SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2003
-------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT
OF 1934
For the transition period from _______________ to ___________
Commission File Number 0-17156
MERISEL, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-4172359
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
200 Continental Boulevard
El Segundo, CA 90245-0984
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (310) 615-3080
--------------
- --------------------------------------------------------------
Former name, former address, and former fiscal year, if changed since last year
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No _____
Indicate by check mark whether the Registrant is an accelerated filer
(as defined by Rule 12b-2 of the Exchange Act).
Yes____ No X
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
Number of Shares Outstanding
Class as of August 13, 2003
Common Stock, $.01 par value 7,616,380 Shares
MERISEL, INC.
INDEX
Page Reference
PART I FINANCIAL INFORMATION (Unaudited)
Consolidated Balance Sheets as of 1-2
June 30, 2003 and December 31, 2002
Consolidated Statements of Income for the
Three and Six Months Ended June 30, 2003 and 2002 3
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 2003 and 2002 4
Notes to Consolidated Financial Statements 5-14
Management's Discussion and Analysis of 15-20
Financial Condition and Results of Operations
Quantitative and Qualitative Market Risk Disclosure 20
Disclosure Controls and Procedures 21
PART II OTHER INFORMATION 22
SIGNATURES 23
SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION
Certain statements contained in this Quarterly Report on Form 10-Q,
including without limitation statements containing the words "believes,"
"anticipates," "expects" and words of similar import, constitute
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of Merisel, Inc. (the "Company"), or industry results, to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. These factors include,
but are not limited to, the effect of (i) economic conditions generally, (ii)
industry growth, (iii) competition, (iv) liability and other claims asserted
against the Company, (v) the loss of significant customers or vendors, (vi)
operating margins, (vii) business disruptions, (viii) the ability to attract and
retain qualified personnel, and (ix) other risks detailed in this report and the
Company's other public filings. These factors are discussed elsewhere in this
report, including, without limitation, in the footnotes to the attached
financial statements and under the caption "Management's Discussion and Analysis
of Financial Condition and Results of Operations." Given these uncertainties,
readers are cautioned not to place undue reliance on such forward-looking
statements. The Company disclaims any obligation to update any such factors or
to publicly announce the result of any revisions to any of the forward-looking
statements contained or incorporated by reference herein to reflect future
events or developments.
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
MERISEL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
ASSETS
June 30, December 31,
2003 2002
------------------- -------------------
Current assets:
Cash and cash equivalents $44,608 $46,795
Accounts receivable (net of allowances of $1,094 and $1,185 for 19,930 21,664
2003 and 2002, respectively)
Prepaid expenses and other current assets 45 168
------------------- -------------------
Total current assets 64,583 68,627
Property and equipment, net 883 883
Other assets 3,426 3,334
------------------- -------------------
Total assets $68,892 $72,844
=================== ===================
See accompanying notes to consolidated financial statements.
PART 1. FINANCIAL INFORMATION
MERISEL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, December 31, 2002
2003
------------------- --------------------
Current liabilities:
Accounts payable $17,705 $18,157
Accrued liabilities 7,331 12,408
------------------- --------------------
Total current liabilities 25,036 30,565
Long term liabilities 659 529
Stockholders' equity:
Convertible preferred stock, $.01 par value, authorized
1,000,000 shares; 150,000 shares issued and outstanding 19,107 18,368
Common stock, $.01 par value, authorized 150,000,000
shares; 8,026,364 and 8,026,375 shares issued for 2003
and 2002, respectively; 7,616,384 and 7,619,095 shares
outstanding for 2003 and 2002, respectively 76 76
Additional paid-in capital 279,075 279,814
Accumulated deficit (254,173) (255,559)
Accumulated other comprehensive loss (41) (109)
Treasury stock (847) (840)
------------------- --------------------
Total stockholders' equity 43,197 41,750
------------------- --------------------
Total liabilities and stockholders' equity $68,892 $72,844
=================== ====================
See accompanying notes to consolidated financial statements.
MERISEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2003 2002 2003 2002
--------------- ---------------- ------------------ ------------------
Net sales $24,665 $17,845 $43,128 $33,618
Cost of sales 23,813 16,260 41,251 30,798
--------------- ---------------- ------------------ ------------------
Gross profit 852 1,585 1,877 2,820
Selling, general & administrative expenses 1,014 1,620 1,673 3,590
Restructuring charge (48) (34) 208 245
--------------- ---------------- ------------------ ------------------
Operating loss (114) (1) (4) (1,015)
Interest income, net (452) (476) (1,096) (810)
Other income, net (17) (2) (18) (84)
--------------- ---------------- ------------------ ------------------
Income (loss) from operations before income
taxes and discontinued operations 355 477 1,110 (121)
Income tax provision (benefit) (80) 40 (276) 80
--------------- ---------------- ------------------ ------------------
Income (loss) from operations before
discontinued operations 435 437 1,386 (201)
Discontinued operations:
Income from discontinued operations 1,066
--------------- ---------------- ------------------ ------------------
Net income $435 $437 $1,386 $865
=============== ================ ================== ==================
Preferred stock dividends 373 346 739 686
--------------- ---------------- ------------------ ------------------
Net income available to common stockholders $62 $91 $647 $179
=============== ================ ================== ==================
Net income (loss) per share (basic and diluted):
Income (loss) from operations before
discontinued operations less preferred
dividends $ .01 $ .01 $ .08 $ (.12)
Income from discontinued operations .14
--------------- ---------------- ------------------ ------------------
Net income available to common stockholders $ .01 $ .01 $ .08 $ .02
=============== ================ ================== ==================
Weighted average number of shares
Basic and diluted 7,616 7,781 7,617 7,807
See accompanying notes to consolidated financial statements.
MERISEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended June 30,
2003 2002
------------------ -------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $1,386 $865
Less: income from discontinued operations, net 1,066
------------------ -------------------
Income (loss) from operations 1,386 (201)
Adjustments to reconcile net loss from operations
to net cash used by operating activities:
Depreciation and amortization 18
Provision for doubtful accounts 91 123
Restricted stock units compensation expense (119)
Gain on sale of property and equipment (18) (82)
Unrealized gain (loss) on deferred compensation asset 68 (82)
Changes in operating assets and liabilities:
Accounts receivable 1,643 (4,657)
Prepaid expenses and other assets 161 (11)
Accounts payable (452) 3,883
Accrued and long term liabilities (5,015) (5,180)
------------------ -------------------
Net cash used for operating activities (2,136) (6,308)
------------------ -------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of securities (62) (637)
Transaction costs on sale of property (234)
Proceeds from sale of property and equipment, net of disposal cost 18 109
------------------ -------------------
Net cash used for investing activities (44) (762)
------------------ -------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock (7) (203)
------------------ -------------------
Net cash used for financing activities (7) (203)
------------------ -------------------
NET CASH PROVIDED BY DISCONTINUED OPERATIONS - 1,868
------------------ -------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (2,187) (5,405)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 46,795 55,578
------------------ -------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $44,608 $50,173
================== ===================
Supplemental disclosure of cash flow information:
(in thousands)
Cash paid (received) during the period for: 2003 2002
------------------ --------------------
Income taxes (152) 119
Preferred dividends accrued 739 686
See accompanying notes to consolidated financial statements.
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. General
Merisel, Inc., a Delaware corporation and a holding company (together with its
subsidiaries, "Merisel" or the "Company"), is a software licensing solution
provider. During the fourth quarter of 2001, the Company decided to discontinue
operation of its Optisel business, a provider of logistics and electronic
services, because of economic conditions generally and with respect to
Internet-related businesses specifically and Optisel's lack of success in
generating business. As a consequence of the foregoing events, Merisel's only
business today is its software licensing business. The Company is, however,
actively seeking and exploring acquisition and other investment opportunities.
The information for the three and six months ended June 30, 2003 and 2002 has
not been audited by independent accountants, but includes all adjustments
(consisting of normal recurring accruals) which are, in the opinion of
management, necessary for a fair presentation of the results for such periods.
Certain information and footnote disclosures normally included in consolidated
financial statements prepared in accordance with accounting principles generally
accepted in the United States of America have been omitted pursuant to the
requirements of the Securities and Exchange Commission ("SEC"), although the
Company believes that the disclosures included in these financial statements are
adequate to make the information not misleading. The consolidated financial
statements as presented herein should be read in conjunction with the
consolidated financial statements and notes thereto included in Merisel's Annual
Report on Form 10-K for the fiscal year ended December 31, 2002.
2. Liquidity
At June 30, 2003, the Company had cash and cash equivalents of approximately $45
million. The Company has developed an operating plan for 2003 that focuses upon
growing its software licensing business and achieving profitability for that
business, maximizing cash in winding down its U.S. distribution business, and
seeking acquisition opportunities. Management believes that with its cash
balances after wind-down related expenditures, as well as expected revenues and
cash flow from operations, it has sufficient liquidity for the foreseeable
future. All anticipated wind-down related expenditures are currently recorded as
accrued liabilities and/or accounts payable on the Company's consolidated
balance sheet. If the Company were to use a significant amount of cash to fund
one or more acquisitions, the Company would have less liquidity to meet its
working capital needs.
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(UNAUDITED)
3. New Accounting Pronouncements
In April 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 145, which rescinds
SFAS No. 4, "Reporting Gains and Losses from Extinguishment of Debt," and also
amends other existing authoritative pronouncements to make various technical
corrections, clarify meanings, or describe their applicability under changed
conditions. A principal effect will be the prospective characterization of gains
and losses from debt extinguishments used as part of an entity's risk management
strategy. Under SFAS No. 4, all gains and losses from early extinguishment of
debt were required to be aggregated and, if material, classified as an
extraordinary item, net of related income tax effect. Under SFAS No. 145, gains
and losses from extinguishment of debt are not classified as extraordinary items
unless they meet much more narrow criteria in APB Opinion No. 30. SFAS No. 145
may be adopted early, but is otherwise effective for fiscal years beginning
after May 15, 2002, and must be adopted with retroactive effect. The Company
elected to adopt the provisions of SFAS No. 145 early, but the adoption had no
impact on the accompanying consolidated statements of income.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." SFAS No. 146 requires that costs associated
with an exit or disposal activity be recognized when incurred as opposed to an
entity's commitment to an exit plan as previously allowed. The provisions of
SFAS No. 146 are effective for exit or disposal activities that are initiated
after December 31, 2002, with early application encouraged. The Company has
complied with the provisions of SFAS No. 146.
In November 2002, FASB Interpretation 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others" ("FIN 45"), was issued. FIN 45 requires a guarantor entity, at the
inception of a guarantee covered by the measurement provisions of the
interpretation, to record a liability for the fair value of the obligation
undertaken in issuing the guarantee. FIN 45 applies prospectively to guarantees
issued or modified subsequent to December 31, 2002, but has certain disclosure
requirements effective for interim and annual periods ending after December 15,
2002. The Company has historically issued guarantees only on a limited basis and
does not anticipate FIN 45 will have a material effect on its consolidated
financial statements.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure." This statement amends SFAS No. 123,
to provide alternative methods of transition for an entity that voluntarily
changes to the fair value based method of accounting for stock-based employee
compensation. It also amends the disclosure provisions of SFAS No. 123 to
require prominent disclosure about the effects on reported net income of an
entity's accounting policy decisions with respect to stock-based employee
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(UNAUDITED)
compensation. This statement also amends APB Opinion No. 28, "Interim Financial
Reporting" to require disclosure about those effects in interim financial
statements. SFAS No. 148 is effective for financial statements for fiscal years
ending after December 15, 2002. The Company has elected not to change to the
fair value based method of accounting for stock-based compensation at this time.
