$1.7m versus 1Q08; albeit 26.2% lower than year-ago 2Q07. The Group's 1H08 PAT at US$3.3m is 47.4% lower than 1H07 due primarily to higher amortization of intangible assets for the period.

Balance Sheet

The following paragraphs should be read in conjunction with our Balance Sheet as of 30 June 2008 as presented on Section 1(b) (i) of this document.

Total current assets increased slightly by US$1.1m to US$153.3m as at 30 June 2008. This was due to:-

• US$13.6m decrease in cash and cash equivalents to US$26.4m.
• US$3.8m increase in pledged bank deposits to secure bank credit lines.
• US$8.9m increase in trade receivables and other receivables to US$101.6m. As at 30 June 2008, the Group's days sales outstanding ("DSO") stood at 229 days compared to 213 days at 31 March 08.

  Collections in 2Q08 were hampered as project installations and acceptances were delayed because of the devastating earthquake and impending changes to the telecom industry in China. In addition, the nature of the Group's business is such that it experiences great improvement or deterioration in collections caused by the project implementation or acceptance time frame of projects by its customers. The industry average DSO is about 150 to 230 days.

  Aging of trade receivables are as follows:-

  

  The trade receivables were from businesses that were irrevocable and from reputable and credit-worthy telecom and enterprise customers. None of the trade receivables is from any interested party. The Group determines its allowance for doubtful trade and other receivables by assessing its track record of collections from these receivables, and also further considered the recoverable amount of the outstanding debts.

• US$2.4m increase in deposits and prepayments to suppliers as the Group intensified its development activities in the digital media market.
• US$0.9m increase in inventories to US$10.4m as shipments to customers were delayed due to disruptions caused by the May 2008 earthquake in China.

Non-current assets decreased by about US$0.6m to US$61.8m as at 30 June from US$62.4m as at 31 December 2007. Higher capital expenditure on fixed and intangible assets were offset by even higher depreciation and amortization expenses; giving rise to the decrease.

Total current liabilities as at 30 June 2008 stood at US$33.4m, US$5.3m lower than 31 December 2007. This was largely due to repayment of US$5.9m bank loans and reclassification of US$1.1m bank loan to non-current liabilities.

Non-current liabilities increased by US$1.1m to US$3.9m as at 30 June 2008. This was due mainly to reclassification of a US$1.1m bank loan from current liabilities.

The Group increased its total equity by US$4.7m to US$177.8m as at 30 June 2008 as a result of US$3.2m profits, US$0.9m of currency translation reserve and US$0.5m of share option reserve.

Cash flow

The following paragraphs should be read in conjunction with our Cash flow Statement as of 30 June 2008 as presented on section 1(c) of this document.

The Group generated US$2.2m cash from operations for 2Q08 compared to US$9.4m utilized in 2Q07. For 1H08, the Group utilized US$0.2m cash for its operations versus US$12.4m utilized for 1H07. Cash was deployed mainly into trade and other receivables; offset by inflow from trade and other payables.

After payment for income tax and interest, the Group generated US$1.9m of cash from operating activities for 2Q08; and for 1H08, the Group utilized US$0.8m of cash. This was a great improvement when compared to US$9.4m and US$12.8m of cash utilisation from operating activities for 2Q07 and 1H07 respectively.

Net cash used in investing activities was US$5.6m in 2Q08 and US$7.2m in 1H08, as compared to US$7.3m and US$8.7m in 2Q07 and 1H07 respectively. During 1H08, the Group invested US$4.6m on the development and enhancement of its proprietary multi-media software to maintain its differentiation in solution offering.

The Group utilized US$3.6m and US$6.5m in cash from financing activities in 2Q08 and 1H08 respectively, as compared to US$3.7m and US$5.7m cash generated in 2Q07 and 1H07. The repayment of bank loans caused the cash utilization from financing activities in 2Q08 and 1H08

Cash utilized in investing activities and financing activities were higher than cash generated from operating activities in 2Q08; resulting in a reduction in cash and cash equivalent of US$7.1m for 2Q08. For 1H08, utilization of US$13.6m in cash for both investing and financing activities caused a reduction of cash and cash equivalent to US$26.4m as at 30 June 08.

A commentary at the date of the announcement of the competitive conditions of the industry in which the group operates and any known factors or events that may affect the group in the next reporting period and the next 12 months.

DMX's strategy of re-aligning its focus towards higher-margin business opportunities in China has started to yield results. The Group's initiatives over the last 1.5 years in building up a solid foundation as a "technology enabler" of choice in the Digital Media market have made good progress.

Over the last three consecutive quarters, the momentum of revenue and profit contributions by the Group's developing second core business, Digital Media Group, has picked up. Future prospects have been uplifted by a series of contracts secured with a few new large cable operators in China for our advanced digital media solution and multi-media software.

At the same time, the Group's discerning choice of higher-margin projects within its core Infrastructure Enabling Group, with a focus on security solutions, has also yielded encouraging results during the last half year.

DMX continues to remain optimistic about the exciting growth potential of its new businesses and will continue to focus and invest its resources to capitalize on the growing opportunities therein. While currently in an expansion phase, the Group is also focusing on increasing internal efficiencies that can support its growth initiatives.

Barring unforeseen circumstances, the Directors expect a satisfactory performance in the next half year.