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UNITED STATES
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, 2004
-------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE 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 12, 2004
Common Stock, $.01 par value 7,623,868 Shares
MERISEL, INC.
INDEX
Page Reference
PART I FINANCIAL INFORMATION (Unaudited)
Consolidated Balance Sheets as of 1-2
June 30, 2004 and December 31, 2003
Consolidated Statements of Operations for the
Three and Six Months Ended June 30, 2004 and 2003 3
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 2004 and 2003 4
Notes to Consolidated Financial Statements 5-12
Management's Discussion and Analysis of 13-20
Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk 21
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,
2004 2003
------------------- -------------------
Current assets:
Cash and cash equivalents $44,796 $44,948
Accounts receivable (net of allowances of $1,313 and $1,286 for 9,657 19,585
2004 and 2003, respectively)
Inventories 2 13
Prepaid expenses and other current assets 3,837 65
------------------- -------------------
Total current assets 58,292 64,611
Property and equipment, net 969 883
Other assets 1,726 1,718
------------------- -------------------
Total assets $60,987 $67,212
=================== ===================
See accompanying notes to consolidated financial statements.
MERISEL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, December 31, 2003
2004
------------------- --------------------
Current liabilities:
Accounts payable $8,447 $13,883
Accrued liabilities 6,430 7,915
------------------- --------------------
Total current liabilities 14,877 21,798
Long term liabilities 760 751
Stockholders' equity:
Convertible preferred stock, $.01 par value, authorized
1,000,000 shares; 150,000 shares issued and outstanding 20,693 19,882
Common stock, $.01 par value, authorized 150,000,000
shares; 8,026,353 issued and 7,616,373 outstanding at June 30,
2004 and December 31, 2003. 76 76
Additional paid-in capital 277,489 278,300
Accumulated deficit (252,121) (252,799)
Accumulated other comprehensive income 59 50
Treasury stock (846) (846)
------------------- --------------------
Total stockholders' equity 45,350 44,663
------------------- --------------------
Total liabilities and stockholders' equity $60,987 $67,212
=================== ====================
See accompanying notes to consolidated financial statements.
MERISEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2004 2003 2004 2003
---------------- ---------------- ----------------- ---------------
Net sales $17,625 $24,665 $32,593 $43,128
Cost of sales 16,366 23,513 29,473 40,760
---------------- ---------------- ----------------- ---------------
Gross profit 1,259 1,152 3,120 2,368
Selling, general & administrative expenses 1,600 1,087 2,880 1,581
Restructuring charge 77 (48) (279) 208
---------------- ---------------- ----------------- ---------------
Operating income (loss) (418) 113 519 579
Interest income, net 116 225 243 513
Other income, net 19 17 21 18
---------------- ---------------- ----------------- ---------------
Income (loss) before income taxes (283) 355 783 1,110
Income tax provision (benefit) 105 (80) 105 (276)
---------------- ---------------- ----------------- ---------------
Net income (loss) $(388) $435 $678 $1,386
================ ================ ================= ===============
Preferred stock dividends 409 373 811 739
---------------- ---------------- ----------------- ---------------
Net income (loss) available to common stockholders $(797) $62 $(133) $647
================ ================ ================= ===============
Net income (loss) per share (basic and diluted):
Net income available to common stockholders $ (.10) $ .01 $ (.02) $ .08
================ ================ ================= ===============
Weighted average number of shares
Basic and diluted 7,616 7,616 7,616 7,616
================ ================ ================= ===============
See accompanying notes to consolidated financial statements.
MERISEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended June 30,
2004 2003
------------------ -------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $678 $1,386
Adjustments to reconcile net income to net cash provided by (used
in) operating activities:
Provision for doubtful accounts 487 91
Gain on sale of property and equipment (21) (18)
Non-cash deferred compensation 9 68
Changes in operating assets and liabilities:
Accounts receivable 9,441 1,643
Prepaids, inventories and other assets (261) 161
Accounts payable (5,436) (452)
Accrued and long term liabilities (1,484) (5,015)
------------------ -------------------
Net cash provided by (used in) operating activities 3,413 (2,136)
------------------ -------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of securities - (62)
Purchase of property and equipment (86) -
Escrow payment related to land repurchase rights (3,500) -
Proceeds from sale of property and equipment, net of disposal cost 21 18
------------------ -------------------
Net cash used in investing activities (3,565) (44)
------------------ -------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock - (7)
------------------ -------------------
Net cash used in financing activities - (7)
------------------ -------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (152) (2,187)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 44,948 46,798
------------------ -------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $44,796 $44,608
================== ===================
Supplemental disclosure of cash flow information:
(in thousands)
Cash paid (received) during the period for: 2004 2003
------------------ --------------------
Income taxes $ 66 $ (152)
Non-cash investing and financing activities:
Unrealized gain on securities 9 68
Preferred dividends accrued 811 739
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"), currently operates as a software
licensing solution provider. In addition to the operation of the software
licensing business, the Company is actively seeking and exploring acquisition
and other investment opportunities, primarily outside the computer products
distribution industry. Subsequent to June 30, 2004, the Company was informed
that its primary software licensing vendor would be terminating its distribution
agreement with the Company, effective thirty days from August 3, 2004. On August
13, 2004, Merisel Americas, a wholly owned operating subsidiary of the Company,
entered into an agreement to sell certain of its assets that principally
comprise the software licensing business. See Note 4 "Risks and Uncertainties"
and Note 15 "Subsequent Events".
