The following Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Unaudited Condensed Consolidated Financial Statements and Notes thereto appearing elsewhere in this report.

Cautionary Note Regarding Forward-Looking Statements

The Securities and Exchange Commission encourages companies to disclose forward-looking information so that investors can better understand a company's future prospects and make informed investment decisions. Certain statements contained herein may be deemed to constitute "forward-looking statements."

Words such as "may," "anticipate," "estimate," "expects," "projects," "intends," "plans," "believes" and words and terms of similar substance used in connection with any discussion of future operating or financial performance, identify forward-looking statements. All forward-looking statements are management's present expectations of future events and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. These risks and uncertainties include, among other things: our need for additional capital to fund our pending acquisition of Vyvx's advertising services business and our technology development programs; our potential inability to further identify, develop and achieve commercial success for new products; the possibility of delays in product development; our dependence upon a small number of large customers; the development of competing distribution products; our ability to protect our proprietary technologies; patent-infringement claims; risks of new, changing and competitive technologies; and other factors discussed in our Annual Report on Form 10-K for the year ended December 31, 2007 ("Annual Report").

In light of these assumptions, risks and uncertainties, the results and events discussed in the forward-looking statements contained herein might not occur. You are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this filing. We are not under any obligation, and we expressly disclaim any obligation, to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by applicable law. All subsequent forward-looking statements attributable to management or to any person authorized to act on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section.

Critical Accounting Policies and Estimates

The following discussion and analysis of the financial condition and results of operations are based on the unaudited condensed consolidated financial statements and notes to unaudited condensed consolidated financial statements contained in this report that have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission and do not include all the disclosures normally required in annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates that affect the reported amounts of assets, liabilities, sales and expenses, and related disclosures of contingent assets and liabilities. We base these estimates on historical results and various other assumptions believed to be reasonable, all of which form the basis for making estimates concerning the carrying values of assets and liabilities that are not readily available from other sources. Actual results may differ from these estimates.

Our significant accounting policies are described in Note 2 to the consolidated financial statements presented in our Annual Report. Our critical accounting policies are described in Management's Discussion and Analysis of Financial Condition and Results of Operations in the Annual Report. Our significant and critical accounting policies have not changed significantly since the filing of our Annual Report.

Overview

We are a leading provider of digital technology services that enable the electronic delivery of advertisements and other media content from advertising agencies and other content providers to traditional broadcasters and other media outlets. Our primary source of revenue is the delivery of television and radio advertisements, or spots, which are typically delivered digitally but sometimes physically. We offer a digital alternative to the dub-and-ship delivery of spots. We generally bill our services on a per transaction basis. Our business can be impacted by several factors including the financial stability of our customers, the overall advertising market, new emerging digital technologies, and the continued transition from analog to digital broadcast signal transmission.

Part of our business strategy is to acquire similar and ancillary businesses that will increase our market penetration and, in some cases, result in operating synergies. Consistent with this business strategy:

† In December 2006 and early in 2007, we acquired about 16% of the outstanding common stock of publicly-held Point.360 for about $5.4 million in cash. Point.360 had two business segments, an advertising distribution operation and a post production operation.

† On August 13, 2007, we purchased all the remaining outstanding shares of Point.360 we did not previously own in exchange for 2.0 million shares of our common stock. Immediately prior to the exchange, Point.360 contributed its post production operations to a newly-formed and wholly-owned subsidiary of Point.360 ("New 360") and distributed the New 360 shares to its shareholders (other than the Company) on a pro rata basis. As a result, at the consummation of the exchange offer, Point.360's business consisted solely of its advertising distribution operation. As required, shortly after closing we retired $7.0 million in debt and paid certain seller transaction costs and working capital adjustments. The acquisition of Point.360 expanded our customer base and resulted in certain operating synergies. Point.360 has been included in our results since the date of acquisition.

