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

Cautionary Note Regarding Forward-Looking Statements

The SEC 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," "anticipates," "estimates," "expects," "projects," "future," "intends," "will," "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 potential inability to further identify, develop and achieve commercial success for new products;

† the possibility of delays in product development;

† the development of competing distribution products;

† our ability to protect our proprietary technologies;

† patent-infringement claims;

† risks of new, changing and competitive technologies;

† the potential need for additional capital to fund our technology development programs; and

† other factors discussed elsewhere herein and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2008 ("Annual Report") under the heading "Risk Factors."

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 consolidated financial statements and notes to unaudited consolidated financial statements contained in this report that have been prepared in accordance with the rules and regulations of the SEC and do not include all the disclosures normally required in annual consolidated financial statements prepared in accordance with GAAP. 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. See also Recently Adopted and Recently Issued Accounting Guidance in Note 2 to our unaudited consolidated financial statements contained in this report.

Overview

We are a leading provider of digital technology services that enable the electronic delivery of advertisements, syndicated programs, and video news releases from advertising agencies and other content providers to traditional broadcasters, online publishers 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 general economic conditions, the financial stability of our customers, the overall advertising market, new emerging digital technologies, the increasing trend towards delivering high definition data files, and the continued transition from the traditional "dub and ship" delivery method to digital broadcast signal transmission.

Part of our business strategy is to acquire similar and/or ancillary businesses that will increase our market penetration and, in some cases, result in operating synergies. Consistent with this business strategy we have recently completed the following transactions:

Merger with Enliven

† On October 2, 2008, we acquired all of the issued and outstanding shares of Enliven Marketing Technologies Corporation's ("Enliven") common stock we did not previously own in exchange for 2.9 million shares of our common stock. In the aggregate, including shares of Enliven previously held and an estimated 0.1 million shares that we may be required to issue related to a preacquisition earnout, the total purchase price was approximately $75 million. Enliven has two principal operating units, Unicast Communications Corp. ("Unicast") and Springbox Ltd. ("Springbox"). Unicast offers an online advertising campaign management product and Springbox is an Internet based marketing firm.

Purchase of Vyvx

† On June 5, 2008, we completed the acquisition of substantially all the assets and certain liabilities of the Vyvx advertising services business ("Vyvx"), including its distribution, post-production and related operations, from Level 3 Communications, Inc. ("Level 3"). Vyvx operated an advertising services and distribution business similar to our video and audio content distribution business. The acquisition was completed pursuant to an asset purchase agreement among Level 3, certain affiliates of Level 3 and us for a purchase price of approximately $135 million in cash.

Our business is seasonal as a large portion of our revenues follow the advertising patterns of our customers. Revenues tend to be lowest in the first quarter, build throughout the year and are generally the highest in the fourth quarter. Further, our revenues are affected by political advertising, which peaks every other year consistent with the national, state and local election cycles.

Results of Operations



Three Months Ended September 30, 2009 vs. Three Months Ended September 30, 2008



The following table sets forth certain historical financial data (dollars in
thousands).



                                                            % Change     As a % of Revenue
                                   Three Months Ended         2009       Three Months Ended
                                      September 30,           vs.          September 30,
                                    2009         2008         2008        2009        2008
Revenues                         $   48,268    $  41,428          17 %     100.0 %     100.0 %
Costs and expenses:
Cost of revenues (a)                 16,913       17,190          (2 )      35.0        41.5
Sales and marketing                   3,174        1,853          71         6.6         4.5
Research and development              1,423          951          50         3.0         2.3
General and administrative            6,817        5,115          33        14.1        12.3
Depreciation and amortization         6,893        7,401          (7 )      14.3        17.9
Total costs and expenses             35,220       32,510           8        73.0        78.5

Income from operations               13,048        8,918          46        27.0        21.5

Other (income) expense:
Interest expense                      2,390        4,498         (47 )       4.9        10.8
Unrealized loss on derivative
warrant                                   -          781           -           -         1.9
Interest income and other               (12 )       (160 )       (93 )         -        (0.4 )

Income before income taxes           10,670        3,799         181        22.1         9.2
Provision for income taxes            5,312        1,520         249        11.0         3.7

Net income                       $    5,358    $   2,279         135        11.1         5.5

Revenues. For the three months ended September 30, 2009, revenues increased $6.8 million, or 17%, as compared to the same period in the prior year. The increases were $4.4 million and $2.4 million from the Video and Audio Content Distribution and the Other segments, respectively. The increase in the Video and Audio Content Distribution segment was primarily due to (i) a $6.3 million increase in high definition ("HD") revenue ($15.6 million in 2009 vs. $9.3 million in 2008) driven by an increase in HD deliveries and (ii) $3.1 million in revenue from the October 2008 acquisition of Unicast, partially offset by
(iii) a decrease in the number of standard definition ("SD") deliveries and
(iv) a $2.0 million decrease in political advertising in 2009 that had occurred in connection with the 2008 national, state and local elections. The $2.4 million increase in the Other segment relates to the addition of Springbox (acquired with Unicast in October 2008), partially offset by a slight decrease in SourceE's revenues.

