**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**Washington, DC 20549

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**FORM 10-K/AAMENDMENT NO. 1**

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**x**                                   ANNUAL REPORT PURSUANT TO SECTION 13OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934

**ForThe Fiscal Year Ended December 31, 2006**

**OR**

**o**                                     TRANSITION REPORT PURSUANT TO SECTION 13OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934

**Forthe Transition PeriodFrom                              to                              .**

**COMMISSION FILE NUMBER: 0-27644**

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**DGFastChannel, Inc.**(ExactName of Registrant as Specified in its Charter)

| **Delaware**                                                    |   | **94-3140772**                           |
|-----------------------------------------------------------------|--------|------------------------------------------|
| (State or Other Jurisdiction of  Incorporation or Organization) |   | (I.R.S. Employer  Identification Number) |

 

**750West John Carpenter Freeway, Suite 700Irving, Texas 75039**(AddressOf Principal Executive Offices, Including Zip Code)

**(972) 581-2000**(Registrant’sTelephone Number, Including Area Code)

Securities registeredpursuant to Section 12(b) of the Act:

| **Title of Each Class**        |   | **Name of each exchange on which registered** |
|--------------------------------|--------|-----------------------------------------------|
| Common Stock, $0.001 par value |   | Nasdaq Global Market                          |

 

Securities registeredpursuant to Section 12(g) of the Act: **None**

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Indicateby check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405of the Securities Act.  Yes o  No x

Indicateby check mark if the Registrant is not required to file reports pursuant to Section 13or Section 15(d) of the Exchange Act.  Yes o  No x

Indicateby check mark whether the Registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months and (2) has been subject to suchfiling requirements for the past 90 days.  Yes x  No o

Indicateby check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not be contained, to thebest of Registrant’s knowledge, in definitive proxy or information statementsincorporated by reference in Part III of this Form 10-K or anyamendment to this Form 10-K. o

Indicateby check mark whether the Registrant is a large accelerated filer, anaccelerated filer or a non-accelerated filer. See definition of “acceleratedfiler” and “large accelerated filer” in Rule 12b-2 of the ExchangeAct.

Largeaccelerated filer o                Acceleratedfiler o                Non-acceleratedfiler x

Indicateby check mark if the Registrant is a shell company (as defined in Rule 12b-2of the Exchange Act).  Yes o  No x

Theaggregate market value of the Common Stock held by non-affiliates of the registrant,computed by reference to the closing price and shares outstanding, wasapproximately $177.6 million as of December 31, 2006, andapproximately $52.9 million as of June 30, 2006, the last businessday of the registrant’s most recently completed second quarter. Shares ofCommon Stock held by each officer and director of the registrant and by eachperson who may be deemed to be an affiliate have been excluded. Thisdetermination of affiliate status is not necessarily a conclusive determinationfor other purposes.

As of March 31,2007, the registrant had 15,849,796 shares of Common Stock outstanding.

**DOCUMENTSINCORPORATED BY REFERENCE**

None

 

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**EXPLANATORY NOTE**

The purpose of thisAmendment No. 1 (the “Amendment”) to the Annual Report on Form 10-Kof DG FastChannel, Inc. (the “Registrant”) for the year ended December 31,2006 (the “Original Form 10-K”) is to include the disclosurerequired in Part III, Items 10, 11, 12, 13 and 14. In connection with thefiling of this Amendment and pursuant to the rules of the Securities andExchange Commission, we are also including with this Amendment certaincurrently dated certifications and other exhibits. Accordingly, Item 15 ofPart IV has also been amended to reflect the filing thereof. Except forItems 10, 11, 12, 13 and 14 of Part III and the inclusion of suchexhibits in Item 15 of Part IV, no other information included in theOriginal Form 10-K is amended or changed by this Amendment.

**DG FASTCHANNEL,INC.**

**FORM 10-K/A**

***INDEX***
|            | ** ** | ** **                                                                                      | ** ** | **Page** |
|------------|------------|-------------------------------------------------------------------------------------------------|------------|----------|
| ** ** | ** ** | **PART III**                                                                               |       |     |
| Item 10.   |       | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE                                          |       | 1        |
| Item 11.   |       | EXECUTIVE COMPENSATION                                                                          |       | 7        |
| Item 12.   |       | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND  MANAGEMENT AND RELATED STOCKHOLDER MATTERS |       | 22       |
| Item 13.   |       | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND  DIRECTOR INDEPENDENCE                      |       | 23       |
| Item 14.   |       | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                                          |       | 24       |
|       |       | **PART IV**                                                                                     |       |     |
| Item 15.   |       | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES                                                      |       | 25       |
| SIGNATURES |       | 26                                                                                              |

 

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**PART III**

**Item 10.**                 DIRECTORS,EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

**Executive Officersand Directors**

Thefollowing table sets forth certain information concerning our executiveofficers and directors as of March 31, 2007: 

| **Name**                | ** ** | ** ** | ** ** | **Age**                                            | ** ** | **Title(s)** | ** ** | **Expiration  of Term as  Director** |
|-------------------------|------------|------------|------------|----------------------------------------------------|------------|--------------|------------|------------------------------------------------|
| Scott K. Ginsburg(1)    |       | 54         |       | Chief Executive Officer  and Chairman of the Board |       | 2007         |
| Omar A. Choucair(1)     |       | 45         |       | Chief Financial Officer  and Director              |       | 2009         |
| William Donner(2)       |       | 54         |       | Director                                           |       | 2008         |
| Lisa C. Gallagher(3)    |       | 50         |       | Director                                           |       | 2009         |
| Kevin C. Howe(2),(3)    |       | 58         |       | Director                                           |       | 2008         |
| David M. Kantor(3)      |       | 50         |       | Director                                           |       | 2009         |
| Anthony J. LeVecchio(2) |       | 60         |       | Director                                           |       | 2008         |
| Neil H. Nguyen          |       | 33         |       | Executive Vice President  of Sales and Operations  |       | N/A          |
| Pamela Maythenyi        |       | 51         |       | Senior Vice President of SourceEcreative           |       | N/A          |

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(1)          Memberof the Executive Committee

(2)          Memberof the Audit Committee

(3)          Memberof the Compensation Committee

*Scott K. Ginsburg*joined the Company in December 1998 as Chief Executive Officer andChairman of the Board. In July 1999, Matthew E. Devine assumed theresponsibilities as Chief Executive Officer, but Mr. Ginsburg remained theCompany’s Chairman. Mr. Ginsburg reassumed the responsibilities as ChiefExecutive Officer of the Company in November 2003 following Mr. Devine’sresignation. Mr. Ginsburg founded the Boardwalk Auto Group in 1998, whichconsists of several car dealerships located in the Dallas area. From 1997 to1998, Mr. Ginsburg served as Chief Executive Officer and Director ofChancellor Media Corporation (now part of Clear ChannelCommunications, Inc.). Mr. Ginsburg founded Evergreen MediaCorporation in 1988, and was the co-founder of Statewide Broadcasting, Inc.and H&G Communications, Inc. Mr. Ginsburg earned a B.A. fromGeorge Washington University in 1974 and a J.D. from Georgetown University in1978.

*Omar A. Choucair***joined the Company as Chief FinancialOfficer in July 1999 and has been a member of the Board of Directors ofthe Company since November 2000. Prior to joining the Company, Mr. Choucairserved as Vice President of Finance for AMFM, Inc. (formerly ChancellorMedia Corporation) and served as Vice President of Finance for Evergreen MediaCorporation before it was acquired by Chancellor Media Corporation in 1997. Priorto entering the media industry, Mr. Choucair was a Senior Manager at KPMGLLP, where he specialized in media and telecommunications clients. Mr. Choucairreceived a B.B.A. from Baylor University.

*William Donner*has been a member of the Board of Directors of the Company since May 2006after having served as a director of FastChannel Network, Inc. Since 2004,Mr. Donner has served as CEO of MedCommons, a personal health recordstorage and transport company. In the early 1980s, Mr. Donner built andran Precision Business Systems, a Wall Street based systems integrator.Precision Business Systems was sold to Bank of America in 1988 andsubsequently, a division was sold to Reuters, PLC, where Mr. Donner ranthe Reuters Dealing 2001 and 2002 Trading Services. In 1994, Mr. Donnerwas named Chief Architect of Reuters where he ran the central research group.Mr. Donner joined the Greenhouse Group, Reuters’ corporate venture capitalarm, in 1996. In 1999, Mr. Donner joined Fenway Partners, a 

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private equityfund, where he led the technology investment group. Mr. Donner holds aB.S.E.E. from Massachusetts Institute of Technology.

*Lisa C. Gallagher***has been a member of the Board ofDirectors of the Company since May 2006 after having served first as adirector, and most recently as Chairman of the Board of Directors, ofFastChannel Network, Inc. since 2002. Since 2003, Ms. Gallagher hasserved as the Senior Vice President and Chief Operating Officer of HawtanLeathers, a privately held international manufacturer of specialty leathers forthe garment industry. She previously spent over 20 years as both a commercialas well as investment banker specializing in media transactions. She startedher banking career in the early 1980s at the Bank of Boston and in 1997 movedto its investment bank, BancBoston Securities as Managing Director to run theirMedia &Communications Group. In 1998 she became Managing Director andGroup head of the Internet/Media Convergence Group of Robertson Stephens, aleading high technology investment banking firm, upon the BancBoston Securitiesacquisition of Robertson Stephens. After leaving Robertson Stephens in 2001,she worked for Remy Capital Partners, a small investment banking boutique,before joining Hawtan Leathers. Ms. Gallagher holds a B.A. from MountHolyoke College and an M.B.A. from the Simmons Graduate School of Management inBoston.

*Kevin C. Howe*has been a member of the Board of Directors of the Company since February 2001.Since 1999, he has been the Managing Partner of Mercury Ventures. MercuryVentures manages six different funds that invest in emerging technologycompanies that focus on Internet applications. Mr. Howe serves on theboard of The Sage Group, plc. which is traded on the London Stock Exchange. Mr. Howealso sits on the boards of seven privately held technology firms. In 1985, heco-founded DacEasy, an early leader in packaged application software. In 1987, Mr. Howeled the sale of DacEasy to Insilco (a Fortune 500 company). In 1991, Mr. Howeled the carve-out of DacEasy from Insilco and subsequent sale to The SageGroup, plc. which had market capitalization of over $7 billion. He was ChiefExecutive Officer of the US operations of The Sage Group, plc. responsible foroperations and acquisitions until 1999. In 1993, Mr. Howe also co-foundedMartin Howe Associates, which was an early leader in the merchant credit cardprocessing industry and a pioneer in wireless solutions. The company was soldin 1997 to PMT Services, Inc., a Nasdaq listed company. Mr. Howereceived his MBA from Southern Methodist University in 1976.

*David M. Kantor***has been a member of the Board ofDirectors of the Company since August 1999. Since 2003, Mr. Kantorhas been Vice Chairperson and Chief Executive Officer of Reach Media, a companythat develops, acquires and partners in quality media and marketingopportunities targeting the African-American population. Formerly, he wasSenior Vice President for Network Operations of AMFM, Inc. (formerlyChancellor Media Corporation) and President of ABC Radio Network, havingpreviously served as Executive Vice President. Prior to joining ABC RadioNetwork, he held executive positions with Cox Cable and Satellite MusicNetwork. Mr. Kantor holds a B.S. from the University of Massachusetts andan MBA from Harvard Business School.