† On May 7, 2007, we purchased 10,750,000 shares of Enliven Marketing Technologies Corporation ("Enliven") common stock, or about 13% of Enliven's then outstanding shares, in a private transaction directly from Enliven at a price of $0.40 per share, for an aggregate amount of $4.5 million including transaction costs. As part of the transaction, Enliven issued the Company warrants to purchase an additional 2,687,500 shares of Enliven common stock at a price of $0.45 per share. The warrants became exercisable on November 7, 2007 and expire on November 7, 2010.

Further, the Company entered into a strategic relationship with Enliven pursuant to a Reseller Agreement by which the Company intends to integrate its media services platform with Enliven's Unicast advertising solutions technology. This online video partnership, using Enliven's Unicast technology, enables brands and advertisers to convert their traditional and broadcast video assets into cutting-edge display ads that are pre-certified across thousands of websites.

† On June 4, 2007, we acquired all the outstanding common and preferred stock of privately-held Pathfire for $29.3 million (net of cash acquired). Pathfire distributes third-party long-form content, primarily news and syndicated programming, through a proprietary server-based network via satellite and Internet channels. Pathfire is one of the primary distribution providers for syndicated programming in the United States. In addition, major networks rely on the Pathfire network to distribute thousands of news stories to hundreds of television affiliates. The acquisition of Pathfire expanded our customer base and resulted in certain operating synergies. Pathfire has been included in our results since the date of acquisition.

† On August 31, 2007, we acquired substantially all the assets of privately-held GTN for $8.5 million in cash (net of selling GTN's post production assets immediately following closing for $3.0 million in cash). GTN provides media services primarily on behalf of the automotive industry. GTN has been included in our results since the date of acquisition.

† On December 18, 2007, we entered into an agreement to purchase Vyvx's advertising services business including its distribution, post-production and related operations for $129 million in cash, subject to certain adjustments. The consummation of the merger is subject to customary conditions and regulatory approvals. We anticipate that the acquisition of Vyvx's advertising services business will be completed during the second quarter of 2008.

† On March 13, 2008, we replaced our $85 million credit facility with a new six-year, $145 million senior credit facility (the "New Credit Facility") with our existing and two additional lenders. The New Credit Facility includes
(i) $65 million of term loans ("Term Loans"), which were funded at closing,
(ii) $50 million of acquisition loans ("Acquisition Loans"), which are expected to be used to fund a portion of the pending acquisition of the Vyvx advertising services business (see Note 12), and (iii) $30 million of revolving loans ("Revolving Loans"). The Company has also

obtained an additional financing commitment for a two-year, $65 million subordinated unsecured term loan to fund a portion of the pending Vyvx transaction (see Note 12).

† On May 8, 2008, the Company announced that it had entered into a definitive agreement with Enliven to acquire all outstanding shares of Enliven in a tax free stock-for-stock transaction. The Company estimates the purchase price of Enliven will be approximately $98 million, inclusive of approximately $4.5 million of Enliven's debt. Pursuant to the terms of the merger agreement, a wholly-owned subsidiary of DG FastChannel will merge into Enliven. In the merger, each outstanding share of Enliven common stock will be converted into 0.051 shares of DG FastChannel common stock. In the aggregate, DG FastChannel expects to issue approximately 4.5 million shares of DG FastChannel common stock (exclusive of shares already owned by DG FastChannel) in the transaction with the equity valued at approximately $83.3 million. Upon consummation of the merger, DG FastChannel will have approximately 22.5 million shares of common stock outstanding, with current DG FastChannel shareholders owning approximately 80.0%, and current Enliven shareholders owning approximately 20.0% of the combined enterprise. DG FastChannel will assume Enliven's outstanding debt. The merger, which is expected to be completed in the third quarter of 2008, is subject to (i) the approval of DG FastChannel and Enliven shareholders, (ii) regulatory approval, and (iii) customary closing conditions.

Results of Operations



The following table sets forth certain historical financial data from continuing
operations (in thousands).