The information for the three and six months ended June 31, 2004 and 2003 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 year ended December 31, 2003.
2. Liquidity
At June 30, 2004, the Company had cash and cash equivalents of approximately $45
million. Management believes that with its cash balances after wind-down related
expenditures it has sufficient liquidity for the foreseeable future. All
anticipated expenditures relating to the on-going wind-down of the U.S.
distribution business, excluding software licensing, 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.
3. Revenue Recognition
The Company derives revenues from sales of 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
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(UNAUDITED)
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
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.
4. Risks and Uncertainties
On August 3, 2004, the Company received notice that effective in 30 days, McAfee
Associates, Inc. (formerly Network Associates, Inc.) would be terminating their
distribution agreement with Merisel Americas. For the six months ended June 30,
2004 and 2003, this vendor's products accounted for 87.3% and 94.3%,
respectively, of the Company's software licensing sales. The loss of this vendor
will have a material adverse effect on the revenues, gross profit and operating
results of the Company. On August 13, 2004, Merisel Americas entered into an
agreement to sell certain of its assets that principally comprise the software
licensing business. After the sale of the software licensing business, the
Company will have no on-going revenues, other than interest income. Until such
time as the Company completes and grows a potential acquisition, the Company
does not anticipate being profitable. See Note 15 "Subsequent Events".
Merisel generally does not have contracts with its customers. Merisel's largest
customers include Comp-E-Ware, Expert Networks, Future Com, PC Connection,
Softchoice, Software House
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(UNAUDITED)
International and Software Spectrum. For the six months ended June 30, 2004, 10
customers combined accounted for approximately 71.9% of the Company's net sales,
and three customers individually accounted for more than 10% of total net sales,
accounting for approximately 25.2%, 13.2% and 11.4% of net sales. For the six
months ended June 30, 2003, 10 customers combined accounted for approximately
74.3% of the Company's net sales, and two customers individually accounted for
more than 10% of total net sales, accounting for approximately 28.7% and 16.8%
of net sales.
On March 15, 2004, the Company was notified by one customer, with an outstanding
accounts receivable balance of approximately $746,000, that it does not have
sufficient liquidity to repay the amount it owes the Company and has requested
an extended repayment plan. The Company has negotiated terms of a monthly
repayment plan; however, there is no assurance that the customer's restructured
business plan will be successful or that the outstanding amount of $562,000,
plus accrued interest, owed at June 30, 2004 will be collected. The Company
believes, based on historical write-offs and identified credit risks, it has
established an adequate reserve against the June 30, 2004 accounts and note
receivable balance.
5. Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
certain estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Significant estimates include the allowance for doubtful accounts and certain
amounts related to restructuring and wind-down activities recorded in accounts
payable and accrued liabilities.
6. Restructuring Charges and Wind Down Related Liabilities
The Company has recorded restructuring charges related to the wind down of the
U.S. distribution business. The Company continued to evaluate the estimates
of these established restructuring charges and recognizes changes in those
estimates as a component of restructuring charges in the accompanying
statements of operations in the period of change.
During the first quarter of 2004, the Company negotiated settlements with
certain of its equipment lease commitment vendors. As a result of these
settlements, the Company recorded a favorable adjustment of $356,000 to
previously recorded estimated restructuring charges. During the second quarter
of 2004, the Company revised a previous estimate of certain of its real property
lease commitments. As a result, the Company recorded an additional restructuring
charge of $77,000.
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
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(UNAUDITED)
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.