*Anthony J. LeVecchio*has been a member of the Board of Directors of the Company since August 2004.Since its formation in 1988, he has been the President of The James Group, ageneral business consulting firm that has advised clients across a range ofhigh-tech industries. Prior to forming The James Group in 1988, Mr. LeVecchiowas the Senior Vice President and Chief Financial Officer for VHA Southwest, Inc.,a regional healthcare system. He currently serves on the Board of Directors ofMicrotune, Inc., a company that is listed on the Nasdaq Global Market, andserves as the Chairman of its Audit Committee. He currently serves on the Boardof Directors of Ascendent Solutions, Inc., a company that is tracked onthe OTC Bulletin Board and serves as the Chairman of its Audit Committee. Healso serves on the Board of Directors of Viewpoint Financial Group, a Plano,Texas based bank holding group traded on the Nasdaq Global Select Market and ison their audit and compensation committees.

*Neil H. Nguyen***joined the Company as Executive VicePresident of Sales and Operations in March 2005. Prior to joining theCompany, from 1998 to 2002, Mr. Nguyen served as President of 

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Point.360’sMultiMedia Group and also served in various senior management roles atFastChannel Network including Executive Vice President, Strategic Planning andVice President Global Sales and Business Development from 2003 to 2005.Mr. Nguyen received a B.S. from California State University, Northridge.

*Pamela Maythenyi***joined the Company as Senor VicePresident of SourceEcreative in August 2004. Prior to joining the Company,Ms. Maythenyi owned The Source Maythenyi (also known as Source TV),which she formed in 1988 and sold to the Company in 2004, at which time she washired by the Company to oversee that division, now known as SourceEcreative. Formerly,she was a producer for BBDO and executive producer for J. Walter Thomson.Ms. Maythenyi received a B.A. from the University of Florida.

**Corporate Governance**

***Independence***

The Board of Directors hasdetermined, after considering all of the relevant facts and circumstances, thateach of Mr. Howe, Mr. Kantor, Mr. LeVecchio, Mr. Donner andMs. Gallagher is independent from our management, and is an “independentdirector” as defined under the Nasdaq Marketplace Rules. This means that noneof those directors (1) is an officer or employee of the Company or itssubsidiaries or (2) has any direct or indirect relationship with theCompany that would interfere with the exercise of his or her independentjudgment in carrying out the responsibilities of a director. As a result, theCompany has a majority of independent directors as required by the NasdaqMarketplace Rules.

***Code of BusinessConduct and Ethics***

The Company has adopted aCode of Business Conduct and Ethics that applies to its directors, officers andemployees. A copy of the Company’s Code of Business Conduct and Ethics isavailable on its website at *www.dgfastchannel.com*by clicking first on “Who We Are,” then on “Careers & Ethics.”  The Company will also provide a copy of itsCode of Business Conduct and Ethics, without charge, to any stockholder who sorequests in writing.

***Executive Sessionsof Independent Directors***

The Company’s independentdirectors have executive sessions at which only independent directors arepresent after every regularly scheduled meeting of the Board of Directors.Mr. Howe presides over these executive sessions.

***Communications withthe Board of Directors***

Stockholders maycommunicate with the Board of Directors by writing to the Board in care of theCompany’s Secretary, DG FastChannel, Inc., 750 West John CarpenterFreeway, Suite 700, Irving, Texas 75039. The Board of Directors hasdelegated responsibility for initial review of stockholder communications tothe Company’s Secretary. In accordance with the Board’s instructions, theSecretary will forward the communication to the director or directors to whomit is addressed, except for communications that are (1) advertisements orpromotional communications, (2) solely related to complaints by users withrespect to ordinary course of business customer service and satisfaction issuesor (3) clearly unrelated to our business, industry, management or Board orcommittee matters. In addition, the Secretary will make all communicationsavailable to each member of the Board, at the Board’s next regularly scheduledmeeting.

**Board Committees**

The Board of Directors ofthe Company has three standing committees: the Audit Committee, theCompensation Committee and the Executive Committee. None of the directors whoserve as members of the Audit Committee or the Compensation Committee areemployees of the Company or any of its 

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subsidiaries.The Company has no nominating committee or committee that recommends qualifiedcandidates to the Board of Directors for nomination or election as directors.

***Audit Committee***

The Audit Committeeoperates under an Amended and Restated Charter of the Audit Committee adoptedby the Company’s Board of Directors, a copy of which was attached as *Appendix A* to the Company’s 2004 Proxy Statement.

TheAudit Committee’s functions include:

·       engagingindependent auditors and determining their compensation;

·       makingrecommendations to the Board of Directors for reviewing the completed audit andaudit report with the independent auditors, the conduct of the audit,significant accounting adjustments, recommendations for improving internalcontrols, and all other significant findings during the audit;

·       meetingat least quarterly with the Company’s management and auditors to discussinternal accounting and financial controls, as well as results of operationsreviews performed by the auditors;

·       determiningthe scope of and authorizing or approving any permitted nonaudit servicesprovided by the independent auditors and the compensation for those services;and

·       initiatingand supervising any special investigation it deems necessary regarding theCompany’s accounting and financial policies and controls.

The Audit Committee iscomposed solely of directors who are not officers or employees of the Companyand who, the Company believes, have the requisite financial literacy to serveon the Audit Committee, have no relationship to the Company that mightinterfere with the exercise of their independent judgment, and meet thestandards of independence for members of an audit committee under the rules ofthe Securities and Exchange Commission (the “SEC”) and under the NasdaqMarketplace Rules.

In accordance with the rules andregulations of the SEC, the preceding paragraph regarding the independence ofthe members of the Audit Committee shall not be deemed to be “solicitingmaterial” or to be “filed” with the SEC or subject to Regulations 14A or 14C ofthe Securities Exchange Act of 1934, as amended (the “Exchange Act”), or to theliabilities of Section 18 of the Exchange Act and shall not be deemed tobe incorporated by reference into any filing under the Securities Act of 1933,as amended (the “Securities Act”), or the Exchange Act, notwithstanding anygeneral incorporation by reference of this section of this Proxy Statement intoany other filed document.

Messrs. LeVecchio(Chairman), Donner and Howe are the current members of the Audit Committee. TheBoard of Directors, after reviewing all of the relevant facts, circumstancesand attributes, has determined that Mr. LeVecchio, the Chairman of theAudit Committee, is the sole “audit committee financial expert” on the AuditCommittee.

***CompensationCommittee***

TheCompensation Committee’s functions include:

·       establishingand administering the Company’s compensation policies;

·       determining,or recommending to the Board, the compensation of the Company’s executiveofficers;

·       administeringthe Company’s equity compensation plans; and

·       overseeingthe administration of other employee benefit plans and fringe benefits paid toor provided for the Company’s officers.

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See “ExecutiveCompensation—Compensation Committee Report” below. Messrs. Howe (Chairman)and Kantor and Ms. Gallagher are the current members of the CompensationCommittee. All current members of the Compensation Committee are “independentdirectors” as defined under the Nasdaq Marketplace Rules.

***Executive Committee***

The Executive Committeewas established in January 2001. The Executive Committee has theauthority, between meetings of the Board of Directors, to take all actions withrespect to the management of the Company’s business that require action by theBoard of Directors, except with respect to certain specified matters that bylaw must be approved by the entire Board of Directors. Messrs. Ginsburgand Choucair are the current members of the Executive Committee.

**Attendance atMeetings of the Board of Directors and Committees**

During 2006, the Board ofDirectors held five meetings. The Audit Committee held five meetings during2006, and the Compensation Committee did not have any meetings during 2006.Instead, all issues normally considered by the Compensation Committee wereconsidered by the entire Board of Directors. All persons who were directorsduring 2006 attended at least 75% of the total of the Board meetings and themeetings of committees on which they served that were held while such personserved as a director.

**Nominations to theBoard of Directors**

The Board of Directors does not have a nominatingcommittee or other committee that recommends qualified candidates to the Boardfor nomination or election as directors. The Board of Directors believes that,because of its relatively small size, it is sufficient for the independentdirectors to select or recommend director nominees. The Board of Directors hasadopted a nominations process that provides that the Company’s independentdirectors (as defined under the Nasdaq Marketplace Rules), acting by amajority, are authorized to recommend individuals to the Board of Directors forthe Board’s selection as director nominees. Under the rules promulgated bythe SEC, the independent directors are, therefore, treated as a “nominatingcommittee” for the purpose of the disclosures in this section.

With respect to the nominations process, theindependent directors do not operate under a written charter, but underresolutions adopted by the Board of Directors.

The independentdirectors are responsible for reviewing and interviewing qualified candidatesto serve on the Board of Directors, for making recommendations to the fullBoard for nominations to fill vacancies on the Board, and for selecting themanagement nominees for the directors to be elected by the Company’sstockholders at each annual meeting. The independent directors have notestablished specific minimum age, education, experience or skill requirementsfor potential directors. The independent directors have, however, beenauthorized by the Board of Directors to take into account all factors theyconsider appropriate in fulfilling their responsibilities to identify andrecommend individuals to the Board as director nominees. Those factors mayinclude, without limitation, the following:

·       anindividual’s business or professional experience, accomplishments, education,judgment, understanding of the business and the industry in which the Companyoperates, specific skills and talents, independence, time commitments,reputation, general business acumen and personal and professional integrity orcharacter;

·       thesize and composition of the Board and the interaction of its members, in eachcase with respect to the needs of the Company and its stockholders; and

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·       regardingany individual who has served as a director of the Company, his pastpreparation for, attendance at, and participation in meetings and otheractivities of the Board or its committees and his overall contributions to theBoard and the Company.

The independent directors may use multiple sources foridentifying and evaluating nominees for directors, including referrals from theCompany’s current directors and management as well as input from third parties,including executive search firms retained by the Board. The independentdirectors will obtain background information about candidates, which mayinclude information from directors’ and officers’ questionnaires and backgroundand reference checks, and will then interview qualified candidates. The Company’sother directors will also have an opportunity to meet and interview qualifiedcandidates. The independent directors will then determine, based on thebackground information and the information obtained in the interviews, whetherto recommend to the Board of Directors that a candidate be nominated to theBoard.

The independent directorswill consider qualified nominees recommended by stockholders, who may submitrecommendations to the independent directors in care of the Company’s Board ofDirectors through a written notice as described under “—Corporate Governance—Communicationswith the Board of Directors” above. To be considered by the independentdirectors, a stockholder nomination (1) must be submitted by May 1,2008, (2) must contain a statement by the stockholder that suchstockholder holds, and has continuously held for at least a year before thenomination, at least $2,000 in market value or 1% of the shares of Common Stockand that such stockholder will continue to hold at least that number of sharesthrough the date of the annual meeting of stockholders, and (3) must beaccompanied by a description of the qualifications of the proposed candidateand a written statement from the proposed candidate that he or she is willingto be nominated and desires to serve, if elected. Nominees for director who arerecommended by the Company’s stockholders will be evaluated in the same manneras any other nominee for director.