Had compensation cost for the Company's stock option plans been determined based
on their fair value consistent with the provisions of SFAS No. 123, the effect
on the Company's net income and net income per share for the three and six
months ended June 30, 2003 and 2002 would not be material.
FASB Interpretation ("FIN") No. 46 "Consolidation of Variable Interest Entities;
an Interpretation of ARB No. 51" was issued January 2003 to clarify the
application of Accounting Research Bulletin ("ARB") No. 51, "Consolidated
Financial Statements" for certain entities in which equity investors do not have
the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. This
Interpretation applies to variable interest entities created after January 31,
2003, and to variable interest entities in which an enterprise obtains an
interest after that date. It applies in the first fiscal year or interim period
beginning after June 15, 2003, to variable interest entities in which an
enterprise holds a variable interest that it acquired before February 1, 2003.
The Company does not anticipate that the adoption of FIN 46 will have a material
impact on its consolidated financial position or results of operations.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities," which amends and clarifies
financial accounting and reporting for derivative instruments, including certain
derivative instruments embedded in other contracts. SFAS No. 149 will be
effective for contracts entered into or modified after June 30, 2003 and for
hedging relationships designated after June 30, 2003. The provisions of SFAS No.
149 are to be applied prospectively and the Company does not anticipate that
SFAS No. 149 will have a material impact on its consolidated financial position
or results of operations.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity" which is
effective for financial instruments entered into or modified after May 31, 2003
and to all other instruments that exist as of the beginning of the first interim
financial reporting period beginning after June 15, 2003. This Statement
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. The
Company is currently evaluating the impact SFAS No. 150 may have on its
consolidated financial position or results of operations.
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(UNAUDITED)
Emerging Issues Task Force ("EITF") Issue No. 02-16 "Accounting by a Customer
(Including a Reseller) for Certain Consideration Received from a Vendor" was
issued January 2003 regarding the circumstances under which cash consideration
received from a vendor by a reseller should be considered (a) an adjustment of
the prices of the vendor's products or services and, therefore, characterized as
a reduction of cost of sales when recognized in the reseller's income statement,
(b) an adjustment to a cost incurred by the reseller and, therefore,
characterized as a reduction of that cost when recognized in the reseller's
income statement, or (c) a payment for assets or services delivered to the
vendor and, therefore, characterized as revenue when recognized in the
reseller's income statement. The Company recognizes consideration received from
vendors in conformity with EITF No. 02-16.
4. Revenue Recognition
The Company derives revenues from software licensing, product updates and
customer support services and training and consulting services purchased
directly from third party vendors. The Company records revenue from software
licensing when there is persuasive evidence of an arrangement, the fee is fixed
and determinable, collection is reasonably assured and delivery of the product
has occurred (as prescribed by Statement of Position ("SOP") 97-2, "Software
Revenue Recognition"). In arrangements that include software licenses and
professional services and/or product updates ("multiple elements"), the Company
allocates revenue based on vendor specific objective evidence ("VSOE") of fair
value of all elements, defers revenue for the undelivered items and recognizes
as revenue the fair value of the delivered items based on VSOE of each element
determined by the price for which the element is sold separately.
The Company recognizes product updates and customer support services revenue
that they provide ratably over the term of the arrangement. Revenue from
training and consulting services is recognized when the services are completed.
The Company recognizes revenue on a gross basis as (a) the Company has sole
discretion in determining the price for which it sells software licenses and
services, (b) its suppliers impose no control or limitations on the Company's
pricing, (c) the Company assumes all credit risk associated with its customers,
(d) the Company often actively assists the customer in the selection of its
products and services and (e) the Company has the discretion to purchase the
products and services it offers from a variety of different suppliers and
distributors.
The Company frequently monitors its customers' financial condition and credit
worthiness and only sells products, licenses or services to customers where, at
the time of the sale, collection is reasonably assured. The Company, subject to
certain limitations including approval of its manufacturers/suppliers, may
permit its customers to return products and to exchange products or receive
credits against future purchases. The Company offers its customers several sales
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(UNAUDITED)
incentive programs that, among other things, include funds available for
cooperative promotion of product sales. Customers earn credit under such
programs based upon the volume of purchases. The cost of these programs is
partially subsidized by marketing allowances provided by the Company's vendors.
A provision for estimated product returns and costs of customer incentive
programs is recorded concurrently as a component of net sales with the
recognition of revenue.
5. Risks and Uncertainties
In August 2002 the Company was advised by one of its largest vendors that it was
terminating its relationship with the Company effective August 31, 2002. For the
six months ended June 30, 2002 and the year ended December 31, 2002, that
vendor's products accounted for 24.8% and 13.8%, respectively, of software
licensing sales. The Company expects that such termination will have an adverse
effect on the Company's sales for a number of quarters. In addition, it will
increase the Company's dependence on its remaining largest vendor, which for the
six months ended June 30, 2002, the six months ended June 30, 2003 and the year
ended December 31, 2002 accounted for 70.0%, 94.3% and 79.4%, respectively, of
software licensing sales. The termination of the Company's distribution
agreement with its remaining key vendor, or a material change in the terms of
the distribution agreement, including a decrease in rebates, would have a
material adverse effect on the Company.
For the six months ended June 30, 2002, 10 customers accounted for approximately
69.3% of the Company's U.S. software licensing net sales, with the top two
customers accounting for approximately 23.6% and 13.5% of net sales. For the six
months ended June 30, 2003, 10 customers accounted for approximately 74.3% of
the Company's U.S. software licensing net sales, with the top two customers
accounting for approximately 28.7% and 16.8% of net sales.