Cost of Revenues. For the three months ended September 30, 2009, cost of revenues decreased $0.3 million, or 2%, as compared to the same period in the prior year. As a percentage of revenues, cost of revenues decreased to 35.0% in the current period as compared to 41.5% in the same period in the prior year. The decrease, on a percentage basis, was primarily attributable to
(i) the elimination of substantially all duplicative infrastructure and certain personnel costs associated with the June 2008 acquisition of Vyvx, (ii) a larger percentage of HD revenue which has a higher profit margin than SD revenue, and
(iii) lower delivery costs as a higher percentage of orders were delivered electronically, partially offset by the inclusion of Springbox which has lower gross margins than the remainder of the Company.

Sales and Marketing. For the three months ended September 30, 2009, sales and marketing expense increased $1.3 million, or 71%, as compared to the same period in the prior year. The increase was principally attributable to the addition of Unicast. Sales and marketing efficiencies gained, on a percentage basis, from the June 2008 acquisition of Vyvx were more than offset by increases in costs associated with Unicast.

Research and Development. For the three months ended September 30, 2009, research and development costs increased $0.5 million, or 50%, as compared to the same period in the prior year. The increase in research and development costs relates to the addition of Unicast, partially offset by shifting some employees to software development initiatives that are capitalizable.

General and Administrative. For the three months ended September 30, 2009, general and administrative expense increased $1.7 million, or 33%, as compared to the same period in the prior year. The increase was primarily attributable to (i) higher share-based compensation ($0.9 million) and (ii) the inclusion of Unicast and Springbox ($0.9 million) in the Company's consolidated results, partially offset by lower audit and tax expense ($0.4 million).

Depreciation and Amortization. For the three months ended September 30, 2009, depreciation and amortization expense decreased $0.5 million, or 7%, as compared to the same period in the prior year. The decrease was primarily attributable to $1.4 million of additional depreciation recorded in the prior year quarter related to shortening the estimated useful lives of certain network equipment that was replaced early, partially offset by $0.8 million of additional depreciation and amortization in 2009 in connection with the October 2008 acquisition of Enliven (Unicast and Springbox).

Interest Expense. For the three months ended September 30, 2009, interest expense decreased $2.1 million, or 47%, as compared to the same period in the prior year. The decrease was due to a reduction in the average amount of debt outstanding during the period, largely as a result of using the proceeds from the June 2009 public equity offering, which raised $52 million, to retire debt, and a lower average interest rate. Excluding the amortization of fees and expenses, the weighted average annual interest rate on our debt was 6.1% at September 30, 2009 vs. 8.7% at September 30, 2008.

Unrealized Loss on Derivative Warrant. For the three months ended September 30, 2008, the fair value of the Company's Enliven warrant decreased by $0.8 million. The warrant had met the definition of a derivative instrument which required changes in the fair value of the warrant to be recorded in the statement of income. In connection with the October 2008 acquisition of Enliven, the Company's Enliven warrant was effectively canceled.

Interest Income and Other. For the three months ended September 30, 2009 interest income and other decreased $0.1 million as compared to the same period in the prior year. The decrease was the result of a decline in the average interest rate on invested cash.

Provision for Income Taxes. For the three months ended September 30, 2009 and 2008 the provision for income taxes was 50% and 40%, respectively, of income before income taxes. The provisions for both periods differ from the expected federal statutory rate of 35% for the 2009 period and 34% for the 2008 period, as a result of state and foreign income taxes and certain non-deductible expenses. The majority of the increase to the effective rate for the three months ended September 30, 2009 relates to stock-based compensation and tax losses in foreign jurisdictions which are not expected to be deductible in the U.S.

Nine Months Ended September 30, 2009 vs. Nine Months Ended September 30, 2008



The following table sets forth certain historical financial data (dollars in
thousands).