**DirectorCompensation**

Directors of the Companyreceive compensation for services provided as a director as well asreimbursement for documented reasonable expenses incurred in connection withattendance at meetings of the Board and the committees thereof. Other than Mr. LeVecchio,the Company pays its directors $2,500 per Board meeting attended, plus $1,000per meeting of each committee or special assignments of the Board. Mr. LeVecchiois paid $25,000 as an annual retainer, $1,000 for each meeting of the Boardattended, and $750 for each meeting of the Audit Committee attended. Directorsof the Company are also eligible to receive stock-based compensation in theform of stock options.

**Section 16(a) BeneficialOwnership Reporting Compliance**

The members of the Boardof Directors, the officers of the Company and persons who hold more than 10% ofthe Company’s outstanding common stock are subject to the reportingrequirements of Section 16(a) of the Securities Exchange Act of 1934, asamended, which require them to file reports with respect to their ownership ofthe Company’s common stock and their transactions in such common stock. Basedupon (i) the copies of Section 16(a) reports that the Companyreceived from such persons for their 2006 fiscal year transactions in thecommon stock and their common stock holdings and (ii) the writtenrepresentation received from one or more of such persons that no annual Form 5reports were required to be filed by them for the 2006 fiscal year, the Companybelieves that all reporting requirements under Section 16(a) for suchfiscal year were met in a timely manner by its officers, Board members andgreater than 10% shareholders at all times during the 2006 fiscal year.

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**Other Information**

In September 1999, a civil lawsuit was filed bythe SEC in the United States District Court for the Southern District ofFlorida against Scott K. Ginsburg, the Chairman of the Board of theCompany, his brother and his father. The lawsuit alleged that Mr. Ginsburghad violated the insider trading provisions of the federal securities laws bycommunicating material, non-public information to his brother in 1996 regardingthe securities of EZ Communications, Inc. (“EZ”) and in 1997 regarding thesecurities of Katz Media, Inc. (“Katz”). The lawsuit further alleged thatMr. Ginsburg’s father and brother, relying upon the information allegedlyfurnished by Mr. Ginsburg, purchased securities in EZ and Katz, andsubsequently profited from the sale of such securities.

In April 2002,a jury found that Mr. Ginsburg did make these communications, known as“tipping,” and therefore concluded that he had violated Sections 10(b) and14(e) of the Exchange Act and Rules 10b-5 and 14e-3thereunder. In July 2002, the United States District Court imposed a$1,000,000 civil penalty against Mr. Ginsburg.

Mr. Ginsburg filed a motion asking the Court to setaside its ruling and the verdict of the jury. On December 19, 2002, theUnited States District Court granted Mr. Ginsburg’s motion for judgmentnotwithstanding the verdict. The Court overturned the jury verdict in itsentirety and set aside the civil penalty.

On February 13, 2003,the SEC filed a Notice of Appeal, seeking to reverse the Court’s decision andchallenging the Court’s earlier refusal to impose an injunction againstMr. Ginsburg. On March 19, 2004 a decision of a three-judge panel ofthe Eleventh Circuit U.S. Court of Appeals reversed the decision by the U.S.District Court for the Southern District of Florida on December 19, 2002.The Court of Appeals (i) reinstated the jury verdict thatMr. Ginsburg had, in matters unrelated to the Company, violated Sections10(b) and 14(e) of the Exchange Act and Rules 10b-5 and14e-3 thereunder, (i) reinstated a $1 million civil penaltyagainst Mr. Ginsburg and (iii) remanded the case to the DistrictCourt with instructions to enjoin Mr. Ginsburg from violations of thefederal securities laws and regulations. The Court of Appeals did not barMr. Ginsburg from serving as an officer or director of a public companyand the Company’s Board immediately and unanimously moved to affirmMr. Ginsburg in his capacity as Chairman of the Board of Directors.

**Item 11.**                 EXECUTIVE COMPENSATION

**CompensationDiscussion and Analysis**

***Compensation Philosophy and Objectives***

The Compensation Committeebelieves that the most effective executive compensation program is one that isdesigned to reward the achievement of specific annual, long-term and strategicgoals by the Company, and which aligns executives’ interests with those of thestockholders by rewarding performance at or above established goals, with theultimate objective of improving stockholder value. The philosophy of theCompensation Committee is to evaluate both performance and compensation toensure that we maintain our ability to attract and retain superior employees inkey positions and that compensation provided to key employees remainscompetitive relative to the compensation paid to similarly situated executivesof our peer companies. To that end, the Compensation Committee believesexecutive compensation packages should include both cash and equity-basedcompensation that reward performance as measured against established goals.

***Setting Executive Compensation***

Management develops our compensation plans byutilizing publicly available compensation data in the media services andtechnology industries. We believe that the practices of these groups ofcompanies 

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provide us withappropriate compensation benchmarks, because these groups of companies are insimilar businesses and tend to compete with us for executives and otheremployees. For benchmarking executive compensation, we typically review thecompensation data we have collected from these groups of companies, as well asa subset of the data from those companies that have a similar number ofemployees as the Company. For purposes of determining executive compensation,we have not engaged consultants to help us analyze this data or to compare ourcompensation programs with the practices of the companies represented in thecompensation data we review.

Based on management’s analyses and recommendations,the Compensation Committee has approved a pay-for-performance compensationphilosophy, which is intended to establish base salaries and total executivecompensation (taking into consideration the executive’s experience andabilities) that are competitive with those companies with a similar number ofemployees represented in the compensation data we review.

We work within theframework of this pay-for-performance compensation philosophy to determine eachcomponent of an executive’s initial compensation package based on numerousfactors, including:

·       theindividual’s particular background, track record and circumstances, includingtraining and prior relevant work experience;

·       theindividual’s role with us and the compensation paid to similar persons in thecompanies represented in the compensation data that we review;

·       thedemand for individuals with the individual’s specific expertise and experience;

·       performancegoals and other expectations for the position; and

·       uniquenessof industry skills.

The terms of eachexecutive officer’s compensation are derived from employment agreementsnegotiated between the Company and the executive. Each executive’s employmentagreement is generally negotiated to cover a three-year period, and outlinesannual pay increases and targeted annual bonus amounts. Employment agreementsfor the Chief Executive Officer and Chief Financial Officer are approved by theBoard of Directors or Compensation Committee. Employment agreements for otherexecutives are approved by the Company’s Chief Executive Officer.

***2006 Executive Compensation Components***

For the fiscal yearended December 31, 2006, the principal components of compensation that ournamed executive officers were eligible to receive were:

·       Basesalary;

·       Performance-basedincentive compensation (annual bonus);

·       Long-termequity incentive compensation;

·       Participationin the Company’s 401(k) Plan; and

·       Perquisites and otherpersonal benefits.

***Base Salary***

Base salaries for our executives are established basedon the scope of their responsibilities and their prior relevant background,track record, training and experience, taking into account competitive marketcompensation paid by the companies represented in the compensation data wereview for similar positions and the overall market demand for such executivesat the time the respective employment agreements are 

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negotiated. As with totalexecutive compensation, we believe that executive base salaries should becompetitive with the range of salaries for executives in similar positions andwith similar responsibilities in the companies of similar size to usrepresented in the compensation data we review. An executive’s base salary isalso evaluated together with components of the executive’s other compensationto ensure that the executive’s total compensation is consistent with ouroverall compensation philosophy.

The base salaries were established in arms-length negotiationsbetween the executive and the Company, taking into account their extensiveexperience, knowledge of the industry, track record, and achievements on behalfof the Company.

Base salaries are adjustedannually in accordance with the terms of the executive’s employment contract.

***Annual Bonus***

Our compensation program includes eligibility for anannual performance-based cash bonus. The amount of the cash bonus is generallyconsistent with the targeted bonus established in the executive’s employmentcontract and may be adjusted on a discretionary basis, in accordance with theemployment contract. All executives are eligible for annual performance-basedcash bonuses as set forth in their employment agreements and in accordance withCompany policies. As provided in their employment agreements, our ChiefExecutive Officer and Chief Financial Officer are eligible for annualperformance-based cash bonuses of up to $187,500 and $75,500, respectively (whichamounts are adjusted upward during the term of the agreement). In itsdiscretion, the Compensation Committee and Board of Directors may, however,award a bonus payment above or below this target amount.

During 2006, Mr. Ginsburgwas awarded a cash bonus of $175,000. Mr. Choucair was awarded a cash bonusof $75,000. In addition, the Compensation Committee approved a supplementalbonus in February 2006 for Mr. Choucair in the amount of $30,000, inaccordance with his employment agreement in effect at the time, due to theachievement of certain Company objectives, including refinancing the Company’scredit facilities. Mr. Nguyen’s annual bonus of $75,000 was paid inaccordance with the terms of his current employment agreement. In addition, Mr. Nguyenreceived a bonus in February 2006 in the amount of $40,000, as called for inhis employment agreement in effect at the time. Ms. Maythenyi receivedbonuses totaling $60,000 in 2006, in accordance with the terms of heremployment agreement.

***Long-Term Equity Incentive Compensation***

We believe that long-term performance is achievedthrough an ownership culture that encourages long-term participation by ourexecutives in equity-based awards. Our 2006 Long-term Stock Incentive Plan (the“2006 Plan”) allows us to grant stock options to employees. We currently makeinitial equity awards of stock options to new executive and certainnon-executive employees in connection with their employment with the Company. Annualgrants of options, if any, are approved by the Compensation Committee*.*

*InitialEquity Incentives.**  *Executivesand certain non-executive employees who join us are awarded initial stockoption grants. These grants have an exercise price equal to the fair marketvalue of our common stock on the later of the grant date or the date theemployee joins us, and they typically vest ratably over four years. The initialstock option awards are intended to provide the executive with incentive tobuild value in the organization over an extended period of time. The size ofthe initial stock option award is also reviewed in light of the executive’strack record, base salary, other compensation and other factors to ensure thatthe executive’s total compensation is in line with our overall compensationphilosophy.

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*Subsequent EquityIncentives.**  *Wemay make annual stock option awards as part of our overall annual reviewprocess. The Compensation Committee believes that stock options providemanagement with a strong link to long-term corporate performance and thecreation of stockholder value. We expect that the annual aggregate value ofthese awards would be set near competitive median levels for companiesrepresented in the compensation data we review. As is the case when the amountsof base salary and initial equity awards are determined, a review of allcomponents of compensation is conducted when determining equity awards toensure that total compensation conforms to our overall philosophy andobjectives.

***Perquisites and Other Personal Benefits***

We provide named executive officers with perquisitesand other personal benefits that we and the Compensation Committee believe arereasonable and consistent with our overall compensation program to betterenable the Company to attract and retain superior employees for key positions. TheCompensation Committee periodically reviews the levels of perquisites and otherpersonal benefits provided to executive officers.

We maintain benefits andperquisites that are offered to all employees, including health insurance, lifeand disability insurance, dental insurance and a 401(k) plan**,** including Company matching contributions.