6. Fiscal Year
Effective December 31, 2002, the Company's fiscal year ends on December 31 and
its second fiscal quarter ends on June 30. Prior to December 31, 2002, the
Company's fiscal year was the 52-week period ending on the Saturday nearest to
December 31 and its second fiscal quarter was the 13-week period ending on the
Saturday nearest to June 30. For clarity of presentation of the prior second
quarter, the Company has described the second fiscal quarter presented as if the
period ended on June 30.
7. Discontinued Operations
Through its subsidiary Optisel, Inc. ("Optisel"), in November 2000 the Company
acquired substantially all the e-services assets of Value America, Inc. with the
intention of leveraging the Company's distribution and logistics capabilities to
operate a logistics and electronic services
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(UNAUDITED)
business. In connection with the sale of the MOCA business to Arrow, the Company
entered into a transition services agreement with Arrow pursuant to which
Optisel provided fee-based distribution and logistics services and information
technology services for MOCA through February 1, 2002. In connection with the
sale of Merisel Canada to Synnex, Merisel and Synnex entered into a fee-based
transition services agreement pursuant to which Optisel provided information
technology services to Merisel Canada through September 10, 2001. Optisel did
not generate any significant revenue except under these two transition services
agreements. As a result of economic conditions generally and with respect to
Internet-related businesses specifically and Optisel's lack of success in
generating business, the Company decided to discontinue the operation of the
Optisel business during the fourth quarter of 2001.
The Company has reclassified its consolidated financial statements to reflect
the discontinuance of Optisel's operations and to segregate the revenues, direct
costs and expenses, assets and liabilities, and cash flows of this business. The
net operating results and net cash flows of this business have been reported as
"Discontinued Operations" in the accompanying consolidated financial statements.
Summarized financial information for the discontinued operations is as follows
(in thousands):
For the Three Months Ended June For the Six Months Ended June
30 30
2003 2002 2003 2002
---- ---- ---- ----
Net Sales - - - $1,105
Income from Discontinued Operations - - - 1,066
8. Restructuring Charges
During the first quarter of 2003, the Company made the decision to reduce its
workforce by approximately 10 full-time positions. As a result, a restructuring
charge of $256,000 related to severance and employee benefits was recorded in
the first quarter of 2003. During the second quarter of 2003, the Company
recorded an adjustment of $48,000 to reduce the previously recorded charge to
reflect updated estimates of severance and employee benefit liabilities.
During the first quarter of 2002, the Company made the decision to reduce its
workforce by approximately 17 full-time positions. As a result, a restructuring
charge of $265,000 related to severance and employee benefits was recorded in
the first quarter of 2002. Additional adjustments of $14,000 to increase and
$34,000 to decrease the restructuring reserve were recorded related to lease and
contract commitments in the first and second quarters of 2002, respectively.
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(UNAUDITED)
As of June 30, 2003, $2,088,000 of total restructuring costs had not been paid
and was included in accrued liabilities in the accompanying consolidated balance
sheet. The following table sets forth the activity and balances of the
restructuring reserve from December 31, 2002 to June 30, 2003:
(In thousands)
December 31, 2002 June 30, 2003
Balance Net Charges Payments Balance
Type of cost:
Severance and related costs $ 283 $ 208 $ 447 $ 44
Facility, lease and other 2,599 555 2,044
------------------------- ----------------- ---------------- ----------------------
Total $ 2,882 $ 208 $ 1,002 $ 2,088
========================= ================= ================ ======================
Three months ended
------------------------------------------------------------------
Expected timing of September 30, December 31, March 31, June 30,
payouts 2003 2003 2004 2004 Thereafter Total
---------------- ----------------- --------------- --------------- ------------ ------------
Severance and related
costs $44 $44
Facility, lease and
other 292 305 275 274 898 2,044
---------------- ----------------- --------------- --------------- ------------ ------------
Total $ 336 $ 305 $ 275 $ 274 $ 898 $ 2,088
================ ================= =============== =============== ============ ============
9. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consist of the following (in
thousands):
June 30, 2003 December 31, 2002
--------------- ------------------
Accounts payable:
Trade payables $ 14,800 $ 15,037
Wind-down payables related to discontinued vendors 2,905 3,120
--------------- ------------------
Total accounts payable $ 17,705 $ 18,157
=============== ==================
Accrued liabilities:
Restructuring accruals $ 2,088 $2,882
Compensation and other benefit accruals 1,004 1,819
State and local sales taxes and other taxes 447 1,724
Customer credits 139 1,467
Software license and IT-related accruals 325 478
Optisel accruals 286 418
Other 3,042 3,620
--------------- ------------------
Total accrued liabilities $ 7,331 $ 12,408
=============== ==================
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(UNAUDITED)
10. Disposition of Assets
In May 2002 the Company completed the sale of an office building in Cary, North
Carolina. The $3,000,000 purchase price was paid $25,000 in cash and the
remainder in a promissory note due May 20, 2004 or earlier in certain
circumstances. The note bears interest at the prime rate plus 2.25% payable
monthly and is secured by the property. The prime rate was 4.00% at June 30,
2003. The Company recorded the promissory note at a discounted amount of
$2,714,000 which approximates the carrying value of the property and is included
in other assets in the accompanying consolidated balance sheets. The Company
recognized no gain or loss on the sale of the property, net of actual disposal
costs. In connection with the sale, the Company agreed to lend the purchaser up
to an additional $1,000,000, at terms similar to the note described above, to
fund improvements to the property after the purchaser has funded $1,000,000 in
initial improvements. As of June 30, 2003 no additional amounts have been
loaned. In April 2003, the purchaser informed the Company that the purchaser's
plans for developing the property securing the note may not be economically
feasible; and therefore the purchaser was likely to default on the note and stop
making any further payments. The Company has discontinued recognizing interest
income on the loan and is analyzing the appropriate actions to maximize the
underlying value of this note, including potentially foreclosing on the
property.
