----

----

| Delaware                                                       | 01-17156                      | 95-4172359                                  |
|----------------------------------------------------------------|-------------------------------|---------------------------------------------|
| (State      or other jurisdiction of  incorporation) | (Commission      File Number) | (I.      R. S. Employer identification No.) |
|                                                           |                          |                                        |
| 127      W. 30th      Street, 5th      Floor                   |                          | 10001                                       |
| New      York, NY                                              |                          | (Zip      Code)                             |
| (Address      of principal executive offices)                  |                          |                                        |

----

|              |                                                                                                                             | PAGE     |
|-------------------|----------------------------------------------------------------------------------------------------------------------------------|----------|
|              | PART      I                                                                                                                      |     |
|              |                                                                                                                             |     |
| Item      1.      | Business                                                                                                                         | 1        |
| Item      1A.     | Risk      Factors                                                                                                                | 6        |
| Item      1B.     | Unresolved      Staff Comments                                                                                                   | 6        |
| Item      2.      | Properties                                                                                                                       | 7        |
| Item      3.      | Legal      Proceedings                                                                                                           | 8        |
| Item      4.      | Submission      of Matters to a Vote of Security Holders                                                                         | 9        |
|              |                                                                                                                             |     |
|              | PART      II                                                                                                                     |     |
|              |                                                                                                                             |     |
| Item      5.      | Market      for the Registrant’s Common Equity, Related Stockholder Matters and Issuer      Purchases of Equity Securities | 10       |
| Item      6.      | Selected      Financial Data                                                                                                     | 12       |
| Item      7.      | Management’s      Discussion and Analysis of Financial Condition and Results of      Operations                            | 12       |
| Item      8.      | Financial      Statements and Supplementary Data                                                                                 | 21       |
| Item      9.      | Changes      in and Disagreements with Accountants on Accounting and Financial      Disclosure                                   | 45       |
| Item      9A (T). | Controls      and Procedures                                                                                                     | 45       |
| Item      9B.     | Other      Information                                                                                                           | 46       |
|              |                                                                                                                             |     |
|              | PART      III                                                                                                                    |     |
|              |                                                                                                                             |     |
| Item      10.     | Directors,      Executive Officers and Corporate Governance                                                                      | 47       |
| Item      11.     | Executive      Compensation                                                                                                      | 51       |
| Item      12.     | Security      Ownership of Certain Beneficial Owners and Management and Related      Stockholder Matters                         | 56  |
| Item      13.     | Certain      Relationships and Related Transactions, and Director      Independence                                              | 57       |
| Item      14.     | Principal      Accountant Fees and Services                                                                                      | 58       |
|              |                                                                                                                             |     |
|              | PART      IV                                                                                                                     |     |
|              |                                                                                                                             |     |
| Item      15.     | Exhibits      and Financial Statement Schedules                                                                                  | 59       |
|              |                                                                                                                             |     |

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----

----

| ·   | Production      Expertise:  Consulting and production services are provided by the      Company’s highly-skilled employees; |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Technological      Capabilities:  The Company uses technologically-advanced      equipment and processes, enabling it to work with multiple file formats      for virtually any size outputdevice; |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Proven      Quality Standards:  The Company consistently delivers customized      imaging products of superiorquality; |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------|

| ·   | Rapid      Turnaround and Delivery Times:  The Company accommodates      clients’ tight schedules, often turning around projects, from start to      finish, in less than 24 hours, by coordinating the New York and Los      Angeles facilities, and taking advantage of Company resources permitting      timely shipment to up to 500 locations;and |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Broad      Scope of Services:  The Company has up-to-date knowledge of      printing press specifications for converters and printers located      throughout the country, on-site resources embedded in clients’ advertising      and creative departments, and an array of value-added graphic art      production consulting services, such as digital imaging asset management      and workflow management. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| ·   | Shorter      turnaround- and delivery-timerequirements; |
|--------------------|---------------------------------------------------------|

| ·   | An      increasing number of products and packages competing for shelf space and      market share; |
|--------------------|-----------------------------------------------------------------------------------------------------|

| ·   | The      increased importance of package appearance and in-store advertising      promotions, due to empirical data demonstrating that most purchasing      decisions are made in-store, immediately prior to  purchase; |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | The      increased use of out-of-home advertising, such as billboards and outdoor      displays, as technology has improved image quality and durability, and its      demonstrated ability to reach larger audiences;  and |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | The      increasing demand for worldwide consistency and quality in packaging, as      companies work to build global brand-name  recognition. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Organic      Growth:  As market conditions have created growth opportunities,      the Company relies upon its highly-skilled sales force as the Company’s      primary growth driver, both in terms of new client acquisition and the      expansion of services provided to existing clients.  The Company      relies upon its superior product quality, technology, service scale and      scope to both acquire clients and migrate clients from using individual      services to using a suite of products and services, ranging from initial      consultation to production and  distribution.  |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Strategic      Acquisitions:  The Company completed three acquisitions in 2005      and three acquisitions in 2006, and will continue to seek additional      strategic acquisitionopportunities. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Initiatives      to Increase Penetration to Key Markets and Introduce New Service      Lines:  The Company has adopted initiatives to market to “key”      players, such as agencies and intermediaries, to new “logos” through a new      business acquisition team, and to develop new, complementary services,      such as digital asset management, premium retouching and digital      media. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Geographic      Expansion:  The Company’s operations are currently centered in      the New York/New Jersey and Los Angeles markets.  With its      facilities in Atlanta, and expanded Portland facilities, the Company will      look to broaden its geographic footprint to other key United States      markets, and to follow key clients into other global    markets. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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----

----

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| Location          | Square Feet(approx.) | Owned Leased | Purpose                                  | Lease Expiration Date | Division                                   |
|-------------------|----------------------|--------------|------------------------------------------|-----------------------|--------------------------------------------|
| New      York, NY | 25,000               | Leased       | General      Offices, Operating Facility | December      2011    | Corporate                                  |
| New      York, NY | 81,000               | Leased       | General      Offices, Operating Facility | April      2014       | Corporate                                  |
| Edison,      NJ   | 25,000               | Leased       | Operating      Facility                  | September      2009   | Color      Edge Visual                     |
| Burbank,      CA  | 65,000               | Leased       | General      Offices, Operating Facility | July      2011        | Crush      Creative/ Dennis Curtin Studios |
| Burbank,      CA  | 10,000               | Leased       | General      Offices, Operating Facility | July      2011        | Crush      Creative                        |
| Atlanta,      GA  | 20,000               | Leased       | General      Offices, Operating Facility | May      2011         | AdProps                                    |
| Portland,      OR | 4,370                | Leased       | General      Offices, Operating Facility | May      2013         | Merisel                                    |

----

----

| a)   | The      Company held its 2008 annual meeting of stockholders on December 3,      2008. |
|----------------|-----------------------------------------------------------------------------------------|

| b)   | Each      of Edward A. Grant, Ronald P. Badie, Albert J. Fitzgibbons III, Bradley J.      Hoecker, Lawrence J. Schoenberg and Donald R. Uzzi were elected as      directors for a new one-year term. |
|----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| c)   | The      following matters were submitted to a vote of security holders at the      annual meeting: |
|----------------|-----------------------------------------------------------------------------------------------------|

| 1.   | Election      of nominees as directors to the Board of Directors.  The      nominees were elected as indicated by the following vote      counts: |
|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  Nominee                  |  Votes For |  Votes Withheld |
|--------------------------------|-----------------|----------------------|
| Ronald      P. Badie           | 7,426,006       | 195,183              |
| Albert      J. Fitzgibbons III | 7,249,985       | 371,204              |
| Edward      A. Grant           | 7,446,341       | 174,848              |
| Bradley      J. Hoecker        | 7,250,305       | 370,884              |
| Lawrence      J. Schoenberg    | 7,445,963       | 175,226              |
| Donald      R. Uzzi            | 7,269,252       | 351,937              |

| 2.   | The      stockholders voted upon and approved a proposal to ratify the appointment      of BDO Seidman, LLP as the Company’s independent registered public      accounting firm for 2008.  The vote on the proposal was as      follows: |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| For       | Against | Abstentions | Broker Non-Votes |
|-----------|---------|-------------|------------------|
| 7,609,886 | 7,172   | 4,091       | -                |
|      |    |        |             |
|      |    |        |             |

| 3.   | The      stockholders voted upon and approved a proposal to adopt the Company’s      2008 Stock Award and Incentive Plan.  The vote on the proposal      was as follows: |
|----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| For       | Against | Abstentions | Broker Non-Votes |
|-----------|---------|-------------|------------------|
| 5,736,869 | 298,575 | 63,441      | 1,522,304        |
|      |    |        |             |

| d)   | Proxies      were solicited only by the Company. |
|----------------|--------------------------------------------------|

----

| Fiscal      Year 2007 |   | High   |       |   | Low    |   | Fiscal      Year 2008 |   | High                |   |   | Low          |   |
|-----------------------|--------|--------|------------|--------|--------|--------|-----------------------|--------|---------------------|--------|--------|--------------|--------|
| First      quarter    |   | $      | 3      3/4 |   |   | $      | 3      9/16           |   | First      quarter  |   | $      | 5      1/2   |   |   | $ | 1      81/100 |   |
| Second      quarter   |   |   | 6      1/2 |   |   |   | 3      5/8            |   | Second      quarter |   |   | 5      13/20 |   |   |   | 1      73/100 |   |
| Third      quarter    |   |   | 5      1/4 |   |   |   | 3      13/16          |   | Third      quarter  |   |   | 1 41/50      |   |   |   | 1      7/25 |   |
| Fourth      quarter   |   |   | 4      1/5 |   |   |   | 2      15/16          |   | Fourth      quarter |   |   | 1      11/20 |   |   |   | 13/20 |   |

----

| Period                         |   | Total      Number of Shares Purchased(1)      (4) |    | Average      Price Paid per Share(2) |   | Total      Number of Shares Purchased as Part of a Publicly Announced Plans or      Programs(3)      (4) |   | Maximum      Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased      Under the Plans or Programs (3)(4) |    |
|--------------------------------|--------|---------------------------------------------------|---------|--------------------------------------|--------|----------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------|---------|
|                           |   |                                              |    |                                 |   |                                                                                                     |   |                                                                                                                          |    |
| October      1-31, 2008        |   |                                              | 88,821  |                                 | $      | 1.79                                                                                                     |   |                                                                                                                          | 88,821  |   |   | $      2,649 |   |
|  November      1-30, 2008 |   |                                              | 98,940  |                                 | $      | 1.58                                                                                                     |   |                                                                                                                          | 98,940  |   |   | $      2,493 |   |
| December      1-31, 2008       |   |                                              | 338,275 |                                 | $      | .86                                                                                                      |   |                                                                                                                          | 338,275 |   |   | $      2,203 |   |
|                           |   |                                              |    |                                 |   |                                                                                                     |   |                                                                                                                          |    |   |   |   |   |
| Total                          |   |                                              | 526,036 |                                 |   |                                                                                                     |   |                                                                                                                          | 526,036 |   |   |   |   |
|                           |   |                                              |    |                                 |   |                                                                                                     |   |                                                                                                                          |    |   |   |   |   |

| Date      Share Repurchase Programs were Publicly Announced                                            |   | Approximate      Dollar Value Authorized to be Repurchased |   |
|--------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------|--------|
| July      3, 2001*                                                                                     |   |   $                                              | 1,000  |   |
| September      1, 2004*                                                                                |   |                                                       | 1,000  |   |
| August      14, 2006*                                                                                  |   |                                                       | 2,000  |   |
|                                                                                                   |   |                                                       |   |   |
| Total      dollar value of shares authorized to be repurchased as      of  December 31, 2008 |   |   $                                              | 4,000  |   |