                                                      % Change      As a % of Revenue
                              Three Months Ended        2008        Three Months Ended
                                  March 31,              vs.            March 31,
                              2008          2007        2007        2008         2007
Revenues                   $    29,217   $   19,894        46.9 %     100.0 %      100.0 %
Costs and expenses:
Cost of revenues (a)            11,665        8,870        31.5        39.9         44.6
Sales and marketing              1,799        1,362        32.1         6.2          6.8
Research and development         1,138          476       139.1         3.9          2.4
General and
administrative                   4,188        2,584        62.1        14.3         13.0
Depreciation and
amortization                     3,291        2,545        29.3        11.3         12.8
Total costs and expenses        22,081       15,837        39.4        75.6         79.6

Income from operations           7,136        4,057        75.9        24.4         20.4

Other (income) expense:
Unrealized loss on
derivative warrant               1,093            -           -         3.7            -
Interest expense                   887          370       139.7         3.0          1.9
Interest income and
other                             (124 )       (196 )     (36.7 )      (0.4 )       (1.0 )

Income before income
taxes                            5,280        3,883        36.0        18.1         19.5
Provision for income
taxes                            2,113        1,551        36.2         7.3          7.8

Income from continuing
operations                 $     3,167   $    2,332        35.8        10.8         11.7

2008 versus 2007

Revenues. For the three months ended March 31, 2008, revenues increased $9.3 million, or 46.9%, as compared to the same period in the prior year. The increases were $9.1 million and $0.2 million from the Video and Audio Content Distribution and the SourceEcreative segments, respectively. The increase in the Video and Audio Content Distribution segment was primarily due to (i) the additional customers acquired in the Pathfire, Point.360 and GTN transactions,
(ii) additional political advertising revenue, and (iii) a $2.7 million increase in high definition ("HD") revenue ($3.7 million in 2008 vs. $1.0 million in 2007).

Cost of Revenues. For the three months ended March 31, 2008, cost of revenues increased $2.8 million, or 31.5%, as compared to the same period in the prior year. The 31.5% increase in cost of revenues compares to a 46.9% increase in revenues. As a percentage of revenues, cost of revenues decreased to 39.9% in the current period as compared to 44.6% in the same period in the prior year. The decrease, on a percentage basis, is primarily attributable to the elimination of duplicative personnel, facilities, telecommunications and other expenses following the acquisitions of Pathfire, Point.360 and GTN.

Sales andMarketing. For the three months ended March 31, 2008, sales and marketing expense increased $0.4 million, or 32.1%, as compared to the same period in the prior year. The increase is primarily attributable to increased salaries, commissions and related expenses associated with a larger sales force in support of the increased

customer base, particularly related to the acquisition of Pathfire. As a percentage of revenues, sales and marketing expenses decreased to 6.2% in the current period as compared to 6.8% in the same period in the prior year. The decrease, on a percentage basis, is primarily attributable to efficiencies gained as a result of having a consolidated sales force following our recent acquisitions.

Research and Development. For the three months ended March 31, 2008, research and development costs increased $0.7 million, or 139.1%, as compared to the same period in the prior year. The increase is primarily attributable to increased spending for payroll, benefits and consulting necessary to develop new technologies and service the network after the acquisitions of Point.360 and GTN. Further, $0.5 million of the increase relates to the addition of Pathfire. Pathfire operates a network separate from DG FastChannel's network. The Pathfire network is a back-up to the DG FastChannel network.

General and Administrative. For the three months ended March 31, 2008, general and administrative expense increased $1.6 million, or 62.1%, as compared to the same period in the prior year. The increase is primarily attributable to higher
(i) personnel costs ($0.5 million) to support the Company's larger customer base and (ii) audit and tax fees ($0.5 million) partly associated with the timing of audit work performed and partly associated with the increased complexity of the Company as a result of its recent acquisitions.

Depreciation and Amortization. For the three months ended March 31, 2008, depreciation and amortization expense increased $0.7 million, or 29.3%, as compared to the same period in the prior year. The increase is primarily attributable to amortization of certain intangible assets acquired in the Pathfire, Point.360 and GTN transactions, as well as increases in network equipment associated with the larger customer base.