                                                             % Change     As a % of Revenue
                                    Nine Months Ended          2009       Nine Months Ended
                                      September 30,            vs.          September 30,
                                    2009          2008         2008        2009        2008
Revenues                         $  133,403    $  105,098          27 %     100.0 %     100.0 %
Costs and expenses:
Cost of revenues (a)                 52,975        42,998          23        39.7        40.9
Sales and marketing                   9,022         5,609          61         6.8         5.3
Research and development              3,508         2,729          29         2.6         2.6
General and administrative           19,318        14,125          37        14.5        13.5
Depreciation and amortization        19,527        15,101          29        14.6        14.4
Total costs and expenses            104,350        80,562          30        78.2        76.7

Income from operations               29,053        24,536          18        21.8        23.3

Other (income) expense:
Interest expense                      9,514         7,440          28         7.1         7.1
Unrealized loss on derivative
warrant                                   -         1,601           -           -         1.5
Interest income and other                87          (495 )      (118 )       0.1        (0.5 )

Income before income taxes           19,452        15,990          22        14.6        15.2
Provision for income taxes            8,914         6,396          39         6.7         6.1

Net income                       $   10,538    $    9,594          10         7.9         9.1

Revenues. For the nine months ended September 30, 2009, revenues increased $28.3 million, or 27%, as compared to the same period in the prior year. The increases were $22.6 million and $5.7 million from the Video and Audio Content Distribution and the Other segments, respectively. The increase in the Video and Audio Content Distribution segment was primarily due to (i) an $18.9 million increase in HD revenue ($38.5 million in 2009 vs. $19.6 million in 2008) driven by an increase in HD deliveries and (ii) $8.5 million in revenue from the October 2008 acquisition of Unicast, partially offset by (iii) a decrease in the number of SD deliveries and (iv) a $4.1 million decrease in political advertising in 2009 that had occurred in connection with the 2008 national, state and local elections. The $5.7 million increase in the Other segment relates to the addition of Springbox (acquired with Unicast in October 2008), partially offset by a slight decrease in SourceE's revenues.

Cost of Revenues. For the nine months ended September 30, 2009, cost of revenues increased $10.0 million, or 23%, as compared to the same period in the prior year. As a percentage of revenues, cost of revenues decreased to 39.7% in the current period as compared to 40.9% in the same period in the prior year. The decrease, on a percentage basis, was primarily attributable to
(i) the elimination of substantially all duplicative infrastructure and certain personnel costs in the second quarter of 2009 associated with the June 2008 acquisition of Vyvx, (ii) a larger percentage of HD revenue which has a higher profit margin than SD revenue, (iii) lower delivery costs as a higher percentage of orders were delivered electronically, and (iv) the acquisition of Unicast which has higher gross margins than the remainder of the Company, partially offset by the inclusion of Springbox which has lower gross margins than the remainder of the Company. Prior to the second quarter 2009, Vyvx had substantial duplicative infrastructure costs. We anticipated our acquisition of Vyvx would increase our cost of revenues on a percentage basis for a period of time prior to fully implementing planned cost synergies. In March 2009, we successfully completed the transition of all the former Vyvx customers over to our Irving, Texas NOC and eliminated the costs associated with the former Vyvx NOC in Tulsa, Oklahoma.

Sales and Marketing. For the nine months ended September 30, 2009, sales and marketing expense increased $3.4 million, or 61%, as compared to the same period in the prior year. The increase was attributable to the addition of Unicast. Sales and marketing efficiencies gained, on a percentage basis, from the acquisition of Vyvx were offset by increases in costs associated with Unicast.

Research and Development. For the nine months ended September 30, 2009, research and development costs increased $0.8 million, or 29%, as compared to the same period in the prior year. The increase in research and development costs relates to the addition of Unicast ($1.5 million), partially offset by shifting some employees to software development initiatives that are capitalizable.

General and Administrative. For the nine months ended September 30, 2009, general and administrative expense increased $5.2 million, or 37%, as compared to the same period in the prior year. The increase was primarily attributable to (i) higher stock-based compensation ($3.0 million), (ii) the inclusion of Unicast and Springbox ($2.4 million) in the Company's consolidated results,
(iii) higher facilities costs ($0.5 million) and (iv) higher salary expense
($0.4 million), partially offset by lower incentive compensation ($0.9 million) and audit and tax expense ($0.7 million).