----

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----

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|                                                             |   | 2007                     |    |   | 2006                     |   |
|------------------------------------------------------------------|--------|--------------------------|---------|--------|--------------------------|--------|
|                                                             |   | Existing      Operations |    |   | Expanded      Operations |   |   | Total      Operations |   |   | Existing      Operations |   |   | Expanded      Operations |   |   | Total      Operations |   |
| Net      sales                                                   |   | $                        | 79,713  |   |                     | $      | 13,468 |   |   | $ | 93,181 |   |   | $ | 78,452 |   |   | $ | 6,268 |   |   | $ | 84,720 |   |
| Gross      profit                                                |   |                     | 37,183  |   |                     |   | 6,707 |   |   |   | 43,890 |   |   |   | 34,061 |   |   |   | 2,938 |   |   |   | 36,999 |   |
| Selling,      general, and    Administrative |   |                     | 33,141  |   |                     |   | 5,175 |   |   |   | 38,316 |   |   |   | 30,484 |   |   |   | 2,179 |   |   |   | 32,663 |   |
| Restructuring      charge                                        |   |                     | -       |   |                     |   | - |   |   |   | - |   |   |   | 724 |   |   |   | - |   |   |   | 724 |   |
| Interest      expense                                            |   |                     | (828    | )      |                     |   | (31 | ) |   |   | (859 | ) |   |   | (1,054 | ) |   |   | (12 | ) |   |   | (1,066 | ) |
| Interest      income                                             |   |                     | 448     |   |                     |   | 25 |   |   |   | 473 |   |   |   | 481 |   |   |   | - |   |   |   | 481 |   |
| Income      taxes                                                |   |                     | (30,594 | )      |                     |   | - |   |   |   | (30,594 | ) |   |   | (3,280 | ) |   |   | - |   |   |   | (3,280 | ) |
| Discontinued      operations                                     |   |                     | 145     |   |                     |   | - |   |   |   | 145 |   |   |   | 748 |   |   |   | - |   |   |   | 748 |   |
| Net      Income                                                  |   |                     | 34,401  |   |                     |   | 1,526 |   |   |   | 35,927 |   |   |   | 6,308 |   |   |   | 747 |   |   |   | 7,055 |   |
| Preferred      stock dividends                                   |   |                     | 2,079   |   |                     |   | - |   |   |   | 2,079 |   |   |   | 1,920 |   |   |   | - |   |   |   | 1,920 |   |
| NI      available to common shareholders                         |   | $                        | 32,322  |   |                     | $      | 1,526 |   |   | $ | 33,848 |   |   | $ | 4,388 |   |   | $ | 747 |   |   | $ | 5,135 |   |

----

| Analysis      of Cash Flows                                |   | For      the Years Ended |    |
|------------------------------------------------------------|--------|--------------------------|---------|
| (in      thousands)                                        |   | 2006                     |    |   | 2007 |   |   | 2008 |   |
|                                                       |   |                     |    |   |   |   |   |   |   |
| Cash      flows provided by (used in) operating activities |   | $                        | 7,296   |   |   | $ | 14,061 |   |   | $ | (847 | ) |
| Cash      flows used in investing activities               |   |                     | (12,839 | ) |   |   | (5,099 | ) |   |   | (3,048 | ) |
| Cash      flows used in financing activities               |   |                     | (1,289  | ) |   |   | (1,231 | ) |   |   | (1,607 | ) |
| Net      cash provided by discontinued operations          |   |                     | 748     |   |   |   | 1,059 |   |   |   | - |   |
| Net      increase (decrease) in cash and cash equivalents  |   | $                        | (6,084  | ) |   | $ | 8,790 |   |   | $ | (5,502 | ) |

----

----

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|                                                         | Page      No |
|--------------------------------------------------------------|--------------|
| Report      of Independent Registered Public Accounting Firm | 22           |
| Consolidated      Balance Sheets                             | 23           |
| Consolidated      Statements of Operations                   | 24           |
| Consolidated      Statements of Stockholders’ Equity   | 25           |
| Consolidated      Statements of Cash Flows                   | 26-27        |
| Notes      to Consolidated Financial Statements              | 28           |

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----

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| December      31,                                                                                                                                                            |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                                                         |   | 2007 |   |   | 2008 |   |
| ASSETS                                                                                                                                                                       |   |   |   |   |   |   |
| Current      assets:                                                                                                                                                         |   |   |   |   |   |   |
| Cash      and cash equivalents                                                                                                                                               |   | $ | 15,254 |   |   | $ | 9,752 |   |
| Accounts      receivable, net of allowance of $478 and $334,respectively                                                                                                     |   |   | 17,114 |   |   |   | 17,597 |   |
| Inventories                                                                                                                                                                  |   |   | 2,014 |   |   |   | 3,268 |   |
| Prepaid      expenses and other current assets                                                                                                                               |   |   | 974 |   |   |   | 1,191 |   |
| Deferred      tax asset                                                                                                                                                      |   |   | 3,078 |   |   |   | 2,616 |   |
| Total      current assets                                                                                                                                                    |   |   | 38,434 |   |   |   | 34,424 |   |
|                                                                                                                                                                         |   |   |   |   |   |   |   |   |
| Property,      plant and equipment, net                                                                                                                                      |   |   | 8,435 |   |   |   | 7,519 |   |
| Restricted      cash                                                                                                                                                         |   |   | 3,195 |   |   |   | 2,961 |   |
| Goodwill                                                                                                                                                                     |   |   | 19,737 |   |   |   | 13,649 |   |
| Trademarks                                                                                                                                                                   |   |   | 10,609 |   |   |   | 10,609 |   |
| Other      intangible assets, net                                                                                                                                            |   |   | 6,708 |   |   |   | 5,129 |   |
| Deferred      tax asset                                                                                                                                                      |   |   | 31,894 |   |   |   | 37,320 |   |
| Other      assets                                                                                                                                                            |   |   | 73 |   |   |   | 121 |   |
| Total      assets                                                                                                                                                            |   | $ | 119,085 |   |   | $ | 111,732 |   |
|                                                                                                                                                                         |   |   |   |   |   |   |   |   |
| LIABILITIES      AND STOCKHOLDERS' EQUITY                                                                                                                                    |   |   |   |   |   |   |   |   |
| Current      liabilities:                                                                                                                                                    |   |   |   |   |   |   |   |   |
| Accounts      payable                                                                                                                                                        |   | $ | 2,229 |   |   | $ | 4,785 |   |
| Accrued      liabilities                                                                                                                                                     |   |   | 6,978 |   |   |   | 4,748 |   |
| Capital      lease obligations, current maturities                                                                                                                           |   |   | 340 |   |   |   | 69 |   |
| Installment      notes, current maturities                                                                                                                                   |   |   | 465 |   |   |   | 500 |   |
| Revolving      credit agreement                                                                                                                                              |   |   | - |   |   |   | 8,630 |   |
| Total      current liabilities                                                                                                                                               |   |   | 10,012 |   |   |   | 18,732 |   |
|                                                                                                                                                                         |   |   |   |   |   |   |   |   |
| Revolving      credit agreement                                                                                                                                              |   |   | 8,630 |   |   |   | - |   |
| Capital      lease obligations, less current maturities                                                                                                                      |   |   | 44 |   |   |   | 17 |   |
| Installment      notes, less current maturities                                                                                                                              |   |   | 410 |   |   |   | - |   |
| Other      liabilities                                                                                                                                                       |   |   | 666 |   |   |   | 710 |   |
| Total      liabilities                                                                                                                                                       |   |   | 19,762 |   |   |   | 19,459 |   |
|                                                                                                                                                                         |   |   |   |   |   |   |   |   |
| Commitments      and Contingencies                                                                                                                                           |   |   | - |   |   |   | - |   |
|                                                                                                                                                                         |   |   |   |   |   |   |   |   |
| Stockholders'      equity:                                                                                                                                                   |   |   |   |   |   |   |   |   |
| Convertible      preferred stock, $.01 par value; authorized 1,000,000 shares;267,595      and 289,653 shares issued and outstanding                                         |   |   | 27,294 |   |   |   | 29,544 |   |
| Common      stock, $.01 par value; authorized 30,000,000 shares; issued: 8,452,723 and      8,473,503, respectively; outstanding: 8,033,943 and 7,385,322,      respectively |   |   | 84 |   |   |   | 85 |   |
| Additional      paid-in capital                                                                                                                                              |   |   | 272,594 |   |   |   | 270,713 |   |
| Accumulated      deficit                                                                                                                                                     |   |   | (199,775 | ) |   |   | (206,261 | ) |
| Treasury      stock, at cost, 418,780 and 1,088,181  shares repurchased,      respectively                                                                         |   |   | (874 | ) |   |   | (1,808 | ) |
|                                                                                                                                                                         |   |   |   |   |   |   |   |   |
| Total      stockholders' equity                                                                                                                                              |   |   | 99,323 |   |   |   | 92,273 |   |
| Total      liabilities and stockholders' equity                                                                                                                              |   | $ | 119,085 |   |   | $ | 111,732 |   |