11. Comprehensive Income
The Company calculates comprehensive income in accordance with SFAS No.
130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for
reporting and displaying comprehensive income and its components in a full set
of general purpose financial statements. Comprehensive income is computed as
follows:
(In thousands)
Three Months Ended Six Months Ended
June 30, June 30,
2003 2002 2003 2002
---- ---- ---- ----
Net income $435 $437 $1,386 $865
Other comprehensive loss - unrealized gain (loss) on
available for sale securities 100 (82) 68 (82)
------------ ----------- ------------- ------------
Comprehensive income $535 $355 $1,454 $783
============ =========== ============= ============
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(UNAUDITED)
12. Earnings Per Share and Stockholders Equity
The Company calculates earnings per share in accordance with SFAS No. 128,
"Earnings Per Share." Basic earnings per share is computed on the basis of the
weighted average number of common shares outstanding. Diluted earnings per share
is computed on the basis of the weighted average number of common shares
outstanding plus the effect of outstanding potential common shares including
stock options, convertible preferred stock and restricted stock units using the
"treasury stock" method. Stock options outstanding, representing total potential
common stock equivalents, were approximately 179,000 and 200,000 as of June 30,
2003 and 2002, respectively. As of June 30, 2003 and 2002, there are no dilutive
common stock equivalents.
(In thousands)
Three months ended Six months ended
June 30, June 30,
2003 2002 2003 2002
-------------- ------------ ----------- ---------------
Income (loss) from operations $435 $437 $1,386 $(201)
Preferred stock dividends (373) (346) (739) (686)
-------------- ------------ ----------- ---------------
Income (loss) available to common stockholders 62 91 647 (887)
Income from discontinued operations 1,066
-------------- ------------ ----------- ---------------
Net income available to common stockholders $62 $91 $647 $179
============== ============ =========== ===============
On July 3, 2001 the Company announced that its Board of Directors had authorized
the expenditure of up to $1,000,000 to repurchase shares of its common stock
from time to time in the open market or otherwise. On March 25, 2002 the Company
announced that its Board of Directors had authorized the expenditure of up to
$1,000,000 during the remainder of 2002 for repurchases of its common stock. On
January 15, 2003, the Company announced that its Board of Directors had
authorized the expenditure of up to an additional $1,000,000 for repurchases of
its common stock at a maximum share price to be determined by the Board of
Directors from time to time. As of June 30, 2003, the Company had repurchased
approximately 410,000 shares under these authorizations for an aggregate cost of
$854,000 (including approximately $7,000 in brokerage commissions), which shares
have been reflected as treasury stock in the accompanying consolidated balance
sheets. There is approximately $993,000 remaining to be used for stock
repurchases under the current authorization.
13. Segment Information
The Company implemented SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information," which requires disclosure of certain
information about operating segments, geographic areas in which the Company
operates, major customers, and products and services. In accordance with SFAS
No. 131, the Company had determined it had three operating segments: the United
States distribution segment, the Canadian distribution segment, and Optisel.
Effective as of July 28, 2001, the Company sold its Canadian distribution
segment. Effective in the fourth quarter of 2001, the Company discontinued its
Optisel business segment. Optisel has been treated as discontinued operations in
the accompanying financial statements. The Company has determined that it
currently has only one operating segment, the software licensing solution
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(UNAUDITED)
provider segment. During 2002 and 2003, the Company had software licensing as
the only operating segment.
14. Other Assets
At June 30, 2003, other assets include approximately $659,000 of investment
securities classified as available for sale. Such amounts were invested in
connection with a deferred compensation agreement with the Company's chief
executive officer. An offsetting obligation is included in long term
liabilities. Payment of the deferred compensation is due as provided for in the
agreement. As of June 30, 2003, there were unrealized holding losses of
approximately $41,000. This unrealized loss has been recorded as a component of
other comprehensive loss.
15. Commitments and Contingencies
The Company is involved in certain legal proceedings arising in the ordinary
course of business, none of which is expected to have a material impact on the
financial condition or results of operations of Merisel. In addition, over the
last several years the Company has disposed of a number of businesses, including
all of its operations outside the United States, many of which had obligations
that had been guaranteed by the Company. In connection with those dispositions,
the Company sought either to have any guarantees released or to be indemnified
against any liabilities under guarantees. The Company may not have identified
all guarantees to be released and, in at least one instance, the indemnification
provided to the Company is no longer of any value. The Company believes that,
largely because of the passage of time, its exposure to liability under these
guarantees is not significant.
During the third quarter of 2003, the Company was informed that it would be
receiving payment of between $2,400,000 and $4,800,000 in settlement of a
bankruptcy claim the Company had filed in July 2000 related to certain
indemnifications and guarantees obtained from the purchaser of certain of the
Company's subsidiaries. The Company received an interim distribution of
$2,448,000 in July 2003. A final distribution, if one is made, cannot be
estimated and may be significantly less than the initial payment. Because the
Company cannot estimate the amount of any exposure related to these guarantees
and believes that such exposure is not significant, the Company expects to
record the amount received as other income in the period received.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company was founded in 1980 as Softsel Computer Products, Inc. and changed
its name to Merisel, Inc. in 1990 in connection with the acquisition of
Microamerica, Inc. ("Microamerica"). From 1996 through the first quarter of
1997, the Company engaged in the process of divesting of its operations outside
of the United States and Canada and its non-distribution operations, which
resulted in the Company's operations being focused exclusively in the United
States and Canada and consisting of three distinct business units: United States
distribution, Canadian distribution and the Merisel Open Computing Alliance, a
distributor of Sun Microsystems products ("MOCA"). Effective as of October 27,
2000, the Company completed the sale of its MOCA business unit to Arrow
Electronics, Inc. ("Arrow"). Additionally, on December 14, 2000, the Company
announced that the U.S. distribution business would focus solely on software
licensing and that the balance of the U.S. distribution business would be wound
down. Effective as of July 28, 2001, the Company completed the sale of its
Canadian distribution business, a full-line distributor of computer hardware and
software products ("Merisel Canada"), to Synnex Information Technologies, Inc.