***Termination Based Compensation***

Upon termination ofemployment, all executive officers are entitled to receive severance paymentsunder their employment agreements. In determining whether to approve and aspart of the process of setting the terms of such severance arrangements, theCompensation Committee recognizes that executives and officers often facechallenges securing new employment following termination. Our Chief ExecutiveOfficer’s employment agreement provides, if his employment is terminatedwithout cause, he is entitled to (a) all remaining salary in lump sumpayments to the end of the employment term, plus salary in lump sum paymentsfrom the end of the employment term through the end of the first anniversary ofthe Date of Termination, and (b) the continuation by the Company of medicaland dental insurance coverage for him and his family until the end of theemployment term. Our Chief Financial Officer’s employment agreement provides,if his employment is terminated without cause, he is entitled to (a) allremaining salary in lump sum payments to the end of the employment term, plussalary in lump sum payments from the end of the employment term through the endof the third anniversary of the Date of Termination, and (b) thecontinuation by the Company of medical and dental insurance coverage for himand his family until the end of the employment term. Following the end of theemployment term, upon termination for any reason other than cause, our ChiefExecutive Officer and Chief Financial Officer each are entitled to continuationof his salary in effect at that time for a period of six months.

**Tax and AccountingImplications**

***Deductibility of Executive Compensation***

As part of its role, theCompensation Committee reviews and considers the deductibility of executivecompensation under Section 162(m) of the Internal Revenue Code, whichprovides that we may not deduct compensation of more than $1,000,000 that ispaid to certain individuals. We believe that compensation paid under themanagement incentive plans are generally fully deductible for federal incometax purposes.

***Accounting for Stock-Based Compensation***

Beginning on January 1,2006, we began accounting for stock-based payments, including awards under the 2006Plan, in accordance with the requirements of Statement of Financial AccountingStandards No. 123 (revised 2004), *Share-BasedPayment,*or SFAS 123(R).

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**CompensationCommittee Report**

The Compensation Committeeof the Board of Directors of the Company has reviewed and discussed theCompensation Discussion and Analysis required by Item 402(b) ofRegulation S-K with management and, based on such review and discussions, theCompensation Committee recommended to the Board of Directors of the Companythat the Compensation Discussion and Analysis be included in this Amendment No. 1to the Annual Report on Form 10-K/A.

THE COMPENSATION COMMITTEE

Kevin C. Howe, Chairman

Lisa C. Gallagher

David M. Kantor

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**SummaryCompensation Table**

Thefollowing table shows the compensation for the fiscal year ended December 31,2006 earned by our Chairman and Chief Executive Officer, our Chief FinancialOfficer who is our Principal Financial and Accounting Officer, and othersconsidered to be executive officers of the Company.
| Name and Principal Position        | ** ** | ** ** | ** ** | **Year** | ** ** | **Salary  ($)** | ** ** | **Bonus  ($)** | ** ** | **Option  Awards  ($)(1)** | ** ** | **All Other  Compensation  ($)** | ** ** | **Total  ($)** | ** ** |
|---------------------------------------------------|------------|------------|------------|----------|------------|-----------------|------------|----------------|------------|----------------------------|------------|---------------------------------------|------------|----------------|------------|
| Scott K. Ginsburg                                 |       | 2006       |       | 323,077  |       | 175,000         |       | 42,482         | (2)        |                       | 230,085    | (3)                                   |       | 770,644        |       |
| Chairman and Chief  Executive Officer             |       |       |       |     |       |            |       |           |       |                       |       |                                  |       |           |       |
| Omar A. Choucair                                  |       | 2006       |       | 229,230  |       | 105,000         |       | 22,942         | (4)        |                       | 20,660     | (5)                                   |       | 377,832        |       |
| Chief Financial Officer                           |       |       |       |     |       |            |       |           |       |                       |       |                                  |       |           |       |
| Neil H. Nguyen                                    |       | 2006       |       | 192,500  |       | 115,000         |       | 22,558         | (6)        |                       | 58,051     | (7)                                   |       | 388,109        |       |
| Executive Vice President of  Sales and Operations |       |       |       |     |       |            |       |           |       |                       |       |                                  |       |           |       |
| Pamela Maythenyi                                  |       | 2006       |       | 173,308  |       | 60,000          |       | 16,902         | (8)        |                       | 7,647      | (9)                                   |       | 257,857        |       |
| Sr.  Vice President of  SourceEcreative           |       |       |       |     |       |            |       |           |       |                       |       |                                  |       |           |       |

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(1)          SeeNote 2 to our Consolidated Financial Statements included in our Annual Reporton Form 10-K for our fiscal year ended December 31, 2006 fordetails as to the assumptions used to determine the fair value of stock awards.

(2)          Representscompensation expense incurred by us in fiscal year 2006 in connection with thegrant of options to purchase 100,000 shares of common stock to Mr. Ginsburgon July 12, 2006, calculated in accordance with SFAS 123(R).

(3)          Consistsof $12,000 paid for automobile allowance, $203,425 which represents the amountpaid for Mr. Ginsburg’s personal guarantee of a portion of the Company’sdebt, and $14,660 which represents the costs of insurance premiums paid by theCompany for participation in the health insurance program.

(4)          Consistsof $16,891, $3,496, and $2,555 representing compensation expense incurred by usin fiscal year 2006 in connection with the grant of options to purchase 40,000,2,500, and 25,000 shares of common stock to Mr. Choucair on July 12,2006, May 16, 2003, and February 20, 2002, respectively, calculatedin accordance with SFAS 123(R).

(5)          Consistsof $6,000 paid for automobile allowance, and $14,660 which represents the costsof insurance premiums paid by the Company for participation in the healthinsurance program.

(6)          Consistsof $16,891 and $5,667 representing compensation expense incurred by us infiscal year 2006 in connection with the grant of options to purchase 40,000 and3,000 shares of common stock to Mr. Nguyen on July 12, 2006 and March 30,2005, respectively, calculated in accordance with SFAS 123(R).

(7)          Consistsof $3,000 paid for automobile allowance, $40,391 for sales commissions, and$14,660 which represents the costs of insurance premiums paid by the Companyfor participation in the health insurance program.

(8)          Consistsof $1,373, $8,445, $3,113,  and $3,971representing compensation expense incurred by us in fiscal year 2006 inconnection with the grant of options to purchase 2,500, 20,000, 2,500, and2,500 shares of common stock to Ms. Maythenyi on August 31, 2006, July 12,2006, August 31, 2005, and August 31, 2004, respectively, calculatedin accordance with SFAS 123(R).

(9)          Representsthe costs of insurance premiums paid by the Company for participation in thehealth insurance program.

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**Grants ofPlan-Based Awards**

Thefollowing table shows information regarding grants of equity awards that wemade during the fiscal year ended December 31, 2006 to each of theindividuals named in the Summary Compensation Table.
| Name              | ** ** | ** **           | ** ** | **Grant  Date**         | ** ** | **Approval  Date** | ** ** | **All Other  Stock  Awards:  Number of  Shares of  Stock or  Units  (#)** | ** ** | **All Other  Option  Awards:  Number of  Securities  Underlying  Options  (#)** | ** ** | **Exercise  or Base  Price of  Option  Awards  ($/Sh)** | ** ** | **Closing  Market  Price on  Grant  Date  ($/Sh)(1)** | ** ** | **Grant Date  Fair Value  of Stock  and Option  Awards  ($)** | ** ** |
|-------------------|------------|----------------------|------------|-------------------------|------------|--------------------|------------|-----------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|------------------------------------------------------------|------------|-----------------------------------------------------------------------------------|------------|
| Scott K. Ginsburg |       | July 12,  2006  |       | July 12,  2006     |       |               | —     |                                                                                          |       |                                                                                      | 100,000    |                                                              |       |                                                       | 5.88       |                                                                              |       |   | 5.89 |   |   |   | 400,877 |   |   |
| Omar A. Choucair  |       | July 12,  2006  |       | July 12,  2006     |       |               | —     |                                                                                          |       |                                                                                      | 40,000     |                                                              |       |                                                       | 5.88       |                                                                              |       |   | 5.89 |   |   |   | 160,351 |   |   |
| Neil H. Nguyen    |       | July 12,  2006  |       | July 12,  2006     |       |               | —     |                                                                                          |       |                                                                                      | 40,000     |                                                              |       |                                                       | 5.88       |                                                                              |       |   | 5.89 |   |   |   | 160,351 |   |   |
| Pamela Maythenyi  |       | July 12,  2006  |       | July 12,  2006     |       |               | —     |                                                                                          |       |                                                                                      | 20,000     |                                                              |       |                                                       | 5.88       |                                                                              |       |   | 5.89 |   |   |   | 80,175 |   |   |
|              |       | August 31, 2006 |       | August 31, 2004(2) |       |               | —     |                                                                                          |       |                                                                                      | 2,500      |                                                              |       |                                                       | 8.14       |                                                                              |       |   | 7.99 |   |   |   | 16,316 |   |   |

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(1)             Our 1992 Plan and 2006 Plan, under which these optionswere granted, provide that the exercise price shall be determined by using thefair market value of our common stock, which is defined under the Plans as theclosing price of our common stock on the Nasdaq Global Market on the day priorto the grant date.

(2)             Represents the commencement date of Ms. Maythenyi’semployment agreement. According to the terms of such agreement, she is to be issued2,500 stock options on the first and second anniversaries of her agreement atthe then-current market price.

**Discussion ofSummary Compensation Table and Grants of Plan-Based Awards**

The terms of our executive officers’ compensation arederived from our employment agreement with them and the annual performancereview by our Compensation Committee. The terms of Mr. Ginsburg’semployment agreement with us were the result of negotiations between us and Mr. Ginsburgand were approved by our Board of Directors. The terms of Mr. Choucair’semployment agreement with us were the result of negotiations between our ChiefExecutive Officer and Mr. Choucair and were approved by our Board ofDirectors. The terms of Ms. Maythenyi’s employment agreement with us werethe result of negotiations between our Chief Executive Officer and Ms. Maythenyiand were approved by our Board of Directors in conjunction with their approvalof the acquisition of The Source Maythenyi in 2004. The terms of Mr. Nguyen’semployment agreement with us were the result of negotiations between our ChiefExecutive Officer and Mr. Nguyen and were approved by our CompensationCommittee.

All of the equity awardsdisclosed in the Grants of Plan-Based Awards table were issued under our 2006Plan or 1992 Plan. All option awards were granted with an exercise price pershare equal to the closing price of our common stock on the Nasdaq GlobalMarket on the day prior to the grant date of each award. Subject to the termsand conditions of the 2006 Plan or 1992 Plan and the option agreements issuedin connection with these grants, all of the options granted in 2006 vest 25% onthe first anniversary of the date of grant, and the remainder vests ratably overeach of the 36 months thereafter.