----

|                                                                                                                           |   | For      the year endedDecember      31, |   |
|--------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------|--------|
|                                                                                                                           |   | 2006                                     |   |   | 2007 |   |   | 2008 |   |
|                                                                                                                           |   |                                     |   |   |   |   |   |   |   |
| Net      sales                                                                                                                 |   | $                                        | 84,720 |   |   | $ | 93,181 |   |   | $ | 84,178 |   |
| Cost      of sales                                                                                                             |   |                                     | 47,721 |   |   |   | 49,291 |   |   |   | 48,150 |   |
| Gross      profit                                                                                                              |   |                                     | 36,999 |   |   |   | 43,890 |   |   |   | 36,028 |   |
|                                                                                                                           |   |                                     |   |   |   |   |   |   |   |   |   |   |
| Selling,      general and administrative expenses                                                                              |   |                                     | 32,663 |   |   |   | 38,316 |   |   |   | 40,475 |   |
| Goodwill      impairment                                                                                                       |   |                                     | -      |   |   |   | - |   |   |   | 6,750 |   |
| Restructuring      charge                                                                                                      |   |                                     | 724    |   |   |   | - |   |   |   | - |   |
| Operating      income (loss)                                                                                                   |   |                                     | 3,612  |   |   |   | 5,574 |   |   |   | (11,197 | ) |
| Interest      expense                                                                                                          |   |                                     | (1,066 | ) |   |   | (859 | ) |   |   | (514 | ) |
| Interest      income                                                                                                           |   |                                     | 481    |   |   |   | 473 |   |   |   | 385 |   |
| Income      (loss) from continuing operations before benefit for income      tax                                               |   |                                     | 3,027  |   |   |   | 5,188 |   |   |   | (11,326 | ) |
| Income      tax benefit                                                                                                        |   |                                     | (3,280 | ) |   |   | (30,594 | ) |   |   | (4,840 | ) |
| Income      (loss) from continuing operations                                                                                  |   |                                     | 6,307  |   |   |   | 35,782 |   |   |   | (6,486 | ) |
| Income      from discontinued operations, net of taxes                                                                         |   |                                     | 748    |   |   |   | 145 |   |   |   | - |   |
| Net      income (loss)                                                                                                         |   | $                                        | 7,055  |   |   | $ | 35,927 |   |   | $ | (6,486 | ) |
|                                                                                                                           |   |                                     |   |   |   |   |   |   |   |   |   |   |
| Preferred      stock dividends                                                                                                 |   |                                     | 1,920  |   |   |   | 2,079 |   |   |   | 2,250 |   |
| Net      income (loss) available to common stockholders                                                                        |   | $                                        | 5,135  |   |   | $ | 33,848 |   |   | $ | (8,736 | ) |
|                                                                                                                           |   |                                     |   |   |   |   |   |   |   |   |   |   |
| Net      income (loss) per share (basic):Income      (loss) from continuing operations available to common      stockholders   |   | $                                        | .56    |   |   | $ | 4.32 |   |   | $ | (1.12 | ) |
| Income      from discontinued operations                                                                                       |   |                                     | .10    |   |   |   | .02 |   |   |   | - |   |
| Net      income (loss) available to common stockholders                                                                        |   | $                                        | .66    |   |   | $ | 4.34 |   |   | $ | (1.12 | ) |
|                                                                                                                           |   |                                     |   |   |   |   |   |   |   |   |   |   |
| Net      income (loss) per share (diluted):Income      (loss) from continuing operations available to common      stockholders |   | $                                        | .56    |   |   | $ | 4.20 |   |   | $ | (1.12 | ) |
| Income      from discontinued operations                                                                                       |   |                                     | .10    |   |   |   | .02 |   |   |   | - |   |
| Net      income (loss) available to common stockholders                                                                        |   | $                                        | .66    |   |   | $ | 4.22 |   |   | $ | (1.12 | ) |
|                                                                                                                           |   |                                     |   |   |   |   |   |   |   |   |   |   |
| Weighted      average number of shares:                                                                                        |   |                                     |   |   |   |   |   |   |   |   |   |   |
| Basic                                                                                                                          |   |                                     | 7,744  |   |   |   | 7,793 |   |   |   | 7,797 |   |
| Diluted                                                                                                                        |   |                                     | 7,816  |   |   |   | 8,016 |   |   |   | 7,797 |   |

----

|                                                      |   | Successor                        |    |
|-----------------------------------------------------------|--------|----------------------------------|---------|
|                                                      |   |   Preferred      Stock |    |   |   Common      Stock |   |   | AdditionalPaid-inCapital |   |   |  Deferred      Compensation |   |   |  Accumulated      Deficit |   |   |   Treasury      Stock |   |   |   Total |   |   |  ComprehensiveIncome      (Loss) |   |
|                                                      |   | Shares                           |    |   | Amount |   |   | Shares |   |   | Amount |   |   |   |   |   |   |   |   |   |   |   | Shares |   |   | Amount |   |   |   |   |   |   |   |
| Balance      at January 1, 2006                           |   |                             | 150,000 |   |   | $ | 23,295 |   |   |   | 8,183,875 |   |   | $ | 82 |   |   | $ | 275,601 |   |   | $ | (332 | ) |   | $ | (242,757 | ) |   |   | (412,880 | ) |   | $ | (851 | ) |   | $ | 55,038 |   |   |   |   |
| Reclassification      of deferred compensation            |   |                             |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (332 | ) |   |   | 332 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | - |   |   |   |   |
| Accumulation      of convertible preferred stock dividend |   |                             |    |   |   |   | 1,920 |   |   |   |   |   |   |   |   |   |   |   | (1,920 | ) |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | - |   |   |   |   |
| Issue      of restricted stock                            |   |                             |    |   |   |   |   |   |   |   | 245,643 |   |   |   | 2 |   |   |   | (2 | ) |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | - |   |   |   |   |
| Stock      compensation                                   |   |                             |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 610 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 610 |   |   |   |   |
| Purchase      of treasury stock                           |   |                             |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (5,900 | ) |   |   | (23 | ) |   |   | (23 | ) |   |   |   |
| Net      income                                           |   |                             |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 7,055 |   |   |   |   |   |   |   |   |   |   |   | 7,055 |   |   | $ | 7,055 |   |
| Total      Comprehensive Income                           |   |                             |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | $ | 7,055 |   |
| Balance      at December 31, 2006                         |   |                             | 150,000 |   |   | $ | 25,215 |   |   |   | 8,429,518 |   |   | $ | 84 |   |   | $ | 273,957 |   |   | $ | - |   |   | $ | (235,702 | ) |   |   | (418,780 | ) |   | $ | (874 | ) |   | $ | 62,680 |   |   |   |   |   |
| Accumulation      of convertible preferred stock dividend |   |                             |    |   |   |   | 2,079 |   |   |   |   |   |   |   |   |   |   |   | (2,079 | ) |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | - |   |   |   |   |   |
| Issue      of preferred stock                             |   |                             | 117,595 |   |   |   | - |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | - |   |   |   |   |   |
| Issue      of restricted stock                            |   |                             |    |   |   |   |   |   |   |   | 41,705 |   |   |   | - |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | - |   |   |   |   |   |
| Cancellation      of restricted stock                     |   |                             |    |   |   |   |   |   |   |   | (18,500 | ) |   |   | - |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | - |   |   |   |   |   |
| Stock      compensation                                   |   |                             |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 716 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 716 |   |   |   |   |   |
| Net      income                                           |   |                             |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 35,927 |   |   |   |   |   |   |   |   |   |   |   | 35,927 |   |   | $ | 35,927 |   |
| Total      Comprehensive Income                           |   |                             |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | $ | 35,927 |   |
| Balance      at December 31, 2007                         |   |                             | 267,595 |   |   | $ | 27,294 |   |   |   | 8,452,723 |   |   | $ | 84 |   |   | $ | 272,594 |   |   | $ | - |   |   | $ | (199,775 | ) |   |   | (418,780 | ) |   | $ | (874 | ) |   | $ | 99,323 |   |   |   |   |   |
| Accumulation      of convertible preferred stock dividend |   |                             |    |   |   |   | 2,250 |   |   |   |   |   |   |   |   |   |   |   | (2,250 | ) |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | - |   |   |   |   |   |
| Issue      of preferred stock                             |   |                             | 22,058  |   |   |   | - |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | - |   |   |   |   |   |
| Issue      of restricted stock                            |   |                             |    |   |   |   |   |   |   |   | 20,780 |   |   |   | 1 |   |   |   | (1 | ) |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | - |   |   |   |   |   |
| Purchase      of treasury stock                           |   |                             |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (669,401 | ) |   |   | (934 | ) |   |   | (934 | ) |   |   |   |   |
| Stock      compensation                                   |   |                             |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 370 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 370 |   |   |   |   |   |
| Net      loss                                             |   |                             |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (6,486 | ) |   |   |   |   |   |   |   |   |   |   | (6,486 | ) |   | $ | (6,486 | ) |
| Total      Comprehensive Loss                             |   |                             |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | $ | (6,486 | ) |
| Balance      at December 31, 2008                         |   |                             | 289,653 |   |   | $ | 29,544 |   |   |   | 8,473,503 |   |   | $ | 85 |   |   | $ | 270,713 |   |   | $ | - |   |   | $ | (206,261 | ) |   |   | (1,088,181 | ) |   | $ | (1,808 | ) |   | $ | 92,273 |   |   |   |   |   |

----

|                                                                                                                  |   | For      the years endedDecember      31, |    |
|-----------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------|---------|
| CONTINUING      OPERATIONS:                                                                                           |   | 2006                                      |    |   | 2007 |   |   | 2008 |   |
| CASH      FLOWS FROM OPERATING ACTIVITIES:                                                                            |   |                                      |    |   |   |   |   |   |   |
| Net      income (loss)                                                                                                |   | $                                         | 7,055   |   |   | $ | 35,927 |   |   | $ | (6,486 | ) |
| Less:      income from discontinued operations, net                                                                   |   |                                      | 748     |   |   |   | 145 |   |   |   | - |   |
| Income      (loss) from continuing operations                                                                         |   |                                      | 6,307   |   |   |   | 35,782 |   |   |   | (6,486 | ) |
| Adjustments      to reconcile income (loss)  from operations to net cash used in      operating activities: |   |                                      |    |   |   |   |   |   |   |   |   |   |
| Stock      based compensation                                                                                         |   |                                      | 610     |   |   |   | 716 |   |   |   | 370 |   |
| Deferred      occupancy costs                                                                                         |   |                                      | 181     |   |   |   | 168 |   |   |   | 44 |   |
| Deferred      income taxes                                                                                            |   |                                      | (3,597  | ) |   |   | (31,375 | ) |   |   | (4,964 | ) |
| Restricted      cash                                                                                                  |   |                                      | 3,994   |   |   |   | 843 |   |   |   | 234 |   |
| Goodwill      impairment                                                                                              |   |                                      | -       |   |   |   | - |   |   |   | 6,750 |   |
| Depreciation      and amortization                                                                                    |   |                                      | 2,898   |   |   |   | 3,986 |   |   |   | 4,793 |   |
| Changes      in assets and liabilities, exclusive of acquisitions:                                                    |   |                                      |    |   |   |   |   |   |   |   |   |   |
| Accounts      receivable                                                                                              |   |                                      | (594    | ) |   |   | 5,118 |   |   |   | (483 | ) |
| Inventories                                                                                                           |   |                                      | (506    | ) |   |   | 121 |   |   |   | (1,254 | ) |
| Prepaid      expenses and other assets                                                                                |   |                                      | (44     | ) |   |   | (223 | ) |   |   | (265 | ) |
| Accounts      payable                                                                                                 |   |                                      | (124    | ) |   |   | (998 | ) |   |   | 2,556 |   |
| Accrued      liabilities                                                                                              |   |                                      | (1,829  | ) |   |   | (77 | ) |   |   | (2,142 | ) |
| Net      cash  provided by (used in) operating activities                                                   |   |                                      | 7,296   |   |   |   | 14,061 |   |   |   | (847 | ) |
|                                                                                                                  |   |                                      |    |   |   |   |   |   |   |   |   |   |
| CASH      FLOWS FROM INVESTING ACTIVITIES:                                                                            |   |                                      |    |   |   |   |   |   |   |   |   |   |
| Acquisitions,      net of $878 and $317 cash acquired                                                                 |   |                                      | (11,232 | ) |   |   | (2,532 | ) |   |   | (750 | ) |
| Capital      expenditures                                                                                             |   |                                      | (1,607  | ) |   |   | (2,567 | ) |   |   | (2,298 | ) |
| Net      cash used in investing activities                                                                            |   |                                      | (12,839 | ) |   |   | (5,099 | ) |   |   | (3,048 | ) |
|                                                                                                                  |   |                                      |    |   |   |   |   |   |   |   |   |   |
| CASH      FLOWS FROM FINANCING ACTIVITIES:                                                                            |   |                                      |    |   |   |   |   |   |   |   |   |   |
| Capital      lease payments                                                                                           |   |                                      | (573    | ) |   |   | (634 | ) |   |   | (298 | ) |
| Installment      note repayments                                                                                      |   |                                      | (693    | ) |   |   | (597 | ) |   |   | (375 | ) |
| Purchase      of treasury stock                                                                                       |   |                                      | (23     | ) |   |   | - |   |   |   | (934 | ) |
| Net      cash used in financing activities                                                                            |   |                                      | (1,289  | ) |   |   | (1,231 | ) |   |   | (1,607 | ) |
|                                                                                                                  |   |                                      |    |   |   |   |   |   |   |   |   |   |
| Cash      provided by (used in) continuing activities                                                                 |   |                                      | (6,832  | ) |   |   | 7,731 |   |   |   | (5,502 | ) |
|                                                                                                                  |   |                                      |    |   |   |   |   |   |   |   |   |   |