As of June 30, 2004, $1,067,000 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, 2003 to June 30, 2004:
(In thousands)
December 31, 2003 Net Charges June 30, 2004
Balance (Reductions) Payments Balance
Type of cost:
Facility, lease and other $1,929 $(279) $583 $1,067
========================= ================== =============== ======================
Three months ended
---------------------------------------------------------------
Expected timing of payouts September 30, December 31, March 31, June 30,
2004 2004 2005 2005 Thereafter Total
----------------- --------------- ------------- --------------- ------------ ------------
Facility, lease and other $255 $583 $6 $6 $217 $1,067
================= =============== ============= =============== ============ ============
7. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consist of the following (in
thousands):
June 30, 2004 December 31, 2003
--------------- ------------------
Accounts payable:
Trade payables $ 7,653 $ 11,379
Wind-down payables related to discontinued vendors 794 2,504
--------------- ------------------
Total accounts payable $ 8,447 $ 13,883
=============== ==================
Accrued liabilities:
Restructuring accruals $ 1,067 $1,929
Compensation and other benefit accruals 711 962
State and local sales taxes and other taxes 1,482 1,454
Legal reserves 846 846
Other 2,324 2,724
--------------- ------------------
Total accrued liabilities $ 6,430 $ 7,915
=============== ==================
8. Note Receivable
The Company has a secured note receivable of $2,975,000 (the "Note") recorded in
other assets in the accompanying consolidated balance sheets at June 30, 2004
and December 31, 2003. The Note relates to the sale of an office building in
2002 located in Cary, North Carolina, which serves as collateral securing the
Note. The Note was due and payable on May 20, 2004. The purchaser has made no
principal or interest payments since March 2003 and continues to be in default
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(UNAUDITED)
under the terms of the Note. During 2003, the Company recognized an impairment
charge of $1,800,000 to reduce the value of the Note to the estimated fair value
of the property.
At June 30, 2004 and December 31, 2003, the net carrying value of the Note is
$914,000. The Company continues to evaluate possible alternatives to maximize
the value of the Note, including possible foreclosure, forming a joint venture
or negotiating certain concessions with the existing purchaser.
9. 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 June 30, Six Months Ended June 30,
2004 2003 2004 2003
---- ---- ---- ----
Net income (loss) $(388) $435 $678 $1,386
Other comprehensive loss - unrealized gain (loss)
on available for sale securities (1) 100 9 68
--------------- -------------------- ----------- --------------------
Comprehensive income (loss) $(389) $535 $687 $1,454
=============== ==================== =========== ====================
10. 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 and restricted stock units using the "treasury stock" method and
convertible preferred stock using the "if-converted" method. As of June 30, 2004
and 2003, there were no dilutive common stock equivalents. For the three and six
months ended June 30, 2004 and 2003, there was no stock-based compensation cost
to record and the fair value impact of outstanding stock options was not
material.
(In thousands)
Three months ended June Six months ended June 30,
30,
2004 2003 2004 2003
-------------- ------------ ------------- ---------------
Income (loss) from operations $(388) $435 $678 $1,386
Preferred stock dividends (409) (373) (811) (739)
-------------- ------------ ------------- ---------------
Net income available to common stockholders $(797) $62 $(133) $647
============== ============ ============= ===============
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(UNAUDITED)
The Company has announced various Board of Directors authorizations to
repurchase shares of the Company's common stock from time-to-time in the open
market or otherwise. Under all prior authorizations, the Company has repurchased
approximately 410,000 shares for an aggregate cost of $853,000 (including
approximately $7,000 in brokerage commissions), which shares have been reflected
as treasury stock in the accompanying consolidated balance sheets. As of June
30, 2004, no share repurchase authorizations are in effect.
11. 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 has determined that during 2003 and 2004 it currently
operated only one operating segment, software licensing.
12. Other Assets
At June 30, 2004 other current assets include $3,500,000 held in an escrow
account in relation to the potential repurchase of a parcel of land located in
Cary, North Carolina. The Company has certain repurchase rights related to this
property, which was sold in 1997, that today it is believed have a greater value
than the repurchase amount. The Company was required to remit the $3,500,000 to
an escrow account in order to exercise these repurchase rights prior to
expiration. The purchase did not close and the escrowed funds were returned to
the Company on July 2, 2004.
At June 30, 2004, other assets include approximately $760,000 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, 2004 there was an unrealized holding gain of
approximately $59,000, compared to an unrealized holding loss of approximately
$41,000 at June 30, 2003. Unrealized gains and losses on available for sale
securities are recorded as a component of other comprehensive income in the
accompanying consolidated balance sheets.
13. Commitments and Contingencies
The Company is involved in certain legal proceedings arising in the ordinary
course of business, and in connection with discontinued vendors related to the
Company's wound down U.S. distribution business, excluding software licensing,
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
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(UNAUDITED)
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.
In February 2004, the Company was served with a summons and a complaint in an
adversary proceeding captioned Bridge Information Systems, Inc. et al, Debtor,
Scott P. Peltz, Chapter 11 Plan Administrator v. Merisel Americas, Inc. and MOCA
(the "Complaint"). The Complaint alleges that Debtor made preferential transfers
of money to Merisel Americas, Inc. ("Americas"), a wholly owned subsidiary of
the Company, in the amount of approximately $6.3 million and an additional
amount to MOCA, a former subsidiary of Americas, which were avoidable and seeks
to recover such transfers. The Company believes that any such transfers alleged
in the Complaint are the obligations of MOCA and not that of the Company. The
Company has been advised by counsel to Arrow Electronics, Inc. ("Arrow"), the
parent company of MOCA, that Arrow has agreed to provide indemnification to the
Company with respect to the allegations set forth in the Complaint.