***Employment Agreement with Scott K. Ginsburg***

On June 22, 2006, the Company entered into anEmployment Agreement with our Chief Executive Officer, Scott K. Ginsburg. Pursuantto the Employment Agreement between Mr. Ginsburg and the Company (the “CEOAgreement”), the Company agreed to employ Mr. Ginsburg as its ChiefExecutive Officer from the date of the Agreement through May 31, 2008. Underthe CEO Agreement, Mr. Ginsburg is entitled to an annualized base salaryof $375,000 and is eligible for an annual bonus of up to $187,500 for the termof the Agreement. The Company retained the right to increase the basecompensation as it deems necessary. In addition, Mr. Ginsburg is entitledto participate in the Company’s stock option plans, is entitled to four weeksof paid vacation per calendar year and is to receive a car allowance totaling$1,000 

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per month for the term ofthe Agreement. Finally, during the term of the Agreement, the Company shall paythe amount of premiums or other costs incurred for the coverage of Mr. Ginsburgand his spouse and dependent family members under the Company’s health plan.

The CEO Agreement also includes provisions respectingseverance, non-solicitation, non-competition, and confidentiality obligations.Pursuant to the CEO Agreement, if he terminates his employment for Good Reason(as described below), or, is terminated prior to the end of the Employment Termby the Company other than for Cause (as described below) or death, he shall beentitled to all remaining salary to the end of the Employment Term, plus salaryfrom the end of the Employment Term through the end of the first anniversary ofthe Date of Termination, at the rate of salary in effect on the Date ofTermination in a lump sum payment. He shall have no obligation to seek otheremployment and any income so earned shall not reduce the foregoing amounts. Ifhe is terminated by the Company for Cause (as described below), or at the endof the Employment Term, he shall not be entitled to further compensation.Following the end of the Employment Term, upon termination of his employmentwith the Company for any reason other than Cause, but upon ninety days priorwritten notice if such termination is by him, the Company shall pay to theemployee his salary as then in effect for a period of six months. Under theAgreement, Good Reason includes the assignment of duties inconsistent with histitle, a material reduction in salary and perquisites, the relocation of theCompany’s principal office by 20 miles, the transfer to an office other thanthe principal office or a material breach of the CEO Agreement by theCompany. Under the CEO Agreement, Cause includes conviction of or a plea ofguilty or *nolo contendre* by Mr. Ginsburg to afelony or certain criminal conduct against the Company, habitual neglect of orfailure to perform his duties to the Company or any material breach of the CEOAgreement by Mr. Ginsburg.

The above summary of theCEO Agreement is qualified in its entirety by reference to the full text of theAgreement, a copy of which was filed as an exhibit to the Current Report on Form 8-Kfiled by the Company on June 27, 2006.

***Employment Agreement with Omar A. Choucair***

On June 22, 2006, the Company entered into anAmended and Restated Employment Agreement with our Chief Financial Officer,Omar A. Choucair. Pursuant to the Amended and Restated Employment Agreementbetween Mr. Choucair and the Company (the “CFO Agreement”), the Companyagreed to employ Mr. Choucair as its Chief Financial Officer from the dateof the Agreement through May 31, 2009. Under the CFO Agreement, Mr. Choucairis entitled to an annualized base salary of $250,000 for the period June 1,2006 through May 31, 2007 (increasing to $260,000 and $270,000 on theanniversaries of the CFO Agreement during its term), and is eligible for anannual bonus of $75,500 for the term of the Agreement. The Company retained theright to increase the base compensation as it deems necessary. In addition, Mr. Choucairis entitled to participate in the Company’s stock option plans, is entitled tofour weeks of paid vacation per calendar year and is to receive a car allowancetotaling $500 per month for the term of the CFO Agreement. Finally, duringthe term of the Agreement, the Company shall pay the amount of premiums orother costs incurred for the coverage of Mr. Choucair and his spouse anddependent family members under the Company’s health plan.

The CFO Agreement also includes provisions respectingseverance, non-solicitation, non-competition, and confidentiality obligations.Pursuant to the CFO Agreement, if he terminates his employment for Good Reason(as described below), or, is terminated prior to the end of the Employment Termby the Company other than for Cause (as described below) or death, he shall beentitled to all remaining salary to the end of the Employment Term, plus salaryfrom the end of the Employment Term through the end of the third anniversary ofthe Date of Termination, at the rate of salary in effect on the Date ofTermination in a lump sum payment. He shall have no obligation to seek otheremployment and any income so earned shall not reduce the foregoing amounts. Ifhe is terminated by the Company for Cause (as described below), or at the endof the Employment Term, he shall not be entitled to further compensation. Following

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the end of the EmploymentTerm, upon termination of his employment with the Company for any reason otherthan Cause, but upon ninety days prior written notice if such termination is byhim, the Company shall pay to him his salary as then in effect for a period ofsix months. Under the CFO Agreement, Good Reason includes the assignmentof duties inconsistent with his title, a material reduction in salary andperquisites, the relocation of the Company’s principal office by 20 miles, thetransfer to an office other than the principal office or a material breach ofthe Agreement by the Company. Under the CFO Agreement, Cause includesconviction of or a plea of guilty or *nolo contendre*by Mr. Choucair to a felony or certain criminal conduct against theCompany, habitual neglect of or failure to perform his duties to the Company orany material breach of the CFO Agreement by Mr. Choucair.

The above summary of theCFO Agreement is qualified in its entirety by reference to the full text of theAgreement, a copy of which was filed as an exhibit to the Current Report on Form 8-Kfiled by the Company on June 27, 2006.

***Employment Agreement with Neil H. Nguyen***

On August 30, 2006, the Company entered into anAmended and Restated Employment Agreement with our Executive Vice President ofSales and Operations, Neil H. Nguyen. Pursuant to the Amended and RestatedEmployment Agreement between Mr. Nguyen and the Company (the “NguyenAgreement”), the Company agreed to employ Mr. Nguyen as its Executive VicePresident of Sales and Operations from the date of the Agreement through July 1,2009. Under his agreement, Mr. Nguyen is entitled to an annualized basesalary of $210,000 for the period July 1, 2006 through June 30, 2007(increasing to $230,000 and $240,000 on the anniversaries of the NguyenAgreement during its term), and is eligible for an annual bonus of $75,000 eachyear for the term of the Nguyen Agreement. Half of the annual bonus isbased on acquiring new customers and existing customer retention. The remaining50% of the annual bonus is determined in the sole discretion of theCompensation Committee. The Company retained the right to increase the basecompensation as it deems necessary. Mr. Nguyen earns a commission which isbased on the amount of revenue recognized by the Company. Sales commissions arepaid monthly, and are increased if revenues exceed certain budgeted targets. Duringfiscal 2006, Mr. Nguyen earned and was paid $40,391 in sales commissions. Inaddition, Mr. Nguyen is entitled to participate in the Company’s stockoption plans, is entitled to four weeks of paid vacation per calendar year andis to receive a car allowance totaling $500 per month for the term of the Nguyen Agreement.Finally, during the term of the Agreement, the Company shall pay the amount ofpremiums or other costs incurred for the coverage of Mr. Nguyen and hisspouse and dependent family members under the Company’s health plan.

The Nguyen Agreement alsoincludes provisions respecting severance and confidentiality obligations.Pursuant to the Nguyen Agreement, if he terminates his employment for GoodReason (as described below), or, is terminated prior to the end of theEmployment Term by the Company other than for Cause (as described below), heshall be entitled to all remaining salary to the end of the Employment Term. Ifhe is terminated by the Company for Just Cause (as described below), or at theend of the Employment Term, he shall not be entitled to further compensation. Underthe Nguyen Agreement, Good Reason includes the assignment of dutiesinconsistent with his title, a material reduction in salary and perquisites,the requirement by the Company for Mr. Nguyen to move out of the State ofCalifornia, a reduction in title below “Executive Vice President,” a materialbreach of the Nguyen Agreement by the Company, or in the event of a changein control of the Company in which the successor does not assume the NguyenAgreement or the surviving entity terminates the employment of Mr. Nguyenwithin one year of the change in control, other than for Just Cause. Under theNguyen Agreement, Just Cause includes conviction of or a plea of guilty or *nolo contendre* by the employee to a felony or certaincriminal conduct against the Company, habitual neglect of or failure to performhis duties to the Company or any material breach of the Nguyen Agreement by theemployee.

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***EmploymentAgreement with Pamela Maythenyi***

On August 31, 2004,the Company entered into an Employment Agreement with our Senior Vice Presidentof SourceEcreative. Pursuant to the Employment Agreement betweenMs. Maythenyi and the Company (the “Maythenyi Agreement”), the Companyagreed to employ Ms. Maythenyi to be in charge of SourceEcreative, one ofits principal business units from the date of the Maythenyi Agreement throughAugust 31, 2007. Under her agreement, Ms. Maythenyi is entitled to anannualized base salary of $160,000 for the period August 31, 2004 throughAugust 31, 2005 (increasing to $170,000 and $180,000 on the anniversariesof the Maythenyi Agreement during its term), and is eligible for an annualbonus of $30,000 each year for the term of the Maythenyi Agreement. Payment ofthe annual bonus is dependent upon the business unit achieving certainbudgeting revenue targets. In addition, Ms. Maythenyi is entitled toparticipate in the Company’s stock option plans and receive a 2,500 employeestock options at the commencement of the Maythenyi Agreement at an exerciseprice per share equal to the fair market value of the stock on the respectivedate of grant, and if she has not terminated prior to such time, is entitled toreceive an equal number on each of the first two anniversaries of the MaythenyiAgreement. Furthermore, she is entitled to four weeks of paid vacation percalendar year. The Maythenyi Agreement also includes provisions respectingseverance, covenants against competition, and confidentiality obligations. Pursuant to the Maythenyi Agreement, ifshe is terminated prior to the end of the term by the Company other than forJust Cause (as described below), she shall be entitled to all remaining salaryto the end of the Employment Term. If she is terminated by the Company for JustCause (as described below), or at the end of the Employment Term, she shall notbe entitled to further compensation. Under the Maythenyi Agreement, Just Causeincludes conviction of or a plea of guilty or *nolocontendre* by the employee to a felony or certain criminal conductagainst the Company, habitual neglect of or failure to perform her duties tothe Company or any material breach of the Maythenyi Agreement by the employee.