----

----

|                                                          |    |      For      the years endedDecember      31,  |
|---------------------------------------------------------------|---------|-------------------------------------------------------------------------------|
|                                                          | 2006    | 2007                                                                          | 2008 |   |
|                                                          |    |                                                                          |   |   |
| DISCONTINUED      OPERATIONS:                                 |    |                                                                          |   |   |
| Cash      provided by (used in) operating activities          | 748     | 1,059                                                                         | - |   |
| NET      CASH PROVIDED BY DISCONTINUED OPERATIONS:            | 748     | 1,059                                                                         | - |   |
|                                                          |    |                                                                          |   |   |
| NET      INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS     | (6,084) | 8,790                                                                         | (5,502) |   |
| CASH      AND CASH EQUIVALENTS, BEGINNING OF YEAR             | 12,548  | 6,464                                                                         | 15,254 |   |
| CASH      AND CASH EQUIVALENTS, END OF  PERIOD YEAR | $6,464  | $15,254                                                                       | $9,752 |   |
|                                                          |    |                                                                          |   |   |
| SUPPLEMENTAL      DISCLOSURE OF CASH FLOW INFORMATION:        |    |                                                                          |   |   |
| Cash      paid during the year for:                           |    |                                                                          |   |   |
| Interest      expense                                         | $1,007  | $802                                                                          | $562 |   |
| Income      taxes                                             | $2,350  | $893                                                                          | $258 |   |
|                                                          |    |                                                                          |   |   |
| Noncash      activities:                                      |    |                                                                          |   |   |
| Restricted      stock grant                                   | $2      | $-                                                                            | $1 |   |
| Preferred      dividend accumulated                           | $1,920  | $2,079                                                                        | $2,250 |   |
|                                                          |    |                                                                          |   |   |

----

| 1.   | Description      of Business and Basis ofPresentation |
|----------------|-------------------------------------------------------|

| 2.   | Summary      of Significant Accounting Policies |
|----------------|-------------------------------------------------|

----

----

----

----

| 3.   | Restricted      Cash |
|----------------|----------------------|

| 4.   | Intangibles |
|----------------|-------------|

|        December      31, 2007 |
|------------------------------------------------------------------|
|                                                             |  Acquired      Value |  Accumulated      Amortization |  Carrying      Value | Weighted      Average Amortization Period |   |
| Customer      relationships                                      | $3,799 | $629 | $3,170 | 16 |   |
| Non-compete      agreements                                      | 4,087 | 2,168 | 1,919 | 5 |   |
| Software      licenses                                           | 90 | 90 | - | 1 |   |
| Domain      name(s)                                              | 3 | 3 | - | 1 |   |
| Employment      agreements                                       | 1,109 | 528 | 581 | 3 |   |
| Trade      know how                                              | 1,341 | 303 | 1,038 | 8 |   |
| Subtotal      definite lived intangibles                         | 10,429 | 3,721 | 6,708 | 9.0  |   |
| Trademark                                                        | 10,609 | - | 10,609 | Indefinite |   |
| Total                                                            | $21,038 | $3,721 | $17,317 |   |   |

----

|                                                     December      31, 2008 |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                      |  Acquired      Value |  Accumulated      Amortization |  Carrying      Value | Weighted      Average Amortization Period |   |
| Customer      relationships                                                                                                                                                                                                                                                                                                               | $3,799 | $873 | $2,926 | 16 |   |
| Non-compete      agreements                                                                                                                                                                                                                                                                                                               | 4,087 | 2,992 | 1,095 | 5 |   |
| Software      licenses                                                                                                                                                                                                                                                                                                                    | 90 | 90 | - | 1 |   |
| Domain      name(s)                                                                                                                                                                                                                                                                                                                       | 3 | 3 | - | 1 |   |
| Employment      agreements                                                                                                                                                                                                                                                                                                                | 1,109 | 868 | 241 | 3 |   |
| Trade      know how                                                                                                                                                                                                                                                                                                                       | 1,341 | 474 | 867 | 8 |   |
| Subtotal      definite lived intangibles                                                                                                                                                                                                                                                                                                  | 10,429 | 5,300 | 5,129 | 9.0  |   |
| Trademark                                                                                                                                                                                                                                                                                                                                 | 10,609 | - | 10,609 | Indefinite |   |
| Total                                                                                                                                                                                                                                                                                                                                     | $21,038 | $5,300 | $15,738 |   |   |

|                                                                                          For the year ended      December 31, |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | Amount |
| 2008                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | $1,480 |
| 2009                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | 673 |
| 2010                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | 420 |
| 2011                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | 413 |
| 2012                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | 378 |
| Thereafter                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | 1,765 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | $5,129 |

----

| 5.   | Inventories |
|----------------|-------------|

|                          | December      31, |
|-------------------------------|-------------------|
|                          | 2007              | 2008 |
|                          |              |   |
| Raw      materials            | $1,315            | $1,748 |
| Work-in-progress              | 720               | 1,525 |
| Reserve      for obsolescence | (21)              | (5) |
| Inventory,      net           | $2,014            | $3,268 |

| 6.   | Property      and Equipment |
|----------------|-----------------------------|

|                                                 | 2007    | 2007    |
|------------------------------------------------------|---------|---------|
|                                                 |    |    |
| Equipment      under capitalized leases              | 1,939   | 1,939   |
| Machinery      and equipment                         | 8,503   | 10,332  |
| Furniture      and fixtures                          | 712     | 780     |
| Automobiles                                          | 104     | 104     |
| Leasehold      improvements                          | 2,293   | 2,664   |
| Total                                                | 13,551  | 15,819  |
| Less:      accumulated depreciation and amortization | (5,116) | (8,300) |
| Net      book value                                  | $8,435  | $7,519  |

| 7.   | Accrued      Expenses |
|----------------|-----------------------|

|                                             | 2007        | 2008        |
|--------------------------------------------------|-------------|-------------|
|                                             |        |        |
| Accrued      liabilities:                        |        |        |
| Compensation      and other benefit accruals     |  4,376 |  3,161 |
| State      and local sales taxes and other taxes | 260         | 170         |
| Other      accruals                              | 2,342       | 1,417       |
|   Total      accrued liabilities       | $6,978      | $4,748      |

----

| 8.   | Income      Taxes |
|----------------|-------------------|

|                                                                  December      31,   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                           | 2007 | 2008 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                           |   |   |   |
| Deferred      tax assets:                                                                                                                                                                                                                                                                                                                                                                                                      |   |   |   |
|    Net      operating loss carryforwards                                                                                                                                                                                                                                                                                                                                                                        | $      87,272 | $89,240 |   |
|    AMT      credit carryforward                                                                                                                                                                                                                                                                                                                                                                                 | 364 | 359 |   |
|    Allowance      for doubtful  accounts                                                                                                                                                                                                                                                                                                                                                              | 204 | 143 |   |
|    Depreciable      assets                                                                                                                                                                                                                                                                                                                                                                                      | 702 | 1,249 |   |
|    Goodwill                                                                                                                                                                                                                                                                                                                                                                                                     | - | 1,041 |   |
|    Other      intangible assets                                                                                                                                                                                                                                                                                                                                                                                 | 850 | 1,231 |   |
|    Deferred      vacation and bonus                                                                                                                                                                                                                                                                                                                                                                             | 269 | 175 |   |
|    Deferred      occupancy costs                                                                                                                                                                                                                                                                                                                                                                                | 285 | 304 |   |
|    Inventory      uniform capitalization                                                                                                                                                                                                                                                                                                                                                                        | 267 | 420 |   |
|    Stock-based      compensation                                                                                                                                                                                                                                                                                                                                                                                | 461 | 564 |   |
|    Other                                                                                                                                                                                                                                                                                                                                                                                                        | 18 | 12 |   |
| Total      deferred tax asset                                                                                                                                                                                                                                                                                                                                                                                                  | 90,692 | 94,738 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                           |   |   |   |
| Deferred      tax liabilities                                                                                                                                                                                                                                                                                                                                                                                                  |   |   |   |
|    Change      in accounting method                                                                                                                                                                                                                                                                                                                                                                             | 121 | 61 |   |
|    Goodwill                                                                                                                                                                                                                                                                                                                                                                                                     | 1,275 | - |   |
|    Trademarks                                                                                                                                                                                                                                                                                                                                                                                                   | 849 | 1,152 |   |
| Total      deferred tax liabilities                                                                                                                                                                                                                                                                                                                                                                                            | 2,245 | 1,213 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                           |   |   |   |
| Net      deferred tax asset before valuation allowance                                                                                                                                                                                                                                                                                                                                                                         | 88,447 | 93,525 |   |
| Valuation      allowance                                                                                                                                                                                                                                                                                                                                                                                                       | (53,475) | (53,589) |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                           |   |   |   |
| Net      deferred tax asset                                                                                                                                                                                                                                                                                                                                                                                                    | $34,972 | 39,936 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                           |   |   |   |
| Balance      sheet classification:                                                                                                                                                                                                                                                                                                                                                                                             |   |   |   |
|    Current      asset                                                                                                                                                                                                                                                                                                                                                                                           | $3,078 | $2,616 |   |
|    Non-current      asset                                                                                                                                                                                                                                                                                                                                                                                       | 31,894 | 37,320 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                           |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                           | $34,972 | $39,936 |   |