Depreciation and Amortization. For the nine months ended September 30, 2009, depreciation and amortization expense increased $4.4 million, or 29%, as compared to the same period in the prior year. The increase was primarily attributable to (i) amortization of certain intangible assets acquired in the Vyvx and Enliven transactions ($3.0 million), (ii) more amortization associated with the increase in capitalized software ($1.0 million) and (iii) depreciation associated with fixed assets acquired in the acquisition of Enliven ($0.7 million), partially offset by a reduction in depreciation on our former spot boxes that had been accelerated in the prior period after a decision was made to retire the spot boxes early.

Interest Expense. For the nine months ended September 30, 2009, interest expense increased $2.1 million, or 28%, as compared to the same period in the prior year. The increase was due to an increase in the average amount of debt outstanding during the period and a slightly higher average interest rate. The increase in debt was principally associated with $115 million of borrowings in connection with the purchase of Vyvx in June 2008, a portion of which has been repaid in connection with scheduled quarterly principal payments and the proceeds from the Company's June 2009 public equity offering. Excluding the amortization of fees and expenses, the weighted average annual interest rate on our debt was 6.1% at September 30, 2009 vs. 8.7% at September 30, 2008.

Unrealized Loss on Derivative Warrant. For the nine months ended September 30, 2008, the fair value of the Company's Enliven warrant decreased by $1.6 million. The warrant had met the definition of a derivative instrument which required changes in the fair value of the warrant to be recorded in the statement of income. In connection with the October 2008 acquisition of Enliven, the Company's Enliven warrant was effectively canceled.

Interest Income and Other. For the nine months ended September 30, 2009 interest income and other decreased $0.6 million as compared to the same period in the prior year. The decrease was the result of lower amounts of cash on hand, a decrease in the average interest rate on invested cash and an increase in other expense.

Provision for Income Taxes. For the nine months ended September 30, 2009 and 2008 the provision for income taxes was 46% and 40%, respectively, of income before income taxes. The provisions for both periods differ from the expected federal statutory rate of 35% for the 2009 period and 34% for the 2008 period, as a result of state and foreign income taxes and certain non-deductible expenses. The majority of the increase to the effective rate for the nine months ended September 30, 2009 relates to stock-based compensation and tax losses in foreign jurisdictions which are not expected to be deductible in the U.S.

Financial Condition



The following table sets forth certain major balance sheet accounts of the
Company as of September 30, 2009 and December 31, 2008 (in thousands):



                                            September 30,     December 31,
                                                2009              2008
Assets:
Cash and cash equivalents                  $        26,803   $       17,180
Accounts receivable, net                            41,298           42,971
Property and equipment, net                         42,330           37,980
Deferred income taxes, net                          35,148            7,777
Goodwill and intangible assets, net                317,069          361,769

Liabilities:
Accounts payable and accrued liabilities            18,425           22,398
Debt                                               107,837          173,137

Stockholders' equity                               335,010          269,518

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 primarily relates to the excess of operating and capital raising activity over the repayment of debt.

Accounts receivable generally fluctuate with the level of revenues. As revenues increase, accounts receivable tend to increase. Days' sales outstanding were 79 days and 76 days at September 30, 2009 and December 31, 2008, respectively.

Property and equipment purchases tend to increase with the level of revenues and as a result of acquisition activity. Further, the balance of property and equipment is affected by recording depreciation expense. For the nine months ended September 30, 2009, purchases of property and equipment were $4.6 million in cash and $4.5 million of vendor financed purchases (total of $9.1 million), as compared to purchases of $9.8 million for the same period in 2008. For the nine months ended September 30, 2009 and 2008, capitalized costs of developing software were $6.0 million and $4.1 million, respectively.

Goodwill and intangible assets decreased from December 31, 2008 primarily as a result of recognizing $35.1 million of NOLs in connection with the acquisition of Enliven and amortization of intangible assets. The NOLs were initially fully reserved in the purchase price allocation until an Internal Revenue Code section 382 study could be completed. Such study was completed during the third quarter and the valuation allowance was removed.

Accounts payable and accrued liabilities decreased $4.0 million during the nine months ended September 30, 2009. The decrease relates primarily to (i) the timing of when certain payments are made and (ii) paying certain liabilities incurred in connection with the purchase of Vyvx.

Debt decreased $65.3 million during the nine months ended September 30, 2009 as a result of (i) the Company using proceeds from a public equity offering in June 2009 to reduce its debt and (ii) scheduled principal payments.

Stockholders' equity increased $65.5 million during the nine months ended September 30, 2009. The increase relates primarily to (i) issuing $52.5 million of equity in connection with the June 2009 public equity offering, . . .