**Outstanding Equity Awards at Fiscal Year-End**

Thefollowing table shows grants of stock options and grants of unvested stockawards outstanding on December 31, 2006, the last day of our fiscal year,to each of the individuals named in the Summary Compensation Table.
| Name              | ** ** | ** ** | ** ** | **Number of  Securities  Underlying  Unexercised  Options  (#)  Exercisable** | ** ** | **Number of  Securities  Underlying  Unexercised  Options  (#)(1)  Unexercisable** | ** ** | **Option  Exercise  Price  ($)** | ** ** | **Option  Expiration  Date** | ** ** |
|-------------------|------------|------------|------------|------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------|------------|----------------------------------|------------|------------------------------|------------|
| Scott K. Ginsburg |       |       | 43,330     |                                                                               |       |                                                                                    | —     |                             |       |                         | 21.60      |   |   | November 29, 2009 |   |
|                   |       |       | 5,000      |                                                                               |       |                                                                                    | —     |                             |       |                         | 33.10      |   |   | January 18, 2008 |   |
|                   |       |       | 2,500      |                                                                               |       |                                                                                    | —     |                             |       |                         | 12.90      |   |   | February 20, 2009 |   |
|                   |       |       | —     |                                                                               |       |                                                                                    | 100,000    |                             |       |                         | 5.88       |   |   | July 12, 2013 |   |
| Omar A. Choucair  |       |       | 17,332     |                                                                               |       |                                                                                    | —     |                             |       |                         | 21.60      |   |   | November 29,  2009 |   |
|              |       |       | 5,000      |                                                                               |       |                                                                                    | —     |                             |       |                         | 33.10      |   |   | January, 18, 2008 |   |
|              |       |       | 25,000     |                                                                               |       |                                                                                    | —     |                             |       |                         | 12.90      |   |   | February 20, 2009 |   |
|              |       |       | 2,240      |                                                                               |       |                                                                                    | 260        |                             |       |                         | 26.00      |   |   | May 16, 2010 |   |
|              |       |       | —     |                                                                               |       |                                                                                    | 40,000     |                             |       |                         | 5.88       |   |   | July 12, 2013 |   |
| Neil H. Nguyen    |       |       | 1,313      |                                                                               |       |                                                                                    | 1,687      |                             |       |                         | 12.60      |   |   | March 30,  2012 |   |
|                   |       |       | —     |                                                                               |       |                                                                                    | 40,000     |                             |       |                         | 5.88       |   |   | July 12, 2013 |   |
| Pamela Maythenyi  |       |       | 1,458      |                                                                               |       |                                                                                    | 1,042      |                             |       |                         | 13.00      |   |   | August, 31, 2011 |   |
|              |       |       | 833        |                                                                               |       |                                                                                    | 1,667      |                             |       |                         | 6.50       |   |   | August 31, 2012 |   |
|              |       |       | —     |                                                                               |       |                                                                                    | 20,000     |                             |       |                         | 5.88       |   |   | July 12, 2013 |   |
|              |       |       | —     |                                                                               |       |                                                                                    | 2,500      |                             |       |                         | 8.14       |   |   | August 31, 2013 |   |

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(1)          Optionswill vest 25% on the first anniversary of the date of grant, and the remaindervests ratably over each of the 36 months thereafter.

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**Option Exercisesand Stock Vested**

None of the individualsnamed in the Summary Compensation Table have ever exercised stock options. Furthermore,the Company has never issued restricted stock awards to the individuals namedin the Summary Compensation Table.

**Pension Benefits**

We do not have anyqualified or non-qualified defined benefit pans.

**Potential Paymentsupon Termination or Change of Control**

Generally,regardless of the manner in which a named executive officer’s employmentterminates, he is entitled to receive amounts earned during his term of employment.Such amounts include:

·       theportion of the executive’s base salary that has accrued prior to anytermination and not yet been paid;

·       unusedvacation pay; and

·       distributionfrom the Company’s 401(k) plan (assuming the executive participated in theplan).

In addition, we arerequired to make the additional payments and/or provide additional benefits tothe individuals named in the Summary Compensation Table in the event of atermination of employment or a change of control, as set forth below.

**2006 Long-TermStock Incentive Plan**

The 2006 Plan has beenadopted to replace the Company’s 1992 Stock Option Plan. In addition, becausethe Director Plan has expired recently, the 2006 Plan has been prepared in amanner to enable stock awards to be granted to members of our Board ofDirectors. When the 2006 Plan was approved by our stockholders, the 1992 Planterminated and the shares identified above as remaining for future grants underthe 1992 Plan ceased to be available for grants under the 1992 Plan. The numberof shares subject to the 2006 Plan is 1,100,000 shares.

**Termination orChange-in-Control Payments**

***Scott K. Ginsburg, Chairman and Chief ExecutiveOfficer***

Pursuant to terms of the 1992 Plan, under which Mr. Ginsburg’soptions are issued, in the event of a change of control, 50% of the unvestedportion of stock options held by Mr. Ginsburg which have not previouslyvested shall immediately and fully vest and shall remain exercisable for atleast 15 days. If Mr. Ginsburg’s employment is terminated by us or by Mr. Ginsburgfor any reason, any unvested portion of his stock options will be immediatelycancelled, and any vested portion thereof shall remain exercisable by Mr. Ginsburgfor a period of up to three months from the date of termination. If Mr. Ginsburg’semployment is terminated as a result of his death or disability, thenimmediately upon the date of Mr. Ginsburg’s termination, any unvestedportion of his stock options will be immediately cancelled, and any vestedportion thereof shall remain exercisable by Mr. Ginsburg for a period ofsix months from the date of termination.

17

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Thefollowing table summarizes the potential payments to Mr. Ginsburg assuminghis employment with us was terminated or a change of control occurred on December 31,2006, the last day of our most recently completed fiscal year.

| **Benefits and Payments**   | ** ** | ** ** | ** ** | **Change  of Control** | ** ** | **Termination  upon Death  or Disability** | ** ** | **Termination by us  without Cause or  by Mr. Ginsburg  for Good Reason** | ** ** |
|---------------------------------------|------------|------------|------------|-----------------------------|------------|------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------|------------|
| Base Salary                           |       | $          | 531,250    |                        |       | $                                                    | —     |                                                                                                              |       |   | $ | 531,250 |   |   |
| Bonus                                 |       | $          | —     |                        |       | $                                                    | —     |                                                                                                              |       |   | $ | — |   |   |
| Acceleration of Vesting  of Options:  |       |       |       |                        |       |                                                 |       |                                                                                                              |       |   |   |
| Number of Stock  Options and Value(1) |       | 50,000     |       |                        | $          | —                                               |       |                                                                                                              |       | $ | — |   |   |
|                                  |       | $          | 380,000    |                        |       | $                                                    | —     |                                                                                                              |       |   | $ | — |   |   |
| Total                                 |       | $          | 911,250    |                        |       |                                                 |       |                                                                                                              |       | $ | 531,250 |   |   |

----

(1)          Valueupon change of control is calculated using a value of our common stock of$13.48 per share, the closing price of our common stock on December 29,2006, the last trading day in the fiscal year ended December 31, 2006,less the exercise price of the option of $5.88 per share.

***Omar A. Choucair, Chief Financial Officer***

Pursuant to terms of the 1992 Plan, under which Mr. Choucair’soptions are issued, in the event of a change of control, 50% of the unvestedportion of stock options held by Mr. Choucair which have not previouslyvested shall immediately and fully vest and shall remain exercisable for atleast 15 days. If Mr. Choucair’s employment is terminated by us or by Mr. Choucairfor any reason, any unvested portion of his stock options will be immediately cancelled,and any vested portion thereof shall remain exercisable by Mr. Choucairfor a period of up to three months from the date of termination. If Mr. Choucair’semployment is terminated as a result of his death or disability, thenimmediately upon the date of Mr. Choucair’s termination, any unvestedportion of his stock options will be immediately cancelled, and any vestedportion thereof shall remain exercisable by Mr. Choucair for a period ofsix months from the date of termination.

Thefollowing table summarizes the potential payments to Mr. Choucair assuminghis employment with us was terminated or a change of control occurred on December 31,2006, the last day of our most recently completed fiscal year. 

| **Benefits and Payments**   | ** ** | ** ** | ** ** | **Change of  Control** | ** ** | **Termination  upon Death  or Disability** | ** ** | **Termination by us  without Cause or  by Mr. Choucair  for Good Reason** | ** ** |
|---------------------------------------|------------|------------|------------|-----------------------------|------------|------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------|------------|
| Base Salary                           |       | $          | 774,167    |                        |       | $                                                    | —     |                                                                                                              |       |   | $ | 774,167 |   |   |
| Bonus                                 |       | $          | —     |                        |       | $                                                    | —     |                                                                                                              |       |   | $ | — |   |   |
| Acceleration of Vesting  of Options:  |       |       |       |                        |       |                                                 |       |                                                                                                              |       |   |   |
| Number of Stock  Options and Value(1) |       | 20,130     |       |                        | —     |                                                 |       |                                                                                                              | —     |   |   |
|                                  |       | $          | 152,000    |                        |       | $                                                    | —     |                                                                                                              |       |   | $ | — |   |   |
| Total                                 |       | $          | 926,167    |                        |       | $                                                    | —     |                                                                                                              |       |   | $ | 774,167 |   |   |

----

(1)          Valueupon change of control is calculated using a value of our common stock of$13.48 per share, the closing price of our common stock on December 29,2006, the last trading day in the fiscal year ended December 31, 2006,less the exercise price of the option of $5.88 per share.

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***Neil H. Nguyen, Executive Vice President of Sales andOperations***

Pursuant to terms of the 1992 Plan, under which Mr. Nguyen’soptions are issued, in the event of a change of control, 50% of the unvestedportion of stock options held by Mr. Nguyen which have not previouslyvested shall immediately and fully vest and shall remain exercisable for atleast 15 days. If Mr. Nguyen’s employment is terminated by us or by himfor any reason, any unvested portion of his stock options will be immediatelycancelled, and any vested portion thereof shall remain exercisable by Mr. Nguyenfor a period of up to three months from the date of termination. If hisemployment is terminated as a result of his death or disability, thenimmediately upon the date of Mr. Nguyen’s termination, any unvestedportion of his stock options will be immediately cancelled, and any vestedportion thereof shall remain exercisable by Mr. Nguyen for a period of sixmonths from the date of termination.

Thefollowing table summarizes the potential payments to Mr. Nguyen assuminghis employment with us was terminated or a change of control occurred on December 31,2006, the last day of our most recently completed fiscal year. 

| **Benefits and Payments**   | ** ** | ** ** | ** ** | **Change of  Control** | ** ** | **Termination  upon Death  or Disability** | ** ** | **Termination by us  without Just Cause  or by Mr. Nguyen  for Good Reason** | ** ** |
|---------------------------------------|------------|------------|------------|-----------------------------|------------|------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------|------------|
| Base Salary                           |       | $          | —     |                        |       | $                                                    | —     |                                                                                                                      |       |   | $ | 575,000 |   |   |
| Bonus                                 |       | $          | —     |                        |       | $                                                    | —     |                                                                                                                      |       |   | $ | — |   |   |
| Acceleration of Vesting  of Options:  |       |       |       |                        |       |                                                 |       |                                                                                                                      |       |   |   |
| Number of Stock  Options and Value(1) |       | 20,843     |       |                        | —     |                                                 |       |                                                                                                                      | —     |   |   |
|                                  |       | $          | 152,742    |                        |       | $                                                    | —     |                                                                                                                      |       |   | $ | — |   |   |
| Total                                 |       | $          | 152,742    |                        |       | $                                                    | —     |                                                                                                                      |       |   | $ | 575,000 |   |   |

----

(1)          Valueupon change of control is calculated using a value of our common stock of$13.48 per share, the closing price of our common stock on December 29,2006, the last trading day in the fiscal year ended December 31, 2006,less the exercise price of the option of $5.88 per share.

***Pamela Maythenyi, Senior Vice President,SourceEcreative***

Pursuant to terms of the 1992 Plan and 2006 Plan,under which Ms. Maythenyi’s options are issued, in the event of a changeof control, 50% of the unvested portion of stock options held by Ms. Maythenyiwhich have not previously vested shall immediately and fully vest and shallremain exercisable for at least 15 days. If Ms. Maythenyi’s employment isterminated by us or by her for any reason, any unvested portion of her stockoptions will be immediately cancelled, and any vested portion thereof shallremain exercisable by Ms. Maythenyi for a period of three months from thedate of termination. If her employment is terminated as a result of her deathor disability, then immediately upon the date of Ms. Maythenyi’s termination,any unvested portion of her stock options will be immediately cancelled, andany vested portion thereof shall remain exercisable by her for a period of sixmonths from the date of termination.