----

|                                                                                        |   | For      the Years endedDecember      31, |   |
|---------------------------------------------------------------------------------------------|--------|-------------------------------------------|--------|
|                                                                                        |   | 2006                                      |   |   | 2007 |   |   | 2008 |   |
|                                                                                        |   |                                      |   |   |   |   |   |   |   |
|                                                                                        |   |                                      |   |   |   |   |   |   |   |
| Continuing      Operations:                                                                 |   |                                      |   |   |   |   |   |   |   |
|        Current                                           |   |                                      |   |   |   |   |   |   |   |
|               Federal |   | $                                         | 76     |   |   | $ | 76 |   |   |   | (3 | ) |
| State                                                                                       |   |                                      | 241    |   |   |   | 705 |   |   |   | 127 |   |
| Total current      provision                                                                |   | $                                         | 317    |   |   | $ | 781 |   |   |   | 124 |   |
|                                                                                        |   |                                      |   |   |   |   |   |   |   |   |   |   |
|         Deferred,      net of valuation allowance   |   |                                      |   |   |   |   |   |   |   |   |   |   |
|               Federal |   | $                                         | (3,699 | ) |   | $ | (31,534 | ) |   |   | (3,317 | ) |
| State                                                                                       |   |                                      | 102    |   |   |   | 159 |   |   |   | (1,647 | ) |
| Total deferred      benefit                                                                 |   | $                                         | (3,597 | ) |   | $ | (31,375 | ) |   | $ | (4,964 | ) |
|                                                                                        |   |                                      |   |   |   |   |   |   |   |   |   |   |
| Total      income tax benefit                                                               |   | $                                         | (3,280 | ) |   | $ | (30,594 | ) |   | $ | (4,840 | ) |
|                                                                                        |   |                                      |   |
|                                                                                        |   | For      the Years endedDecember      31, |   |
|                                                                                        |   | 2006                                      |   |   | 2007 |   |   | 2008 |   |
|                                                                                        |   |                                      |   |   |   |   |   |   |   |   |   |   |
| Discontinued      Operations:                                                               |   |                                      |   |   |   |   |   |   |   |   |   |   |
|   Federal                                                                         |   | $                                         | 22     |   |   | $ | 5 |   |   | $ | - |   |
|   State                                                                           |   |                                      | 138    |   |   |   | 107 |   |   |   | - |   |
|   Total      provision                                                            |   | $                                         | 160    |   |   | $ | 112 |   |   | $ | - |   |
|                                                                                        |   |                                      |   |   |   |   |   |   |   |   |   |   |

----

----

|                                           | For      the Years EndedDecember      31, |
|------------------------------------------------|-------------------------------------------|
|                                           | 2006                                      | 2007 | 2008 |
|                                           |                                      |   |   |
| Statutory      rate                            | 35.0%                                     | 35.0% | (35.0%) |
| Change      in valuation allowance             | (179.0)                                   | (608.3) | 1.0 |
| Prior      year under-accrual                  | 53.9                                      | 1.5 | (0.6) |
| State      and local income taxes              | 7.9                                       | 10.5 | (8.7) |
| Certain      non-deductible expenses and other | 3.0                                       | 1.4 | 0.6 |
| Effective      tax rate                        | (79.2%)                                   | (559.9%) | (42.7%) |

| 9.   | Debt |
|----------------|------|

----

|                            | 2007   | 2008   |
|---------------------------------|--------|--------|
| Current:                        |   |   |
| Installment      notes          | $465   | $500   |
| Revolving      credit agreement | -      | 8,630  |
|                            | 465    | 9,130  |
| Non-current:                    |   |   |
| Revolving      credit agreement | 8,630  | -      |
| Installment      notes          | 410    | -      |
|                            | 9,040  | -      |
|                            |   |   |
| Total                           | $9,505 | $9,130 |

| 10.   | Discontinued      Operations |
|-----------------|------------------------------|

----

| 11.   | Commitments      and Contingencies |
|-----------------|------------------------------------|

----

| 12.   | Stock |
|-----------------|-------|

| 13.   | Employee      Stock Options and Benefit Plans |
|-----------------|-----------------------------------------------|

----

|                                                                                                            | 2006               |                            | 2007   |               | 2008                            |
|-----------------------------------------------------------------------------------------------------------------|--------------------|---------------------------------|--------|--------------------|---------------------------------|
|                                                                                                            |   Shares | WeightedAverageExer.      Price |   |   Shares | WeightedAverageExer.      Price |   |   Shares | WeightedAverageExer.      Price |
| Outstanding      at beginning of year                                                                           |  330,200      |  9.17                      |   |  330,200      |  9.17                      |   |  330,200 |  9.17 |
| Granted                                                                                                         | -                  | N/A                             |   | -                  | N/A                             |   | - | N/A |
| Exercised                                                                                                       | -                  | N/A                             |   | -                  | N/A                             |   | - | N/A |
| Canceled                                                                                                        | -                  | N/A                             |   | -                  | N/A                             |   | (30,200) | 17.51 |
| Outstanding      at end of year                                                                                 | 330,200            | 9.17                            |   | 330,200            | 9.17                            |   | 300,000 | 8.33 |
|  Options      exercisable at year end                                                                      |  255,200      |                            |   |  255,200      |                            |   |  300,000 |   |
| Weighted      average fair value  at date of grant of      options  granted during the year |   N/A    |                            |   |   N/A    |                            |   |   N/A |   |

----

|                                                   |   | Shares |     |   | Weighted      Average Grant-Date Fair Value |   |
|--------------------------------------------------------|--------|--------|----------|--------|---------------------------------------------|--------|
| Nonvested      shares at December 31, 2007             |   |   | 173,959  |   |                                        | $      | 4.00 |   |
| Granted                                                |   |   | -        |   |                                        |   | - |   |
| Vested                                                 |   |   | (106,625 | )      |                                        | $      | 4.10 |   |
| Cancelled                                              |   |   | -        |   |                                        |   | - |   |
|   Nonvested      shares at December 31, 2008 |   |   | 67,334   |   |                                        | $      | 3.83 |   |

| 14.   | Earnings      (Loss) Per Share |
|-----------------|--------------------------------|

----

|                                     |                                  |
|------------------------------------------|---------------------------------------|
|                                     | For      the Years Ended December 31, |
| Weighted      average shares outstanding | 2006                                  | 2007 | 2008 |
| Basic                                    | 7,744                                 | 7,793 | 7,797 |
| Diluted                                  | 7,816                                 | 8,016 | 7,797 |

|                                                    | 2005   | 2007    | 2008     |
|---------------------------------------------------------|--------|---------|----------|
| Income      (loss) from operations                      | $6,307 | $35,782 | $(6,486) |
| Preferred      stock dividends                          | 1,920  | 2,079   | 2,250    |
| Income      (loss) to common stockholders               | 4,387  | 33,703  | (8,736)  |
| Income      from discontinued operations                | 748    | 145     | -        |
| Net      income (loss) available to common stockholders | $5,135 | $33,848 | $(8,736) |

| 15.   | Related      Party Transactions |
|-----------------|---------------------------------|

| 16.   | Quarterly      Financial Data (Unaudited) |
|-----------------|-------------------------------------------|

|                                                                   | 2007          |
|------------------------------------------------------------------------|---------------|
|                                                                   |          |
|                                                                   | March      31 | June      30 | September      30 | December      31 |
| Total      net revenues                                                | $23,934       | $22,273 | $22,919 | $24,055 |
| Gross      profit                                                      | 10,729        | 10,797 | 10,608 | 11,756 |
| Total      operating expenses                                          | 8,806         | 9,782 | 9,487 | 10,241 |
| Income      tax provision                                              | 753           | 386 | 445 | (32,178) |
| Income      from continuing operations                                 | 1,006         | 517 | 602 | 33,657 |
| Income      (loss) from discontinued operations                        | 150           | (19) | 12 | 2 |
| Net      income                                                        | 1,156         | 498 | 614 | 33,659 |
| Preferred      stock dividends                                         | 504           | 515 | 524 | 536 |
| Net      income (loss) available to common shareholders                | $      652    | $      (17) | $      90 | $      33,123 |
|                                                                   |          |   |   |   |
| Earnings      per share (basic):                                       |          |   |   |   |
| Income      from continuing operations available to commonshareholders | $0.06         | $0.00 | $0.01 | $4.25 |
| Discontinued      operations                                           | 0.02          | 0.00 | 0.00 | 0.00 |
| Net      income available to common shareholders                       | $0.08         | $0.00 | $0.01 | $4.25 |
|                                                                   |          |   |   |   |
| Earnings      per share (diluted):                                     |          |   |   |   |
| Income      from continuing operations available to commonshareholders | $0.06         | $0.00 | $0.01 | $4.13 |
| Discontinued      operations                                           | 0.02          | 0.00 | 0.00 | 0.00 |
| Net      income available to common shareholders                       | $0.08         | $0.00 | $0.01 | $4.13 |
|                                                                   |          |   |   |   |

----

|                                                                 | 2008           |
|----------------------------------------------------------------------|----------------|
|                                                                 |           |   |   |   |
|                                                                 | March      31  | June      30 | September      30 | December      31 |
| Total      net revenues                                              | $21,352        | $20,342 | $21,607 | $20,877 |
| Gross      profit                                                    | 9,387          | 8,607 | 9,665 | 8,369 |
| Total      operating expenses                                        | 10,481         | 10,406 | 9,359 | 10,229 |
| Goodwill      impairment                                             | -              | - | - | 6,750 |
| Income      tax provision (benefit)                                  | (460)          | (789) | 109 | (3,700) |
| Income      (loss) from continuing operations                        | (635)          | (1,034) | 144 | (4,961) |
| Income      (loss) from discontinued operations                      | (4)            | 4 | - | - |
| Net      income (loss)                                               | $(639)         | $(1,030) | $144 | $(4,961) |
| Preferred      stock dividends                                       | 547            | 556 | 568 | 579 |
| Loss      available to common shareholders                           | $      (1,186) | $      (1,586) | $      (424) | $      (5,540) |
|                                                                 |           |   |   |   |
| Earnings      per share (basic):                                     |           |   |   |   |
| Loss      from continuing operations available to commonshareholders | $(0.15)        | $(0.20) | $(0.05) | $(0.72) |
| Discontinued      operations                                         | 0.00           | 0.00 | 0.00 | 0.00 |
| Net      loss available to common shareholders                       | $(0.15)        | $(0.20) | $(0.05) | $(0.72) |
|                                                                 |           |   |   |   |
| Earnings      per share (diluted):                                   |           |   |   |   |
| Loss      from continuing operations available to commonshareholders | $(0.15)        | $(0.20) | $(0.05) | $(0.72) |
| Discontinued      operations                                         | 0.00           | 0.00 | 0.00 | 0.00 |
| Net      loss available to common shareholders                       | $(0.15)        | $(0.20) | $(0.05) | $(0.72) |
|                                                                 |           |   |   |   |

