DG Systems Reports Record Second Quarter Results; Revenues Rise 12%; EBITDA Increases More Than 10-Fold.

Business Editors

DALLAS & SAN FRANCISCO--(BUSINESS WIRE)--Aug. 9, 2000

DG Systems, Inc. (Nasdaq: DGIT), the leading digital distributor of advertising to the broadcast industry, today reported record operating results for the second quarter and six month periods ended June 30, 2000.

Consolidated revenues for the quarter ended June 30, 2000 rose 12% to $13.5 million from $12.1 million in the same period last year. Second quarter revenues reflect increased digital video deliveries resulting from the expansion of the Company's private national digital network which now includes over 750 television stations and 7,500 radio stations. Earnings before interest, taxes, depreciation and amortization (EBITDA) for the second quarter of 2000 increased more than ten-fold to $1.9 million, compared to $184,000 in the second quarter of 1999. The quarterly increase is a result of continued revenue growth accompanied by a 2.4% reduction in operating costs. The Company achieved break even results of $0.00 per share for the three months ended June 30, 2000, compared to a net loss of $2.7 million, or $0.10 per share, in the year-ago period.

Commenting on the results, Matthew E. Devine, Chief Executive Officer of DG Systems, stated, "In addition to generating another quarter of double-digit, year-over-year revenue growth, the second quarter marked the first period in which the Company achieved break- even operating results. The Company has established a track record of six consecutive quarters of positive EBITDA and is now break even on the bottom line. This is highlighted by the fact that DG's second quarter EBITDA exceeded the Company's EBITDA for all of 1999. DG's senior management team has successfully transformed an applications-driven business from being a Company that was a cash user into becoming an entity that is a cash generator."

"Going forward, senior management remains focused on top line growth and disciplined spending. In that spirit, on July 18, 2000, DG announced a strategic OneDigitalPath(TM) alliance with Entertainment Digital Networks. This undertaking seamlessly integrates both entities' digital video applications, offering customers a fast, easy, cost effective way to bring advertising spots to broadcasters. We expect this initiative to supplement DGs top line growth."

Consolidated revenues for the six-month period rose 11.3% to $26.3 million compared to $23.6 million for the same period last year. EBITDA for the first six months of 2000 increased nearly fifteen-fold to $2.8 million, compared to EBITDA of $192,000 for the same period last year. The Company significantly reduced its net loss for the six-month period to $951,000, or $0.03 per share, compared to a net loss of $5.7 million, or $0.21 per share, for the same period last year.

Mr. Devine continued, "We're excited about DG's proposed merger with StarGuide Digital Networks, a leading developer of innovative media delivery solutions utilized by broadcasters worldwide. The combined entity brings significant operational and technological synergies and creates the broadcasting industry's premiere delivery solution for multimedia content featuring proprietary satellite and Internet transmission technology. Importantly, we believe that StarGuide is similar to DG in that it possesses a solid industry position and innovative applications and technology which will benefit from our focus on revenue expansion and cash generation, thereby supporting DG's goal of delivering enhanced value to our shareholders."

The proposed combination of DG and StarGuide, expected to close in the fourth quarter 2000, will provide advertisers, agencies, dealers and broadcasters a convenient, reliable and fast way to reach their ultimate target - the consumer. StarGuide's leading edge technology is showcased through its CoolCast video-enhanced Internet portal which aggregates live, high quality video and CD-quality digital audio for PC users. Unlike competing services, CoolCast allows millions of simultaneous users to access its join-in-progress streaming video and audio through broadband Internet connections, providing entertainment and information without sacrificing productivity for desktop PC users. In May, ZoomTown.com, the broadband Internet subsidiary of Broadwing Inc. (NYSE: BRW), began delivering CoolCast to its ADSL subscribers in the Greater Cincinnati area, the nation's most highly concentrated base of broadband users.

DG Systems operates a private, nationwide digital network for distributing audio and video content that links thousands of advertisers and hundreds of advertising agencies with approximately 7,500 radio and over 750 television station across the United States and Canada. DG Systems recently agreed to merge with StarGuide Digital Networks, a leading provider of long form audio and digital network distribution services to the broadcast industry, in a tax-free stock-for-stock transaction. The Company can be reached at 415-276-6600 or at www.dgsystems.com.

This release contains forward-looking statements relating to the company, including the expansion of its digital distribution network, and the demand among certain clients for digital audio and video delivery services. These forward-looking statements involve risks and uncertainties, which could cause actual results to differ materially from those projected. These and other risks relating to DG Systems' business are set forth in the company's Form 10-K filed with the Securities and Exchange Commission on March 28, 2000.

                   Digital Generation Systems, Inc.
                 Consolidated Statements of Operations
                 (In thousands, except per share data)

                              Three Months Ended     Six Months Ended
                              June 30,   July 3,    June 30,   July 3,
                              -------    -------    -------    -------
                                2000       1999       2000       1999
                                ----       ----       ----       ----

Revenues                      $13,540    $12,120    $26,250    $23,580

Operating expenses, excluding
 depreciation & amortization   11,649     11,936     23,412     23,388
                               ------     ------     ------     ------

EBITDA                          1,891        184      2,838        192

Depreciation & Amortization     1,614      2,435      3,199      4,925
                                -----      -----      -----      -----

Operating Income (Loss)          $277   ($2,251)     ($361)   ($4,733)

Interest Expense, net             360        450        590        959
                                  ---        ---        ---        ---

Net Loss                        ($83)   ($2,701)     ($951)   ($5,692)
                                =====   ========     ======   ========


Basic and diluted net earnings
 (loss) per common share        $0.00    ($0.10)    ($0.03)    ($0.21)
                                =====    =======    =======    =======

Weighted average common
 shares outstanding            28,152     26,591     27,812     26,490
                               ======     ======     ======     ======