19

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Thefollowing table summarizes the potential payments to Ms. Maythenyiassuming her employment with us was terminated or a change of control occurredon December 31, 2006, the last day of our most recently completed fiscalyear. 

| **Benefits and Payments**   | ** ** | ** ** | ** ** | **Change of  Control** | ** ** | **Termination  upon Death  or Disability** | ** ** | **Termination by us  without Just Cause  or by Ms. Maythenyi  for Good Reason** | ** ** |
|---------------------------------------|------------|------------|------------|-----------------------------|------------|------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------|------------|
| Base Salary                           |       |       | $          | —                      |       |                                                 |       | $                                                                                                                            | —     |   |   |   | $ | 120,000 |   |   |
| Bonus                                 |       |       | $          | —                      |       |                                                 |       | $                                                                                                                            | —     |   |   |   | $ | — |   |   |
| Acceleration of Vesting  of Options:  |       |       |       |                        |       |                                                 |       |                                                                                                                         |       |   |   |   |   |
| Number of Stock  Options and Value(1) |       |       | 12,605     |                        |       |                                                 | —     |                                                                                                                         |       |   | — |   |   |
|                                  |       |       | $          | 88,743                      |       |                                                 |       | $                                                                                                                            | —     |   |   |   | $ | — |   |   |
| Total                                 |       |       | $          | 88,743                      |       |                                                 |       | $                                                                                                                            | —     |   |   |   | $ | 120,000 |   |   |

----

(1)          Valueupon change of control is calculated using a value of our common stock of$13.48 per share, the closing price of our common stock on December 29,2006, the last trading day in the fiscal year ended December 31, 2006,less the exercise price of the option of $5.88 per share.

**DirectorCompensation**

***Director Compensation Table***

Thefollowing table sets forth a summary of the compensation earned by ourDirectors and/or paid to certain of our Directors pursuant to the Company’scompensation policies for the fiscal year ended December 31, 2006, otherthan Scott K. Ginsburg, our Chairman and Chief Executive Officer, andOmar A. Choucair, our Chief Financial Officer and Director.

| **Name**              | ** ** | ** ** | ** ** | **Fees Earned or  Paid in Cash  ($)** | ** ** | **Option Awards  ($)(1)(2)** | ** ** | **Total  ($)** | ** ** |
|-----------------------|------------|------------|------------|-----------------------------------------------------------|------------|-----------------------------------|------------|----------------|------------|
| William Donner        |       |       | 7,000      |                                                      |       |                              | —     |           |       | 7,000 |   |
| Lisa Gallagher        |       |       | 2,500      |                                                      |       |                              | —     |           |       | 2,500 |   |
| Kevin C. Howe         |       |       | 12,000     |                                                      |       |                              | 9,198      |           |       | 21,198 |   |
| David M. Kantor       |       |       | 5,000      |                                                      |       |                              | 9,198      |           |       | 14,198 |   |
| Anthony J.  LeVecchio |       |       | 32,000     |                                                      |       |                              | 9,198      |           |       | 41,198 |   |
| Cappy R. McGarr(3)    |       |       | 8,500      |                                                      |       |                              | 23,921     |           |       | 32,421 |   |

----

(1)          SeeNote 2 to our Consolidated Financial Statements included in our Annual Reporton Form 10-K for our fiscal year ended December 31, 2006 fordetails as to the assumptions used to determine the fair value of optionawards.

(2)          Representsthe compensation expense incurred by us in fiscal year 2006 in connection withgrants of options to purchase 10,000 shares of common stock on May 26,2006 at an exercise price of $5.30, calculated in accordance with SFAS 123(R).

(3)          Mr. McGarrresigned from our Board of Directors effective May 26, 2006.

***Director Compensation Policy***

Messrs. Ginsburg and Choucair, our Chairman andChief Executive Officer, and Chief Financial Officer and Director,respectively, are not paid any fees or other compensation for services as amember of our Board of Directors or of any committee of our Board of Directors.

20

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The non-employee members of our Board of Directorsreceive compensation for services provided as a director as well asreimbursement for documented reasonable expenses incurred in connection withattendance at meetings of our Board of Directors and the committees thereof. Otherthan Mr. LeVecchio, the Company pays its directors $2,500 per Board ofDirectors meeting attended, plus $1,000 per meeting of each committee orspecial assignments of the Board of Directors. Mr. LeVecchio is paid$25,000 as an annual retainer, $1,000 for each meeting of the Board attended,and $750 for each meeting of the Audit Committee attended.

Members of our Board ofDirectors are also eligible to receive stock option grants both upon joiningthe Board of Directors and on an annual basis in line with recommendations bythe Compensation Committee, which grants are non-qualified stock options underour 2006 Plan, and which typically vest ratably over four years.

**Guarantor Agreementwith Scott K. Ginsburg**

In connection with theCompany’s acquisition of Media DVX, a $6.5 million promissory note wasissued to the seller of Media DVX, payable over three years with an interestrate of the one month LIBOR rate for the applicable period with principal andthen accrued interest due as follows: $1.5 million due on April 15, 2006,$2.0 million due on April 15, 2007, and $3.0 million due on April 15,2008. However, during the fourth quarter of 2006, the Company retired theentire remaining balance of this obligation through a combination of issuingcommon stock and cash. The Company paid accrued interest on the promissory noteon a quarterly basis. The promissory note was personally guaranteed byScott K. Ginsburg, the Company’s Chief Executive Officer and Chairman ofthe Board. Mr. Ginsburg’s personal guarantee of the Company’s debt wasevaluated for the purpose of determining an amount to compensate him for suchguarantee. The Company obtained an independent valuation which determined thatthe improved interest rate obtained by the Company as a direct result of thepersonal guarantee was worth approximately $0.6 million over the term ofthe loan. For the years ended December 31, 2006 and 2005 respectively, theCompany has recognized additional interest expense of $0.3 million and$0.1 million associated with the guarantee. Amounts paid to Mr. Ginsburgassociated with this guarantee were $0.2 million and $0, for the years ended December 31,2006 and 2005, respectively.

**Employee BenefitPlans**

We sponsor a 401(k) plancovering employees who meet certain defined requirements. Under the terms ofour 401(k) plan, participants may elect to make contributions on a pre-taxand after-tax basis, subject to certain limitations under the Internal RevenueCode and we may match a percentage of employee contributions, on adiscretionary basis, as determined by our Board of Directors. We currentlymatch 1% of the participating employees’ salary who contribute at least 3% oftheir salary. We may make other discretionary contributions to the 401(k) planpursuant to a determination by our Board of Directors, although, to date, nosuch other discretionary contributions have been made.

**CompensationCommittee Interlocks and Insider Participation**

The current members of the Compensation Committee are Messrs. Howe(Chairman) and Kantor, and Ms. Gallagher. There were no other members ofthe committee during 2006. All current members of the Compensation Committeeare “independent directors” as defined under the Nasdaq Marketplace Rules. Noneof these individuals were at any time during 2006, or at any other time, anofficer or employee of the Company.

No executive officer ofthe Company serves as a member of the board of directors or compensationcommittee of any entity that has one or more executive officers serving as amember of the Company’s Board of Directors or Compensation Committee.

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**Item12.**                 SECURITYOWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERMATTERS

**Security Ownership of Directors and Executive Officers**

Thefollowing table sets forth the beneficial ownership of our common stock as of March 31,2007, except as noted, for (a) each stockholder known by us to ownbeneficially more than 5% of our common stock; (b) each of our Directors; (c) eachexecutive officer named in the Summary Compensation Table; (d) and allof our current Directors and executive officers as a group. Beneficialownership is determined in accordance with the rules of the Securities andExchange Commission and includes voting or investment power with respect to thesecurities.

|                                                                       | ** ** | **Shares Beneficially Owned  as of March 31, 2007(1)(2)** | ** ** |
|-----------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------|------------|
| **Beneficial Owner**                                             | ** ** | ** **                                                                              | ** ** | **Number of  Shares** | ** ** | **Percentage  of Class** | ** ** |
| Scott K. Ginsburg(3)                                                  |       | 3,298,199                                                                               |       |   | 19.9 | % |   |
| Moon Doggie Family  Partnership                                       |       |                                                                                    |       |   |   |   |   |
| Omar A. Choucair(4)                                                   |       | 61,884                                                                                  |       |   | * |   |   |
| Pamela Maythenyi(5)                                                   |       | 2,812                                                                                   |       |   | * |   |   |
| Neil H. Nguyen(6)                                                     |       | 1,625                                                                                   |       |   | * |   |   |
| David M Kantor(7)                                                     |       | 17,416                                                                                  |       |   | * |   |   |
| Kevin C. Howe(8)                                                      |       | 28,616                                                                                  |       |   | * |   |   |
| Anthony J. LeVecchio(9)                                               |       | 11,721                                                                                  |       |   | * |   |   |
| Lisa C. Gallagher                                                     |       | 14,664                                                                                  |       |   | * |   |   |
| William Donner                                                        |       | 1,745                                                                                   |       |   | * |   |   |
| Kinderhook Partners, LP                                               |       | 1,376,885                                                                               |       |   | 8.7 | % |   |
| 1 Executive Dr.,  Suite 160  Fort Lee, NJ 07024                  |       |                                                                                    |       |   |   |   |   |
| William Blair &  Company, L.L.C.                             |       | 1,100,000                                                                               |       |   | 6.9 | % |   |
| 222 West Adam Street  Chicago, IL 60606                               |       |                                                                                    |       |   |   |   |   |
| Costa Brava Partnership III,  LP                                      |       | 1,001,089                                                                               |       |   | 6.3 | % |   |
| 420 Boylston St.  Boston, MA 02116                                    |       |                                                                                    |       |   |   |   |   |
| CrossPoint Venture  Partners                                          |       | 846,701                                                                                 |       |   | 5.3 | % |   |
| The Pioneer Hotel Building  2925 Woodside Road  Woodside, CA 94062    |       |                                                                                    |       |   |   |   |   |
| All directors and executive  officers as a group (9 persons)(10) |       | 3,438,682                                                                               |       |   | 20.7 | % |   |
|                                                                       |            |                                                                                         |            |  |  |  |  |  |  |

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*                    Lessthan 1% of the Company’s common stock.

(1)          Exceptas indicated in the footnotes to this table and pursuant to applicablecommunity property laws, to the Company’s knowledge, the persons and entitiesnamed in the table have sole voting and investment power with respect to allshares of common stock shown as beneficially owned by them. Unless otherwiseindicated, the business address of each beneficial owner listed is750 West John Carpenter Freeway, Suite 700, Irving, TX 75039

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(2)          Thenumber of shares of common stock outstanding as of March 31, 2007 was15,849,796. The number of beneficially owned shares includes shares issuablepursuant to stock options and warrants that may be exercised withinsixty days after March 31, 2007.