----

----

----

| Name                                                                   | Age                                                             | Position                                                           |
|-----------------------------------------------------------------------------|----------------------------------------------------------------------|-------------------------------------------------------------------------|
| Donald      R. Uzzi (8)                                                | 56                                                              | Chairman      of the Board, Chief Executive Officer and President  |
| Jon      H. Peterson (1)                                                    | 62                                                                   | Executive      Vice President, Chief Financial Officer                  |
|                                                                        |                                                                 |                                                                    |
| John      J. Sheehan                                                   | 54                                                              | President,      Color Edge Visual                                  |
| Ken      Wasserman                                                     | 49                                                              | President,      Comp 24                                            |
| Guy      Claudy                                                             | 59                                                                   | President,      Crush Creative                                          |
|                                                                        |                                                                 |                                                                    |
| Domenick      Propati (2)                                                   |                 50 | Executive      Vice President, Operations                               |
|                                                                        |                                                                 |                                                                    |
| Chuck      Murphy (9) Albert      J. Fitzgibbons III (4) (5) (8)  | 48 63                                                      | Executive      Vice President, Operations Director            |
| Ronald      P. Badie  (3) (6) (7)                            | 66                                                              | Director                                                           |
| Bradley      J. Hoecker (4) (5) (8)                                    | 47                                                              | Director                                                           |
| Edward      A. Grant (3) (5) (7)                                            |           58       | Director                                                                |
|                                                                        |                                                                 |                                                                    |
| Lawrence      J. Schoenberg  (3) (4) (5) (7)                 | 76                                                              | Director                                                           |

| (1)   | Jon      H. Peterson will serve as Merisel’s Executive Vice President and Chief      Financial Officer until April 30,2009. |
|-----------------|-----------------------------------------------------------------------------------------------------------------------------------|

| (2)   | Domenick      Propati served as Merisel's Executive Vice President of Operations from      January 2007 until February 27,2009. |
|-----------------|---------------------------------------------------------------------------------------------------------------------------------|

|                    (3) | Member      of Audit Committee.  |
|-----------------------------------------------------------------------------------------|---------------------------------------|

| (8)   | Share      Repurchase Committee. |
|-----------------|----------------------------------|

| (9)   | Chuck      Murphy joined Merisel in August 2008 as Executive Vice President,      Operations. |
|-----------------|-----------------------------------------------------------------------------------------------|

----

For each Director of the Company, the following sets forth thename, age as of March 31, 2009, principal occupation for at least the past fiveyears, and the names of any other public companies for which the Directorcurrently serves in directorship capacity:

----

----

----

| Name      andPrincipal      Position                                                                                               | Year      | Salary      ($) | Bonus      ($) | Stock      Awards($)      (1)   | Option      Awards($)      (2) | Non-Equity      Incentive Plan Compensation($) | Non-Qualified      Deferred CompensationEarnings      ($) | All      OtherCompensation      ($) (3) | Total($)       |
|------------------------------------------------------------------------------------------------------------------------------------|----------------|-----------------|----------------|-------------------------------------------|--------------------------------|------------------------------------------------|-----------------------------------------------------------|-----------------------------------------|----------------|
| Donald      R. Uzzi  Chief      Executive    Officer      and    President  | 20072008       | 400,000400,000  | --135,000      | 261,136102,667                       | 183,167--                      | ----                                           | ----                                                      | 6,7506,900                              | 851,053644,567 |
| John      J. Sheehan   President,      Color Edge Visual                                                       | 20072008       | 300,000300,000  | ----           | 19,25019,250                              | ----                           | ----                                           | ----                                                      | 6,7506,900                              | 326,000326,150 |
| Guy      Claudy   President,      Crush                                                                             | 20072008  | 250,000268,547  | 108,188--      | 19,25019,250                              | ----                           | ----                                           | ----                                                      | 6,7506,900                              | 384,188294,697 |

| (1)   | The      dollar amount represents the amounts recognized in 2007 and 2008 for      financial statement reporting purposes in accordance with SFAS No.      123R.  The weighted average grant date fair value of the shares      was $4.31 and the weighted average period over which that cost is expected      to be recognized is 2.4 years. |
|-----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2)  The      dollar amount represents the amounts recognized in 2007 for financial      statement reporting purposes in accordance with SFAS No.      123R.  Under SFAS No. 123R, an issuer recognizes the grant date      fair value of an award over the requisite service period.  For      purposes of this calculation, the impact of forfeitures is excluded until      they actually occur.  None of the Company’s NEOs forfeited      options during 2007 or 2008.  We based the fair value of stock      awards on the market price of the shares awarded on the date of the      determination of eligibility.  The weighted average grant date      fair value of the shares was $8.33 and the weighted average period over      which that cost is expected to be recognized is one  year. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| Name                                       |     Number      of Securities Underlying Unexercised Options (#) Exercisable  |    Number      of Securities Underlying Unexercised Options (#)Unexercisable  |   Equity      Incentive Plan Awards: Number of Securities Underlying Unexercised      Unearned Options (#) |    Option      Exercise Price ($)  |     Option      Expiration Date   |    Number      of Shares or Units of Stock That Have Not Vested (#)      (1) |    Market      Value of Shares or Units of Stock That Have Not Yet Vested ($) |  Equity      Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights      That Have Not Vested (#) | Equity      Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or      Other Rights That Have Not Vested ($) |
|--------------------------------------------|--------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------|-----------------------------------------------------------------|--------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------|
|  Donald      R.Uzzi    | 100,000100,000100,000                                                                                  | ---                                                                                               | ---                                                                                                                  | 5.008.0012.00                                               | 11/22/201411/22/201411/22/2014                                  | 26,667                                                                                           | 20,267                                                                                            | -                                                                                                                            | -                                                                                                                                      |
|  John      J. Sheehan            | -                                                                                                      | -                                                                                                 | -                                                                                                                    | -                                                           |                                                            | 5,000                                                                                            | 3,800                                                                                             | -                                                                                                                            | -                                                                                                                                      |
|  Guy      Claudy                 | -                                                                                                      | -                                                                                                 | -                                                                                                                    | -                                                           |                                                            | 5,000                                                                                            | 3,800                                                                                             | -                                                                                                                            | -                                                                                                                                      |

| (1) | Unvested      restricted shares reported in this column for each named executive officer      will vest on December 13, 2009. |
|-----|-------------------------------------------------------------------------------------------------------------------------------|

----

----

| Name                           | Fees      Earned or Paid in Cash ($)            | Stock      Awards($)      (1) | Option      Awards($) | Non-Equity      Incentive Plan Compensation ($) | Nonqualified      Deferred Compensation Earnings  ($) (2) | All      Other Compensation ($) | Total      ($) |
|--------------------------------|-------------------------------------------------|-------------------------------|-----------------------|-------------------------------------------------|---------------------------------------------------------------------|---------------------------------|----------------|
| Edward      A. Grant           | 96,500      (includes 43,000 Special Committee) | 26,883                        | -                     | -                                               | -                                                                   | -                               | 123,333        |
| Lawrence      J. Schoenberg    | 93,000      (includes 40,000 Special Committee) | 26,883                        | -                     | -                                               | -                                                                   | -                               | 119,883        |
| Ronald      P. Badie           | 97,000      (includes 48,000 Special Committee) | 26,883                        | -                     | -                                               | -                                                                   | -                               | 123,883        |
| Albert      J. Fitzgibbons III | 42,000                                          | 26,883                        | -                     | -                                               | -                                                                   | -                               | 68,883         |
| Bradley      J. Hoecker        | 42,000                                          | 26,883                        | -                     | -                                               | -                                                                   | -                               | 68,883         |

----

----

|                                                                      |                         Shares BeneficiallyOwned |
|---------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Name                                                                      | Number                                                                                                                                                                   | Percentage |
|                                                                      |                                                                                                                                                                     |   |
| Phoenix      Acquisition Company II, L.L.C. (1)                           | 6,722,034                                                                                                                                                                | 68.26% |
|      540      Madison Avenue, 25th      Floor    |                                                                                                                                                                     |   |
|      New      York, NY 10022                     |                                                                                                                                                                     |   |
| Freestone      Opportunity Partners LP and Gary Furukawa (2)              | 769,241                                                                                                                                                                  | 7.81% |
|      1191      Second Avenue, Suite 2100         |                                                                                                                                                                     |   |
|      Seattle,      WA 98101                      |                                                                                                                                                                     |   |
| Ronald      P. Badie                                                      | 18,714                                                                                                                                                                   | * |
| Albert      J. Fitzgibbons III (3)                                        | 18,714                                                                                                                                                                   | * |
| Edward      A. Grant                                                      | 13,223                                                                                                                                                                   | * |
| Bradley      J. Hoecker (3)                                               | 18,714                                                                                                                                                                   | * |
| Lawrence      J. Schoenberg                                               | 54,773                                                                                                                                                                   | * |
| Donald      R. Uzzi (4)                                                   | 530,000                                                                                                                                                                  | 5.38% |
| John      J. Sheehan (5)                                                  | 15,000                                                                                                                                                                   | * |
| Guy      Claudy (5)                                                       | 14,500                                                                                                                                                                   | * |
| All      Directors and Executive Officers as a Group(11      Persons) (6) |                                                                                                                                                                     | * |
|                                                                      | 725,138                                                                                                                                                                  |   7.36% |

| (1)   | As      of March 30, 2009, Phoenix Acquisition Company II, L.L.C., together with      its affiliates, Stonington Capital Appreciation 1994 Fund, L.P.,      Stonington Partners, L.P., Stonington Partners, Inc. II, and Stonington      Partners, Inc. held beneficial ownership (with shared voting power and      shared dispositive power) of 6,722,034 shares, including 1,722,034 shares      of the common stock of Merisel, into which the 301,356 shares of      convertible preferred stock of Merisel that are beneficially owned by      Phoenix Acquisition Company II, L.L.C. are convertible at its option.      Absent such conversion, Phoenix Acquisition Company II, L.L.C. (together      with its affiliates) would beneficially own approximately 68% of the      outstanding common stock ofMerisel. |
|-----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2)   | Based      on information contained in the Schedule 13G/A filed on February 14, 2008      with the SEC by Freestone Opportunity Partners LP, Gary I. Furukawa and      Freestone Advisors, LLC, such persons beneficially owned an aggregate of      769,241 shares of Merisel common stock as of December 31,      2007. |
|-----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3)   | Messrs.      Fitzgibbons and Hoecker are directors or partners of certain affiliates of      Phoenix Acquisition Company II, L.L.C. and may therefore be deemed to      beneficially own 6,722,034 shares of common stock beneficially owned by      Phoenix Acquisition Company II, L.L.C. and its affiliates. Each of Mr.      Fitzgibbons and Mr. Hoecker disclaims such beneficial ownership and the      information set forth in the table above solely reflects beneficial      ownership of Mr. Fitzgibbons and Mr. Hoecker in each of their individual      capacities. |
|-----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (4)   | Includes      300,000 shares of common stock that are subject to currently exercisable      stock options and 26,667 shares of restricted  stock. |
|-----------------|---------------------------------------------------------------------------------------------------------------------------------------------------|

| (5)   | Includes      5,000 shares of unvested restrictedstock. |
|-----------------|---------------------------------------------------------|

| (6)   | Includes      all shares of restricted stock and all shares of common stock that are      subject to stock options. |
|-----------------|---------------------------------------------------------------------------------------------------------------------|