("Synnex"). On November 10, 2000, the Company acquired substantially all the
e-services assets of Value America, Inc. through the Company's newly formed
subsidiary Optisel with the intention of leveraging the Company's distribution
and logistics capabilities to operate a logistics and electronic services
business. As a result of economic conditions generally and with respect to
Internet-related businesses specifically and Optisel's lack of success in
generating business, the Company decided to discontinue operation of the Optisel
business during the fourth quarter of 2001. As a consequence of the foregoing
events, Merisel's only business today is its software licensing business. The
Company is, however, actively seeking and exploring acquisition and other
investment opportunities.
Discontinued Operations
Through Optisel, in November 2000 the Company acquired substantially all the
e-services assets of Value America, Inc. with the intention of leveraging the
Company's distribution and logistics capabilities to operate a logistics and
electronic services business. In connection with the sale of the MOCA business
to Arrow, the Company entered into a transition services agreement with Arrow
pursuant to which Optisel provided fee-based distribution and logistics services
and information technology services for MOCA through February 1, 2002. In
connection with the sale of Merisel Canada to Synnex, Merisel and Synnex entered
into a fee-based transition services agreement pursuant to which Optisel
provided information technology services to Merisel Canada through September 10,
2001. Optisel did not generate any significant revenue except under these two
transition services agreements. As a result of economic conditions generally and
with respect to Internet-related businesses specifically and Optisel's lack of
success in generating business, the Company discontinued the operation of the
Optisel business during the fourth quarter of 2001.
The Company has reclassified its consolidated financial statements to reflect
the discontinuance of Optisel's operations and to segregate the revenues, direct
costs and expenses (excluding any allocated costs), assets and liabilities, and
cash flows of the Optisel business. The net operating results, net assets and
net cash flows of this business have been reported as "Discontinued Operations"
in the accompanying consolidated financial statements.
Wind-Down of U.S. Distribution Business
With respect to the U.S. distribution business, in December 2000 the Company
determined that, primarily as a result of a significant contraction in sales and
continuing substantial operating losses, such business would focus solely on
software licensing and the balance of the U.S. distribution business would be
wound down. Although the wind-down was substantially complete by the end of the
first quarter of 2001, the Company has significant remaining obligations related
to the U.S. distribution business, primarily with respect to leases, vendors and
employee severance. See "Liquidity and Capital Resources" below.
Risks and Uncertainties
In August 2002 the Company was advised by one of its largest vendors that it was
terminating its relationship with the Company effective August 31, 2002. For the
six months ended June 30, 2002 and the year ended December 31, 2002, that
vendor's products accounted for 24.8% and 13.8%, respectively, of software
licensing sales. The Company expects that such termination will have an adverse
effect on the Company's sales for a number of quarters. In addition, it will
increase the Company's dependence on its remaining largest vendor, which for the
six months ended June 30, 2002, the six months ended June 30, 2003 and the year
ended December 31, 2002 accounted for 70.0%, 94.3% and 79.4%, respectively, of
software licensing sales. The termination of the Company's distribution
agreement with its remaining key vendor, or a material change in the terms of
the distribution agreement, including a decrease in rebates, would have a
material adverse effect on the Company.
For the six months ended June 30, 2002, 10 customers accounted for approximately
69.3% of the Company's U.S. software licensing net sales, with the top two
customers accounting for approximately 23.6% and 13.5% of net sales. For the six
months ended June 30, 2003, 10 customers accounted for approximately 74.3% of
the Company's U.S. software licensing net sales, with the top two customers
accounting for approximately 28.7% and 16.8% of net sales.
RESULTS OF OPERATIONS
The Company reported net income available to common stockholders of $62,000, or
$0.01 per share, for the three months ended June 30, 2003, compared to net
income available to common stockholders of $91,000, or $0.01 per share, for the
2002 period.
Three Months Ended June 30, 2003 as Compared to the Three Months ended June 30,
2002.
The Company's net sales increased 38.2% from $17,845,000 in the quarter ended
June 30, 2002 to $24,665,000 in the quarter ended June 30, 2003. The increase in
net sales resulted from the focus the Company has on growing its software
licensing business.
Gross profit decreased $733,000 from $1,585,000 in the second quarter of 2002 to
$852,000 in the second quarter of 2003. Gross profit as a percentage of sales,
or gross margin, was 8.9% for the three months ended June 30, 2002 compared to
3.5% for the three months ended 2003. The 2002 and 2003 periods reflect
reductions in cost of sales of approximately $810,000 and $89,000, respectively,
relating to the settlement of certain discontinued vendor accounts, primarily
related to the wind-down of the U.S. distribution business. Excluding these
adjustments, gross margin would have been 4.3% and 3.1% in the 2002 and 2003
periods, respectively. The decrease in gross margins in the software licensing
business is related to competitive pricing pressures and declining backend
rebates offered by manufacturers.
Selling, general and administrative expenses decreased by 37.4% from $1,620,000
in the second quarter of 2002 to $1,014,000 in the second quarter of 2003.
Selling, general and administrative expenses as a percentage of sales were 9.1%
in the second quarter of 2002 compared to 4.1% in the 2003 period. The Company
had approximately $508,000 and $94,000 of favorable adjustments related to the
wind-down of the U.S. distribution business in the second quarters of 2002 and
2003, respectively, which caused a reduction of selling, general and
administrative expenses for those periods. Included in the results for the
second quarter of 2003 were certain favorable compensation related adjustments
of approximately $264,000 that are not expected to recur in future periods.