(3)          Basedon filings with the Securities and Exchange Commission indicating beneficialownership. Includes 2,303,531 shares held of record by Scott K. Ginsburg and292,013 shares held in the name of Moon Doggie Family Partnership, L.P. ScottK. Ginsburg is the sole general partner of Moon Doggie Family Partnership, L.P.Includes options exercisable into 50,830 shares of common stock, warrantsissued to Moon Doggie Family Partnership, L.P. exercisable into 300,852 sharesof common stock and warrants issued to Scott K. Ginsburg exercisable into350,973 shares of common stock.

(4)          Includesoptions exercisable into 49,832 shares of common stock and warrants exercisableinto 8,666 shares of common stock.

(5)   Represents options exercisable into2,812 shares of common stock.

(6)          Representsoptions exercisable into 1,625 shares of common stock.

(7)          Includesoptions exercisable into 16,416 shares of common stock.

(8)          Includesoptions exercisable into 15,416 shares of common stock.

(9)          Includesoptions exercisable into 4,221 shares of common stock.

(10)   Includesoptions exercisable into 141,152 shares of common stock and warrantsexercisable into 660,491 shares of common stock.

**Equity Compensation Plan Information**

Thefollowing table provides certain aggregate information with respect to all ofthe Company’s equity compensation plans in effect as of December 31, 2006.
| Plan category    | ** ** | ** ** | ** ** | **Number of  Securities to be issued  upon exercise of  outstanding options,  warrants and rights** | ** ** | **Weighted-average  exercise price of  outstanding options,  warrants and rights** | ** ** | **Number of securities  remaining available for  future issuance under  equity compensation  plans (excluding securities  reflected in first column)** | ** ** |
|-----------------------|------------|------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| Common stock options  |       |       | 572,176    |                                                                                                                                             |       |                                                                                                        | $          | 11.71                                                                                                                                                                                                              |       |   |   | 1,097,500 |   |   |
| Common stock warrants |       |       | 660,491    |                                                                                                                                             |       |                                                                                                        | $          | 10.00                                                                                                                                                                                                              |       |   |   | — |   |   |
| Total                 |       |       | 1,232,667  |                                                                                                                                             |       |                                                                                                        | $          | 10.79                                                                                                                                                                                                              |       |   |   | 1,097,500 |   |   |

 

**Item13.**                 CERTAINRELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

**Certain Relationships and Related Transactions**

Our Audit Committeereviews and approves in advance all related party transactions in accordancewith its written charter. None of the Company’s directors or executive officers(1) has entered into any transaction or series of similar transactionswith the Company except as described below, (2) has any relationship, orhas had any relationship with the Company except as described below, or (3) hasoutstanding indebtedness to the Company, which (in any case) requiresdisclosure under Item 404 of the SEC’s Regulation S-K.

In connection with theCompany’s acquisition of Media DVX, a $6.5 million promissory note wasissued to the seller of Media DVX and was payable over three years with aninterest rate of the one month LIBOR rate for the applicable period withprincipal and then accrued interest due as follows: $1.5 million due on April 15,2006, $2.0 million due on April 15, 2007, and $3.0 million dueon April 15, 2008. However, during the fourth quarter of 2006, the Companyretired the entire remaining balance of this obligation 

23

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througha combination of issuing common stock and cash. The Company paid accruedinterest on the promissory note on a quarterly basis. The promissory note waspersonally guaranteed by Scott K. Ginsburg, the Company’s Chief ExecutiveOfficer and Chairman of the Board. Mr. Ginsburg’s personal guarantee ofthe Company’s debt was evaluated for the purpose of determining an amount tocompensate him for such guarantee. The Company obtained an independentvaluation which determined that the improved interest rate obtained by theCompany as a direct result of the personal guarantee was worth approximately$0.6 million over the term of the loan. For the years ended December 31,2006 and 2005 respectively, the Company has recognized additional interestexpense of $0.3 million and $0.1 million associated with the guarantee. Amountspaid to Mr. Ginsburg associated with this guarantee were $0.2 million and 0,for the years ended December 31, 2006 and 2005, respectively.

**Director Independence**

The Board of Directors hasdetermined, after considering all of the relevant facts and circumstances, thateach of Mr. Howe, Mr. Kantor, Mr. LeVecchio, Mr. Donner andMs. Gallagher are independent from our management, as an “independentdirector” as defined under the Nasdaq Marketplace Rules. This means that noneof those directors (1) is an officer or employee of the Company or itssubsidiaries or (2) has any direct or indirect relationship with theCompany that would interfere with the exercise of his or her independentjudgment in carrying out the responsibilities of a director. As a result, theCompany has a majority of independent directors as required by the NasdaqMarketplace Rules.

**Item14.**                 PRINCIPALACCOUNTANT FEES AND SERVICES

Thefollowing is a summary of the fees billed to the Company by KPMG forprofessional services rendered for the fiscal years ended December 31,2006 and December 31, 2005:

| ** **         | ** ** | **Years Ended December 31,** | ** ** |
|--------------------|------------|---------------------------------------------|------------|
| ** **         | ** ** | **2006**                                    | ** ** | **2005** | ** ** |
| Audit Fees         |       | $                                           | 1,169,000  |   | $ | 924,000 |   |
| Audit Related Fees |       | 25,408                                      |       | 25,000 |   |
| Tax Fees           |       | 197,500                                     |       | 110,000 |   |
| All Other Fees     |       | —                                      |       | — |   |
| Total              |       | $                                           | 1,391,908  |   | $ | 1,059,000 |   |

 

The Audit Committee hasconsidered whether (and has determined that) the provision by KPMG of theservices described under Tax Fees is compatible with maintaining KPMG’sindependence from management and the Company. In addition, all of the servicesrendered to the Company by KPMG were pre-approved by the Audit Committee.

***Audit Fees***

These are fees forprofessional services for the audit of the Company’s annual financialstatements, and for the review of the financial statements included in theCompany’s filings on Form 10-Q, and for services that are normallyprovided in connection with statutory and regulatory filings or engagements,including fees relating to compliance with the provisions of the Sarbanes-OxleyAct, Section 404, and audits of acquired entities. The amount for 2006includes approximately $172,000 for the Registration Statements on Forms S-3,S-4, and S-8.

***Audit-Related Fees***

We paid KPMG $25,408 and $25,000 in 2006 and 2005,respectively, for services related to auditing our 401(k) plan.

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***Tax Fees***

The amounts shown are feespaid to KPMG associated with tax compliance and tax consultation.

***All Other Fees***

We paid no other fees toKPMG in 2006 or 2005.

**Policy on Audit Committee Pre-Approval of Audit andPermissible Non-Audit Services of Independent Registered Public Accounting Firm**

Consistent with thepolicies of the Securities and Exchange Commission regarding auditorindependence, the Audit Committee has responsibility, pursuant to its writtencharter, for appointing, setting compensation and overseeing the work of ourindependent registered public accounting firm. In recognition of thisresponsibility, the Audit Committee has established a policy to pre-approve allaudit and permissible non-audit services provided by our independent registeredpublic accounting firm. The Audit Committee’s policy is to approve all auditand non-audit services provided by our independent registered public accountingfirm prior to the commencement of the services using a combination ofpre-approvals for certain engagements up to predetermined dollar thresholds inaccordance with the pre-approval policy and specific approvals for certainengagements on a case-by-case basis. The Audit Committee has delegatedauthority to the committee chair to pre-approve between committee meetingsthose services that have not already been pre-approved by the committee. Thechair is required to report any such pre-approval decisions to the fullcommittee at its next scheduled meeting.

**PART IV**

**Item 15.**                 EXHIBITS,FINANCIAL STATEMENT SCHEDULES.
| (a)(3) |   | See Exhibit Index  on page 27 of this Amendment No. 1 for a list of exhibits furnished  as part of this Amendment No. 1 |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------|

 

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**SIGNATURES**

Pursuant to therequirements of Section 13 or 15(d) of the Securities Exchange Act of1934, the Registrant has duly caused this report to be signed on its behalf bythe undersigned, thereunto duly authorized.
|                                 | **DG  FASTCHANNEL, INC.** |
|---------------------------------|---------------------------|
| Date:  April 27, 2007 | By:                       | /s/ SCOTT K. GINSBURG |
|                            |                      | Scott K. Ginsburg |
|                            |                      | Chairman of the Board of  Directors and  Chief Executive Officer |

 

Pursuantto the requirements of the Securities Act of 1934, this report has been signedby the following persons on behalf of the registrant and in the capacities andon the dates indicated.

|                       | **Name**                                                                                 | ** **                                    | ** ** | ** **     | **Title** | ** ** | ** ** | ** ** | **Date** | ** ** |
|-----------------------|------------------------------------------------------------------------------------------|-----------------------------------------------|------------|----------------|-----------|------------|------------|------------|----------|------------|
| *                     |                                                                                     | Chairman of the Board of Directors            |       | April 27, 2007 |
| Scott  K. Ginsburg    |                                                                                     | and Chief  Executive Officer                  |       |           |
| *                     |                                                                                     | Chief Financial Officer and Director          |       | April 27, 2007 |
| Omar  A. Choucair     |                                                                                     | (Principal  Financial and Accounting Officer) |       |           |
| *                     |                                                                                     | Director                                      |       | April 27, 2007 |
| William  Donner       |                                                                                     |                                          |       |           |
| *                     |                                                                                     | Director                                      |       | April 27, 2007 |
| David  M. Kantor      |                                                                                     |                                          |       |           |
| *                     |                                                                                     | Director                                      |       | April 27, 2007 |
| Lisa  C. Gallagher    |                                                                                     |                                          |       |           |
| *                     |                                                                                     | Director                                      |       | April 27, 2007 |
| Kevin  C. Howe        |                                                                                     |                                          |       |           |
| *                     |                                                                                     | Director                                      |       | April 27, 2007 |
| Anthony  J. LeVecchio |                                                                                     |                                          |       |           |
| *By                   | /s/ SCOTT K. GINSBURG                                                                    |                                          |       |           |      |
|                  | Scott K. Ginsburg  As Attorney-in-Fact  Pursuant to Powers of  Attorney Previously Filed |                                          |       |           |      |
|                       |                                                                                          |                                               |            |                |           |            |            |            |          |            |  |

 

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Index to Exhibits
| Exhibit  Number | ** ** | **Description**                                                                                                                                                                                                                                                                           |
|-----------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.1            |       | Employment Agreement by  and between Digital Generation Systems, Inc., (the “Company”) and Pamela  Maythenyi (the “Employee”) entered into as of the 31st day of August 2004.                                                                          |
| 10.2            |       | Amended and Restated  Employment Agreement by and between Digital Generation Systems, Inc.,  (the “Corporation”) and Neil Nguyen (the “Employee”), entered into as of the 30th day of August 2006,  but effective as of the 1st day of July 2006. |
| 31.1            |       | Rule 13a-14(a)/15d-14(a)  Certification of Principal Executive Officer                                                                                                                                                                                                                    |
| 31.2            |       | Rule 13a-14(a)/15d-14(a)  Certification of Principal Financial Officer                                                                                                                                                                                                                    |

 

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