----

|                                                        |      | Number of securitiesto      be issued upon exercise of outstanding options,warrants      and rights |   | Weighted-averageexercise      price of outstanding options, warrantsand      rights |   | Number of securities      remaining available for future issuance under      equity compensationplans      (1) |
|-------------------------------------------------------------|--------------------------|---------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                        |                     |                                                                                                          |   |                                                                                     |   |                                                                                                                                              |
| Equity      compensation plans approved by the stockholders |      | 300,000      (2)                                                                                              |   | $8.33                                                                                    |   | 501,807      (3)                                                                                                                                  |

| 1.   | Excludes      shares reflected in the firstcolumn. |
|----------------|----------------------------------------------------|

| 2.   | Represents      outstanding options granted under the Company’s 1997 Stock Award and      Incentive Plan. |
|----------------|-----------------------------------------------------------------------------------------------------------------|

----

| Name      of Parent                         | Basis      of Control                                                         | Immediate      Parent                                | Percentage      of Voting Securities Owned or Other Basis of Control |
|---------------------------------------------|-------------------------------------------------------------------------------|------------------------------------------------------|----------------------------------------------------------------------|
| Phoenix      Acquisition Company II, L.L.C. | Ownership/control      of common stock constituting 68% of outstanding shares | Stonington      Capital Appreciation 1994 Fund, L.P. | 100%                                                                 |

|                        | 2007                                               | 2008     |
|-----------------------------|----------------------------------------------------|----------|
| Audit      fees             |        $270,000 | $268,500 |
| Audit-related      fees (1) | 58,650                                             | 55,000   |
| Total                       | $328,650                                           | $323,500 |

|   | (1)       The      2007 billings relate to the 2006 audit of the employee benefit plan and      various consulting services. The 2008 billings relate to the 2007 audit of      the employee benefit plan and various consulting  services. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| 1.   | Financial      Statements included in Item 8: |
|----------------|-----------------------------------------------|

| ·   | Report      of Independent Registered Public Accounting  Firm. |
|--------------------|----------------------------------------------------------------|

| ·   | Consolidated      Balance Sheets at December 31, 2007 and2008. |
|--------------------|----------------------------------------------------------------|

| ·   | Consolidated      Statements of Operations for each of the three years in the period ended      December 31, 2008. |
|--------------------|--------------------------------------------------------------------------------------------------------------------|

| ·   | Consolidated      Statements of Changes in Stockholders’ Equity for each of the three years      in the period ended December 31,2008. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Consolidated      Statements of Cash Flows for each of the three years in the period ended      December 31, 2008. |
|--------------------|--------------------------------------------------------------------------------------------------------------------|

| ·   | Notes      to Consolidated FinancialStatements. |
|--------------------|-------------------------------------------------|

| 2.   | Exhibits: |
|----------------|-----------|

----

|   | Chairman      of the Board, Chief Executive Officer and  President |
|--------|--------------------------------------------------------------------|

| Signature                                                                   | Title                                                                                                           | Date                |
|-----------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------|---------------------|
|                                                                        |                                                                                                            |                |
| /s/Donald R. UzziDonald      R. Uzzi                                        | Chairman      of the Board, Chief Executive Officerand      President (Principal Executive Officer)   | March      31, 2009 |
|                                                                        |                                                                                                            |                |
| /s/Jon      H. PetersonJon      H. Peterson                                 | Chief      Financial Officer(Principal      Accounting Officer)                                            | March      31, 2009 |
|                                                                        |                                                                                                            |                |
| /s/Ronald      P. BadieRonald      P. Badie                       | Director                                                                                                        | March      31, 2009 |
|                                                                        |                                                                                                            |                |
| /s/Albert      J. Fitzgibbons IIIAlbert      J. Fitzgibbons III   | Director                                                                                                        | March      31, 2009 |
|                                                                        |                                                                                                            |                |
| /s/Bradley      J. HoeckerBradley      J. Hoecker                 | Director                                                                                                        | March      31, 2009 |
|                                                                        |                                                                                                            |                |
| /s/Edward      A. GrantEdward      A. Grant                            | Director                                                                                                        | March      31, 2009 |
|                                                                        |                                                                                                            |                |
| /s/Lawrence      J. SchoenbergLawrence      J. Schoenberg                   | Director                                                                                              | March      31, 2009 |
|                                                                        |                                                                                                            |                |

----

| Exhibit  | Description  |   | Method ofFiling |
|---------------|-------------------|--------|-----------------|

| 2.1 | Agreement      and Plan of Merger dated March 28, 2008, among TU Holdings, Inc., TU      Merger, Inc. and Merisel, Inc.                                                                                                                                                                                                                                                                                   |   | Filed      as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the      SEC on April 1, 2008.**   |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------|
| 2.2 | Voting,      Support and Redemption Agreement, dated as of March 28, 2008, between TU      Holdings, Inc., Merisel, Inc., Stonington Capital Appreciation 1994 Fund,      L.P. and Phoenix Acquisition Company II, L.L.C.                                                                                                                                                                                 |   | Filed      as Exhibit 2.2 to the Company’s Current Report on Form 8-K filed with the      SEC on April 1, 2008.**   |
| 2.3 | Commitment      Agreement dated as of March 28, 2008, between American Capital Strategies,      Ltd. and Merisel, Inc.                                                                                                                                                                                                                                                                                    |   | Filed      as Exhibit 2.3 to the Company’s Current Report on Form 8-K filed with the      SEC on April 1, 2008. **  |
| 2.4 | Asset      Purchase Agreement dated as of December 24, 2004, as amended, by and among      Merisel, Inc., MCEV, LLC, Color Edge Visual, Inc. (“CEV”), Photobition New      York, Inc. (“PBNY”) and the direct or indirect shareholders or members of      CEV and PBNY signatories thereto.                                                                                       |   | Filed      as Exhibit 2.2 to the Company’s Current Report on Form 8-K filed with the      SEC on March 7, 2005. **  |
| 2.5 | Asset      Purchase Agreement dated as of December 24, 2004, as amended, by and among      Merisel, Inc., MC24, LLC, Comp 24, LLC (“Comp 24”) and the direct and      indirect shareholders or members of Comp 24 signatories      thereto.                                                                                                                                                   |   | Filed      as Exhibit 2.3 to the Company’s Current Report on Form 8-K filed with the      SEC on March 7, 2005. **  |
| 2.6 | Amendment      and Waiver to Asset Purchase Agreement dated as of March 1, 2005 by and      among MCEI, LLC, Merisel, Inc. and Color Edge, Inc. and the direct and      indirect shareholders set forth on the signature pages      thereto.                                                                                                                                                              |   | Filed      as Exhibit 2.4 to the Company’s Current Report on Form 8-K filed with the      SEC on March 7, 2005. **  |
| 2.7 | Amendment      and Waiver to Asset Purchase Agreement dated as of March 1, 2005 by and      among MCEV, LLC, Merisel, Inc. and Color Edge Visual, Inc. and the direct      and indirect shareholders set forth on the signature pages      thereto.                                                                                                                                                       |   | Filed      as Exhibit 2.5 to the Company’s Current Report on Form 8-K filed with the      SEC on March 7, 2005. **  |
| 2.8 | Amendment      and Waiver to Asset Purchase Agreement dated as of March 1, 2005 by and      among MC24, LLC, Merisel, Inc. and Comp 24, LLC and the direct and      indirect shareholders set forth on the signature pages      thereto.                                                                                                                                                                  |   | Filed      as Exhibit 2.6 to the Company’s Current Report on Form 8-K filed with the      SEC on March 7, 2005. **  |
| 2.9 | Asset      Purchase Agreement dated as of July 6, 2005 by and among Merisel, Inc.,      MCRU, LLC, Crush Creative, Inc. (“Crush”) and the shareholders of Crush      signatories thereto, as amended by that certain Amendment and Waiver to      Asset Purchase Agreement, dated as of August 8, 2005 by and among Merisel,      MCRU, Crush and Guy Claudy as Shareholders Representative.  |   | Filed      as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the      SEC on August 9, 2005. ** |