Excluding these adjustments, selling, general and administrative expenses as a
percentage of sales would have been 11.9% in the three months ended June 30,
2002 compared to 5.6% in the 2003 period. The decline in selling, general and
administrative expenses, both in dollars and as a percentage of sales is related
to cost reductions that the Company has made over the past year and efficiencies
that have been gained.
During the second quarter of 2003, the Company recorded a $48,000 reduction of
the previously recorded charge to reflect updated estimates of severance and
employee benefit liabilities.
As a result of the above items, the Company had an operating loss of $114,000
for the three-month period ended June 30, 2003 compared to an operating loss of
$1,000 for the three-month period ended June 30, 2002.
Six Months Ended June 30, 2003 as Compared to the Six Months June 30, 2002.
The Company's net sales increased 28.3% from $33,618,000 in the six months ended
June 30, 2002 to $43,128,000 in the six months ended June 30, 2003. The increase
in net sales resulted from the focus the Company has on growing its software
licensing business.
Gross profit decreased $943,000 from $2,820,000 in the first half of 2002 to
$1,877,000 in the first half of 2003. Gross profit as a percentage of sales, or
gross margin, was 8.4% for the six months ended June 30, 2002 compared to 4.4%
for the six months ended 2003. The 2002 and 2003 periods reflect reductions in
cost of sales of approximately $1,302,000 and $575,000, respectively, relating
to the settlement of certain discontinued vendor accounts, primarily related to
the wind-down of the U.S. distribution business. Excluding these adjustments,
gross margin would have been 4.5% and 3.0% in the 2002 and 2003 periods,
respectively. The decrease in gross margins in the software licensing business
is related to competitive pricing pressures and declining backend rebates
offered by manufacturers.
Selling, general and administrative expenses decreased by 53.4% from $3,590,000
in the first half of 2002 to $1,673,000 in the first half of 2003. Selling,
general and administrative expenses as a percentage of sales were 10.7% in the
first half of 2002 compared to 3.9% in the 2003 period. The 2002 and 2003
periods reflect approximately $508,000 and $1,164,000 of favorable adjustments
related to the wind-down of the U.S. distribution business, respectively.
Excluding these adjustments, selling, general and administrative expenses as a
percentage of sales would have been 12.2% in the first half of 2002 compared to
6.6% in the first half of 2003. The decline in selling, general and
administrative expenses, both in dollars and as a percentage of sales is related
to cost reductions that the Company has made over the past year and efficiencies
that have been gained.
During the first quarter of 2003, the Company made the decision to reduce its
workforce by approximately 10 full-time positions. As a result, a restructuring
charge of $256,000 related to severance and employee benefits was recorded in
the first quarter of 2003. During the second quarter of 2003, the Company
recorded a $48,000 reduction of the previously recorded charge to reflect
updated estimates of severance and employee benefit liabilities.
During the first quarter of 2002, the Company made the decision to reduce its
workforce by approximately 17 full-time positions, which has resulted in the
Company having approximately 47 employees. As a result, a restructuring charge
of $485,000 related to severance and employee benefits was recorded in the first
quarter of 2002. A reduction to previously recorded charges related to employee
benefits of $220,000 was also recorded in the first quarter of 2002. Additional
adjustments of $14,000 to increase and $34,000 to decrease the reserve were
recorded related to lease and contract commitments in the first and second
quarters of 2002, respectively.
As a result of the above items, the Company had an operating loss of $4,000 for
the six-month period ended June 30, 2003 compared to an operating loss of
$1,015,000 for the six-month period ended June 30, 2002.
Interest Income; Other Income; and Income Tax Provision (Benefit)
Interest income decreased from $476,000 in the second quarter of 2002 to
$452,000 in the second quarter of 2003 and increased from $810,000 in the six
months ended June 30, 2002 to $1,096,000 in the six months ended June 30, 2003.
The change primarily reflects varying amounts of early pay discounts taken in
the respective periods.
Other income for the Company increased from $2,000 in the three months ended
June 30, 2002 to $17,000 in the three months ended June 30, 2002 and decreased
from $84,000 in the first half of 2002 to $18,000 in the first half of 2003.
Other income in all periods reflects gains recognized on the sale of property,
plant and equipment that had been fully depreciated.
The income tax provision decreased from $40,000 and $80,000 in the three and six
months ended June 30, 2002, respectively to benefits of $80,000 and $276,000 for
the three and six months ended June 30, 2003, respectively. In all periods, the
income tax rate reflects primarily the minimum statutory tax requirements in the
various states and provinces in which the Company conducts business, as the
Company has sufficient net operating loss carry forwards to offset federal
income taxes in the current period. The provisions recorded in the 2003 periods
are more than offset by refunds received from various states.
VARIABILITY OF QUARTERLY RESULTS AND SEASONALITY
Historically, the Company has experienced variability in its net sales and
operating margins on a quarterly basis and expects these patterns to continue in
the future with respect to its software licensing business. Management believes
that the factors influencing quarterly variability include: (i) the overall
growth in the computer industry; (ii) shifts in short-term demand for the
Company's products resulting, in part, from the introduction of new products or
updates to existing products; (iii) intensity of price competition among the
Company and its competitors as influenced by various factors; and (iv) the fact
that virtually all sales in a given quarter result from orders booked in that
quarter. Due to the factors noted above, as well as the dynamic
qualities of the computer products distribution industry, the Company's revenues
and earnings relating to its software licensing business may be subject to
material volatility, particularly on a quarterly basis, and the results for any
quarterly period may not be indicative of results for a full fiscal year.