Unrealized Loss on Derivative Warrant. For the three months ended March 31, 2008, the fair value of the Company's investment in a derivative warrant related to Enliven decreased by $1.1 million. The warrant meets the definition of a derivative instrument which requires changes in the value of the warrant to be recorded in the statement of income. Since the purchase of the Enliven warrant occurred in the second quarter of 2007, there was no unrealized gain or loss in the prior year period.

Interest Expense. For the three months ended March 31, 2008, interest expense increased $0.5 million as compared to the same period in the prior year. The increase was due to increased borrowings in connection with the acquisitions of Pathfire, Point.360 and GTN, offset by a decrease in interest rates.

Interest Income and Other, net. For the three months ended March 31, 2008, interest income and other, net decreased $0.1 million as compared to the same period in the prior year. The decrease was due to (i) a decrease in the average amount of cash on hand and (ii) a decline in interest rates.

Provision for Income Taxes. For the three months ended March 31, 2008, the provision for income taxes was 40.0% of income before income taxes as compared to 39.9% for the same period in the prior year. The provisions for both periods differ from the expected federal statutory rate of 34.0% as a result of state and foreign income taxes and certain non-deductible expenses.

Financial Condition



The following table sets forth certain major balance sheet accounts of the
Company as of March 31, 2008 and December 31, 2007 (in thousands):



                                                   March 31,     December 31,
                                                     2008            2007
       Assets:
       Cash and cash equivalents                  $    34,054   $       10,101
       Accounts receivable, net                        24,032           26,516
       Property and equipment, net                     27,170           27,466
       Long-term investments                            9,070           15,001
       Deferred income taxes, net                       5,105            4,667
       Goodwill and intangible assets, net            162,298          163,318

       Liabilities:
       Accounts payable and accrued liabilities         9,878           12,770
       Debt                                            65,000           44,775

       Stockholders' equity                           192,563          192,129

Cash and cash equivalents fluctuate with operating, investing and financing activities. In particular, cash and cash equivalents fluctuate with
(i) operating results, (ii) the timing of payments, (iii) capital expenditures,
(iv) acquisition and investment activity, (v) borrowings and repayments of debt, and (vi) capital raising activity. The increase in cash and cash equivalents from December 31, 2007 relates to entering into the New Credit Facility in March 2008 and funding the $65 million of Term Loans.

Accounts receivable generally fluctuate with the level of revenues. As revenues increase, accounts receivable tend to increase. Days' sales outstanding were 75 days and 79 days as of March 31, 2008 and December 31, 2007, respectively.

Property and equipment purchases tend to increase with the level of revenues and as a result of acquisition activity. For the last few years, purchases of property and equipment (excluding acquisition activity) have been approximately $5 million to $7 million per year (including capitalized costs of developing software). For the three months ended March 31, 2008, purchases of property and equipment were $0.5 million and capitalized costs of developing software were $1.1 million.

Long-term investments consisted of an investment in Enliven common stock and warrants at March 31, 2008 and December 31, 2007. The decrease relates to a decline in the market value of Enliven common stock and warrants during the three months ended March 31, 2008.

Deferred income taxes, net relates primarily to Federal and state net operating loss carryforwards, slightly offset by the excess book basis over the tax basis of certain identifiable intangibles.

Goodwill and intangible assets, net were recorded in connection with the acquisitions of various businesses. Goodwill and intangible assets, net decreased as a result of the amortization of certain intangible assets.

Accounts payable and accrued liabilities decreased $2.9 million during the three months ended March 31, 2008. The decrease relates primarily to the timing of when certain payments are made.

Debt increased $20.2 million during the three months ended March 31, 2008 as a result of the Company replacing its $85 million credit facility with the $145 million New Credit Facility in March 2008. In connection with such replacement, the Company repaid its previous $45 million term loan facility and fully funded the $65 million of Term Loans at closing.

Stockholders' equity increased $0.4 million during the three months ended March 31, 2008. The increase relates primarily to reporting net income of $3.2 million, partially offset by a $2.9 million decrease in the value of its investment in the common stock of Enliven.