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| 2.10  | Amendment      and Waiver to Asset Purchase Agreement, dated as of August 8, 2005 by and      among Merisel, Inc., MCRU, LLC, Crush Creative, Inc. and Guy Claudy as      Shareholders Representative.                                                        |   | Filed      as Exhibit 2.2 to the Company’s Current Report on Form 8-K filed with the      SEC on August 9, 2005. **               |
|-------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------|
| 2.11  | Asset      Purchase Agreement dated as of October 4, 2006 by and among Merisel, Inc.,      Merisel FD, LLC, Fuel Digital, Inc. and the shareholders of Fuel      signatories thereto.                                                                         |   | Filed      as Exhibit 2.1 to the Company's Current Report on Form 8-K filed with the      SEC on October 6, 2006. **                    |
| 3.1   | Restated      Certificate of Incorporation of Merisel, Inc., as amended.                                                                                                                                                                                      |   | Filed      as Exhibit 3.1 to the Company’s Annual Report on Form 10-K for the year      ended December 31, 2005. **          |
| 3.2   | Bylaws      of Merisel, Inc., as amended.                                                                                                                                                                                                                          |   | Filed      as Exhibit 3.2 to the Company’s Annual Report on Form 10-K for the year      ended December 31, 2005. **          |
| 4.1   | Certificate      of Designation of Convertible Preferred Stock of Merisel,    Inc.                                                                                                                                                                                 |   | Filed      as Exhibit 99.2 to the Company’s Current Report on Form 8-K dated June 9,      2000. **                           |
| *10.1 | Merisel,      Inc. 1997 Stock Award and Incentive Plan.                                                                                                                                                                                                            |   | Filed      as Annex II to the Company’s Schedule 14A dated October 6, 1997.      **                                          |
| *10.2 | Form      of Nonqualified Stock Option Agreement under the Merisel, Inc. 1997 Stock      Award and Incentive Plan.                                                                                                                                                 |   | Filed      as Exhibit 10.7 to the Company’s Annual Report on Form 10-K for the year      ended December 31, 1997. **         |
| 10.3  | Stock      Subscription Agreement by and between Merisel, Inc. and Phoenix      Acquisition Company II, L.L.C. dated as of June 2, 2000.                                                                                                                      |   | Filed      as Exhibit 99.1 to the Company’s Current Report on Form 8-K, dated June 9,      2000. **                               |
| 10.4  | Amended      and Restated Registration Rights Agreement dated June 9, 2000 (executed      November 7, 2002) between Merisel, Inc. and Phoenix Acquisition Company      II, L.L.C.                                                                             |   | Filed      as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the      quarter ended September 30, 2002. **  |
| *10.5 | Employment      Agreement dated November 22, 2004 between Merisel, Inc. and Donald R.      Uzzi.                                                                                                                                                              |   | Filed      as Exhibit 99.1 to the Company’s Current Report on Form 8-K filed with the      SEC on November 24, 2004. **      |
| *10.6 | Settlement      Agreement and Mutual General Release dated as of February 3, 2005 by and      between Merisel, Inc., Merisel Americas, Inc. and Timothy Jenson, Tina      Wurtz, Craig Wurtz, John Low, D&H Services, LLC and TDH Enterprises,      LLC.  |   | Filed      as Exhibit 10.27 to the Company’s Annual Report on Form 10-K for the year      ended December 31, 2006.                |
| *10.7 | Employment      Agreement dated as of March 1, 2005 by and between Merisel Americas, Inc.      and Kenneth Wasserman.                                                                                                                                         |   | Filed      as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the      SEC on March 7, 2005. **               |
| *10.8 | Employment      Agreement dated as of March 1, 2005 by and between Merisel Americas, Inc.      and John Sheehan.                                                                                                                                              |   | Filed      as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the      SEC on March 7, 2005. **               |
| 10.9  | Credit      Agreement dated as of March 1, 2005 by and among MCEI, LLC, MCEV, LLC,      Merisel, Inc., Merisel Americas, Inc., MC24, LLC and Amalgamated      Bank.                                                                                           |   | Filed      as Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the      SEC on March 7, 2005. **               |

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| 10.10  | Pledge      Agreement, dated as of March 1, 2005, made among MCEI, LLC, MCEV, LLC,      Merisel, Inc., Merisel Americas, Inc., and Amalgamated Bank.                                                                                                                                                                                                                                 |   | Filed      as Exhibit 10.5 to the Company’s Current Report on Form 8-K filed with the      SEC on March 7, 2005. **      |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------|
| 10.11  | Security      Agreement, dated as of March 1, 2005, made by MCEI, LLC, MCEV, LLC,      Merisel, Inc., Merisel Americas, Inc., and MC24, LLC, in favor of      Amalgamated Bank.                                                                                                                                                                                                      |   | Filed      as Exhibit 10.6 to the Company’s Current Report on Form 8-K filed with the      SEC on March 7, 2005. **      |
| 10.12  | Corporate      Guarantee, dated as of March 1, 2005, made among each signatory hereto, in      favor of Amalgamated Bank.                                                                                                                                                                                                                                                            |   | Filed      as Exhibit 10.7 to the Company’s Current Report on Form 8-K filed with the      SEC on March 7, 2005. **      |
| 10.13  | Credit      Agreement dated as of March 1, 2005 by and among MC24, LLC, Merisel, Inc.,      Merisel Americas, Inc., MCEI, LLC, MCEV, LLC and Amalgamated      Bank.                                                                                                                                                                                                                  |   | Filed      as Exhibit 10.8 to the Company’s Current Report on Form 8-K filed with the      SEC on March 7, 2005. **      |
| 10.14  | Pledge      Agreement, dated as of March 1, 2005, made among MC24, LLC, Merisel, Inc.,      Merisel Americas, Inc., and Amalgamated Bank.                                                                                                                                                                                                                                            |   | Filed      as Exhibit 10.9 to the Company’s Current Report on Form 8-K filed with the      SEC on March 7, 2005. **      |
| 10.15  | Security      Agreement, dated as of March 1, 2005 made by MC24, LLC, Merisel, Inc.,      Merisel Americas Inc., MCEI, LLC, MCEV, LLC, and each of their      Subsidiaries from time to time parties thereto, in favor of Amalgamated      Bank.                                                                                                                                     |   | Filed      as Exhibit 10.10 to the Company’s Current Report on Form 8-K filed with      the SEC on March 7, 2005. **     |
| 10.16  | Corporate      Guarantee, dated as of March 1, 2005, made among each signatory hereto, in      favor of Amalgamated Bank.                                                                                                                                                                                                                                                            |   | Filed      as Exhibit 10.11 to the Company’s Current Report on Form 8-K filed with      the SEC on March 7, 2005. **     |
| 10.17  | Amendment      No. 1 to Credit Agreement dated as of August 8, 2005 by and among MCRU,      Color Edge LLC (formerly known as MCEI, LLC), Color Edge Visual, LLC      (formerly known as MCEV, LLC), Comp 24 LLC (formerly known as MC24, LLC),      Merisel Americas, Inc., the Company and Amalgamated Bank, entered into in      connection with the MCEI/MCEV Credit Agreement.  |   | Filed      as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the      SEC on August 9, 2005. **     |
| *10.18 | Amendment      to Employment Agreement dated November 22, 2004 between Merisel, Inc. and      Donald R. Uzzi.                                                                                                                                                                                                                                                                             |   | Filed      as Exhibit 10.1 to the Company’s current report on Form 8-K filed with the      SEC on March 9, 2006.**  |
| *10.19 | Form      of Indemnity Agreement entered into between Merisel, Inc. and each of its      Directors and certain Officers.                                                                                                                                                                                                                                                             |   | Filed      as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the      SEC on March 9, 2006.**       |
| 10.20  | Amendment      No. 2 to Asset Purchase Agreement and Amendment to Confidentiality and      Non-Competition Agreement (MCEI).                                                                                                                                                                                                                                                         |   | Filed      as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the      SEC on May 1, 2006. **        |
| 10.21  | Amendment      No. 2 to Asset Purchase Agreement and Amendment to Confidentiality and      Non-Competition Agreement (MCEV).                                                                                                                                                                                                                                                         |   | Filed      as Exhibit 10.2 to the Company's Current Report on Form 8-K filed with the      SEC on May 1, 2006. **              |

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| *10.22       | 1997      Merisel Inc. Stock Award and Incentive Plan Form of Restricted Stock      Agreement for Executives and Key Employees.                                                                                                                                                                                                                                                          |   | Filed      as Exhibit 10.1 to the Company’s      Current Report on Form 8-K filed with the SEC on December 19, 2006.      ** |
|--------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------|
| *10.23  | 1997      Merisel Inc. Stock Award and Incentive Plan Form of Restricted Stock      Agreement for Directors.                                                                                                                                                                                                                                                                        |   | Filed      as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the      SEC on December 19, 2006.**       |
| *10.24       | Employment      Agreement dated May 1, 2006 between Jon H. Peterson and Merisel,      Inc.                                                                                                                                                                                                                                                                                               |   | Filed      as Exhibit 10.47 to the Company’s Annual Report on Form 10-K for the year      ended December 31, 2006. **        |
| 10.25        | Amendment      No. 2 to Credit Agreement, dated February 27, 2008, among Color Edge LLC,      Color Edge Visual LLC and Crush Creative LLC, as borrowers, the Company,      Merisel Americas, Inc., Comp 24 LLC, Fuel Digital, LLC, Dennis Curtin      Studios, LLC, MADP, LLC and Advertising Props, Inc., as guarantors, and      Amalgamated Bank, as lender.                         |   | Filed      as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the      SEC on March 4, 2008.**           |
| 10.26        | Reaffirmation      and Confirmation Agreement (Security Documents), dated February 27, 2008,      among Color Edge LLC, Color Edge Visual LLC and Crush Creative LLC, as      borrowers, the Company, Merisel Americas, Inc., Comp 24 LLC, Fuel Digital,      LLC, Dennis Curtin Studios, LLC, MADP, LLC and Advertising Props, Inc., as      guarantors, in favor of Amalgamated Bank.  |   | Filed      as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the      SEC on March 4, 2008.**           |
| *10.27       | Amendment      to 1997 Merisel Inc. Stock Award and Incentive Plan Form of Restricted      Stock Agreement for Directors.                                                                                                                                                                                                                                                           |   | Filed      as Exhibit 10.50 to the Company’s Annual Report on Form 10-K for the year      ended December 31, 2007. **             |
| *10.28       | Amendment      No. 2 to Employment Agreement, dated January 18, 2008, between Merisel,      Inc. and Donald R. Uzzi.                                                                                                                                                                                                                                                                     |   | Filed      as Exhibit 10.51 to the Company’s Annual Report on Form 10-K for the year      ended December 31, 2007. **             |
| *10.29       | Merisel,      Inc. 2008 Stock Award and Incentive Plan.                                                                                                                                                                                                                                                                                                                                       |   | Filed      as Annex A to the Company’s Schedule 14A dated November 7, 2008.      **                                               |
| 10.30        | Amendment      No. 3 to Credit Agreement, dated March 26, 2009, among Color Edge LLC,      Color Edge Visual LLC and Crush Creative LLC, as borrowers, the Company,      Merisel Americas, Inc., Comp 24 LLC, Fuel Digital, LLC, Dennis Curtin      Studios, LLC, MADP, LLC and Advertising Props, Inc., as guarantors, and      Amalgamated Bank, as lender.                            |   | Filed      herewith.                                                                                                                    |
| 14.1         | Code      of Business Conduct.                                                                                                                                                                                                                                                                                                                                                                |   | Filed      as exhibit 99.2 to the Company’sAnnual      Report on Form 10-K for the yearended      December 31, 2002.**       |
| 21           | Subsidiaries      of the Registrant.                                                                                                                                                                                                                                                                                                                                                          |   | Filed      herewith.                                                                                                                    |
| 23           | Consent      of BDO Seidman, LLPIndependent      Registered Accounting Firm.                                                                                                                                                                                                                                                                                                                  |   | Filed      herewith.                                                                                                                    |

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| 31.1 | Certification      of the Chief Executive Officer pursuant to Section 302 of the      Sarbanes-Oxley Act of 2002.   |   | Filed      herewith. |
|------|--------------------------------------------------------------------------------------------------------------------------|--------|----------------------|
| 31.2 | Certification      of the Chief Financial Officer pursuant to Section 302 of the      Sarbanes-Oxley Act of 2002.   |   | Filed      herewith. |
| 32   | Certification      of Chief Executive Officer and Chief Financial Officer pursuant to 18      U.S.C. Section 1350.  |   | Filed      herewith. |