In the U.S., the Company's net sales in the fourth quarter have been
historically higher than in the first three quarters. Management believes that
the pattern of higher fourth quarter sales is partially explained by customer
buying patterns relating to calendar year-end business and holiday purchases. As
a result of this pattern, the Company's working capital requirements in the
fourth quarter have typically been greater than other quarters.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow Activity
Net cash used by operating activities during the three months ended June 30,
2003 was $2,136,000. The primary use of cash was a decrease in accrued expenses
of $5,015,000, which was offset by a decrease in accounts receivable of
$1,643,000.
Net cash used for investing activities was $44,000, primarily related to the
expenditure of $62,000 used for the purchase of securities in connection with an
employee deferred compensation agreement, offset by $18,000 of proceeds from the
sale of property and equipment.
Financing Sources and Capital Expenditures
Because the software licensing business requires the maintenance of minimal
levels of inventory and the Company anticipates making minimal capital
expenditures related to that business during the foreseeable future, the
Company's working capital requirements are much less than the Company's
historical needs for its distribution business and it is able to meet its
working capital needs without the need for any financing facility, in large part
because of its substantial cash balances. As revenues of the software licensing
business grow, the Company may seek to establish a working capital financing
facility to provide additional funding for that business and for acquisitions.
At June 30, 2003, the Company had cash and cash equivalents of approximately $45
million. The Company has developed an operating plan for 2003 that focuses upon
growing its software licensing business and achieving profitability for that
business, maximizing cash in winding down its U.S. distribution business, and
seeking acquisition opportunities. Management believes that, with its cash
balances and anticipated cash balances after wind-down related expenditures,
which balances are substantial in relation to the Company's working capital
needs, as well as expected revenues and cash flow from operations, it has
sufficient liquidity for the foreseeable future. If the Company were to use a
significant amount of cash to fund one or more acquisitions, the Company could
have less liquidity to meet its working capital needs.
In June 2000, an affiliate of Stonington Partners, Inc., which owns
approximately 65.6% of the Company's outstanding common stock, purchased 150,000
shares of Convertible Preferred issued by the Company for an aggregate purchase
price of $15 million. The Convertible Preferred provides for an 8% annual
dividend payable in additional shares of Convertible Preferred. Dividends are
cumulative and will accrue from the original issue date whether or not
declared by the Board of Directors. Cumulative accrued dividends of $3,367,000
and $4,107,000 were recorded at December 31, 2002 and June 30, 2003,
respectively.
ASSET MANAGEMENT
The Company offers credit terms to qualifying customers and also sells on a
prepay, early-pay, credit card and cash-on-delivery basis. With respect to
credit sales, the Company attempts to control its bad debt exposure by
monitoring customers' creditworthiness and, where practicable, through
participation in credit associations that provide customer credit rating
information for certain accounts. Substantially all of the Company's software
licensing sales are financed by the Company. As a result, the Company's business
could be adversely affected in the event of the deterioration of the financial
condition of one or more of its customers, particularly one of the Company's
larger customers, resulting in the customer's inability to pay amounts owed to
the Company. This risk would be increased in the event of a general economic
downturn affecting a large number of the Company's customers. At June 30, 2003,
the Company's two largest customers combined represented 54.0%, or $11,206,000,
of the Company's total trade receivables. The Company believes it has
established an adequate reserve against the June 30, 2003 accounts receivable
balance.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires the appropriate application of certain accounting
policies, many of which require the Company to make estimates and assumptions
about future events and their impact on amounts reported in the Company's
consolidated financial statements and related notes. Since future events and
their impact cannot be determined with certainty, the actual results will
inevitably differ from the Company's estimates. Such differences could be
material to the consolidated financial statements.
The Company believes the application of its accounting policies, and the
estimates inherently required therein, are reasonable. These accounting policies
and estimates are constantly reevaluated, and adjustments are made when facts
and circumstances dictate a change.
The Company's critical accounting policies and estimates are described in its
Annual Report on Form 10-K for the fiscal year ended December 31, 2002.
Item 3. QUANTITATIVE AND QUALITATIVE MARKET RISK DISCLOSURE
At June 30, 2003, the Company had cash investments of $40,551,000 held in
overnight, interest-bearing accounts invested through high-credit quality
financial institutions. Additionally, the Company had cash balances of
$4,057,000 maintained in various checking accounts at June 30, 2003. The Company
has no outstanding long-term debt and no significant foreign currency risk.
Item 4. CONTROLS AND PROCEDURES
The Company's chief executive officer and chief financial officer have
concluded, based on an evaluation of the Company's disclosure controls and
procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e)
and 15d-15(e)), that the Company's disclosure controls and procedures were
effective with respect to timely communicating to them all material information
required to be disclosed in this report as it related to the Company and its
subsidiaries as of the end of the period covered by this report. No change in
the Company's internal control over financial reporting occurred during the
period covered by this report that have materially affected, or is reasonably
likely to materially affect, the Company's internal control over financial
reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in certain legal proceedings arising in the ordinary
course of business, none of which is expected to have a material impact on the
financial condition of the business of the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
The Annual Meeting of the Stockholders of the Company was held on June 4, 2003.
One Class III director, Timothy N. Jenson, was elected at the annual meeting for
a term expiring at the 2006 Annual Meeting. 7,761,942 number of votes were cast
for such director and 14,509 number of votes were withheld. The other members of
the Board of Directors are Bradley J. Hoecker, Albert J. Fitzgibbons III, Dr.
Arnold Miller and Lawrence J. Schoenberg.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
31.1 Certification of the Chief Executive Officer pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of the Chief Financial Officer pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.
32 Certification of Chief Executive Officer and Chief
Financial Offer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(b) The following Reports on Form 8-K were filed during the quarter
ended June 30, 2003.
Current report on Form 8-K dated May 6, 2003 which reported
the Company's first quarter earnings.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: August 14, 2003
Merisel, Inc.
By:/s/Timothy N. Jenson
-----------------------------------------
Timothy N. Jenson
Chief Executive Officer, President and
Chief Financial Officer
(Principal Executive and Financial Officer)