Liquidity and Capital Resources



The following table sets forth a summary of certain historical information with
respect to the Company's statements of cash flows (in thousands):



                                                        Three Months Ended
                                                            March 31,
                                                         2008         2007
        Operating activities:
        Net income                                    $     3,167    $ 2,199
        Depreciation and amortization                       3,291      2,545
        Unrealized loss on warrants                         1,093          -
        Deferred income taxes and other                     1,705      1,581
        Changes in operating assets and liabilities        (2,207 )   (4,050 )
        Total                                               7,049      2,275

        Investing activities:
        Purchases of property and equipment                  (541 )     (905 )
        Capitalized costs of developing software           (1,100 )     (535 )
        Purchases of long-term investments                      -       (607 )
        Other                                                   -        661
        Total                                              (1,641 )   (1,386 )

        Financing activities:
        Borrowings (repayments) of debt, net               18,496       (850 )
        Other                                                  47         60
        Total                                              18,543       (790 )

        Effect of exchange rate changes on cash                 2          1

        Net increase in cash and cash equivalents     $    23,953    $   100

The Company generates cash from net income after adding back certain non cash expenditures such as depreciation and amortization. This cash is typically used to purchase property and equipment, make strategic investments and to acquire similar and/or ancillary businesses. Generally, completing acquisitions requires additional capital resources, such as borrowings from a credit facility or issuing equity instruments.

For the three months ended March 31, 2008, the Company generated $7.1 million from operating activities. A portion of this cash was used to purchase property and equipment and develop internally used software.

In December 2007, the Company entered into a definitive agreement with Level 3 Communications, Inc. ("Level 3") to acquire the Vyvx advertising services business including its distribution, post-production and related operations. Pursuant to the terms of the asset purchase agreement, the Company will pay Level 3 $129 million in cash, subject to certain adjustments, for the Vyvx advertising services business. The Company also has obtained a financing commitment from BMO Capital Markets ("BMO Capital") for a two-year, $65 million subordinated unsecured term loan to fund a portion of the transaction, with the balance being funded from (i) cash on hand and (ii) proceeds from the New Credit Facility (discussed below). In response to the filing of the Company's Premerger Notification and Report Form in connection with this transaction, the Department of Justice has issued to the Company a request for additional information, or a "second request." The Company has recently responded to this second request and now expects closing of the transaction to be completed in the second quarter of 2008, subject to the satisfaction of regulatory and other customary closing conditions. If it is determined the regulatory approvals will not be obtained, or closing of the transaction does not occur by September 30, 2008, then either party may terminate the agreement, provided such party was not the cause of such failure to close, and the Company may be required to pay Level 3 a $10 million termination fee.

In March 2008, the Company replaced its $85 million credit agreement with the six-year, $145 million New Credit Facility with its existing and two additional lenders. The New Credit Facility contains (i) $65 million of Term Loans,
(ii) $50 million of Acquisition Loans, and (iii) $30 million of Revolving Loans. As of March 31, 2008,

the Term Loans have been fully funded and no amounts are outstanding pursuant to the Acquisition Loans or the Revolving Loans. It is anticipated that the Acquisition Loans and the Revolving Loans will be drawn upon in connection with the pending acquisition of the Vyvx advertising services business. Borrowings under the New Credit Facility bear interest at the base rate or LIBOR, plus the applicable margin for each that fluctuates with the total leverage ratio (as defined). At March 31, 2008, borrowings under the New Credit Facility bore interest at a weighted average annual interest rate of 5.0%.

The Term Loans formally mature in March 2013; however, the Company presently expects that between (i) scheduled quarterly principal payments of $3.25 million starting September 30, 2008 and (ii) excess cash flow ("ECF") principal payment provisions, the Term Loans will be fully retired in 2012. The Acquisition Loans mature in March 2014 and have (i) scheduled quarterly principal payments equal to .25% multiplied by the outstanding principal balance of the Acquisition Loans as of a specified date and (ii) ECF principal payment provisions. The Revolving Loans mature in March 2013 and permit reborrowings, whereas the Term Loans and . . .