14. New Accounting Pronouncements
In March 2004, the Emerging Issues Task Force ("EITF") reached a consensus on
Issue No. 03-1, "The Meaning of Other-Than-Temporary Impairment and Its
Application to Certain Investments." EITF 03-1 provides guidelines for the
evaluation and determination of whether a loss on certain investments is
other-than-temporary and requires certain additional quantitative and
qualitative disclosures pertaining to unrealized investment losses in a
company's annual financial statements. The provisions of EITF 03-1 become
effective for the Company in the third quarter 2004. The Company does not expect
that the adoption of EITF 03-1 will have a material effect on its results of
operations or financial position.
15. Subsequent Events
On August 3, 2004, the Company received notice that effective in 30 days, McAfee
Associates, Inc. (formerly Network Associates, Inc.) would be terminating their
distribution agreement with Merisel Americas. On August 13, 2004, Merisel
Americas entered into an agreement to sell certain of its assets that
principally comprise the software licensing business, and include any notes and
real property assets, ("Software Licensing Assets"), to D&H Services, LLC. The
purchase price, to be determined on the closing date, will be equal to the book
value of all of the Software Licensing Assets, less certain assumed liabilities.
The transaction is expected to close by August 23, 2004. As of June 30, 2004 the
book value of the Software Licensing Assets and the assumed liabilities was
approximately $11.5 million and $10.5 million, respectively. The agreement
contains certain representations, warranties and indemnities.
After the sale of the software licensing business, the Company will have no
on-going revenues, other than interest income. Until such time as the Company
completes and grows a potential acquisition, the Company does not anticipate
being profitable. During the third quarter of 2004, the Company will present
the software licensing business as discontinued operations and
anticipates incurring certain related restructuring costs of approximately $1.0
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(UNAUDITED)
million to $2.0 million. The Company expects that after the sale and the
restructuring of the remaining business through headcount and other cost
reductions, annual operating expenses will be reduced by approximately $4.0
million when compared with annualized operating expenses for the second quarter
of 2004.
The Company intends to continue seeking acquisition opportunities that will
enhance long-term shareholder value. It is management's expectation that a
transaction will be completed within the next twelve months. While the Company
is currently exploring several opportunities, there are no assurances that a
transaction will be successfully completed or that the Company will return to
profitability.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Merisel, Inc., a Delaware corporation and a holding company (together with its
subsidiaries, "Merisel" or the "Company"), currently operates as a software
licensing solution provider. In addition to the operation of the software
licensing business, the Company is actively seeking and exploring acquisition
and other investment opportunities, primarily outside the computer products
distribution industry. The Company has operated solely as a software licensing
distributor over the past three years, while continuing to wind down certain of
its historical discontinued businesses and operations, including among others,
the U.S. distribution business, excluding software licensing. See "Recent
Developments, Risks and Uncertainties" below.
Wind-Down of U.S. Distribution Business, Excluding Software Licensing
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,
principally hardware products, 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 and vendors. See "Liquidity and Capital
Resources" below.
Recent Developments, Risks and Uncertainties
On August 3, 2004, the Company received notice that effective in 30 days, McAfee
Associates, Inc. (formerly Network Associates, Inc.) would be terminating their
distribution agreement with Merisel Americas, a wholly owned operating
subsidiary of the Company. For the six months ended June 30, 2004 and 2003, this
vendor's products accounted for 87.3% and 94.3%, respectively, of the Company's
software licensing sales. The loss of this vendor will have a material adverse
effect on the revenues, gross profit and operating results of the Company.
On August 13, 2004, Merisel Americas entered into an agreement to sell certain
of its assets that principally comprise the software licensing business, and
include any notes and real property assets, ("Software Licensing Assets"), to
D&H Services, LLC. The purchase price, to be determined on the closing date,
will be equal to the book value of all of the Software Licensing Assets, less
certain assumed liabilities. The transaction is expected to close by August 23,
2004. As of June 30, 2004 the book value of the Software Licensing
Assets and the assumed liabilities was approximately $11.5 million and $10.5
million, respectively. The agreement contains certain representations,
warranties and indemnities.
After the sale of the software licensing business, the Company will have no
on-going revenues, other than interest income. Until such time as the Company
completes and grows a potential acquisition, the Company does not anticipate
being profitable. During the third quarter of 2004, the Company will present the
sale of the software licensing business as discontinued operations and
anticipates incurring certain related restructuring costs of approximately $1.0
million to $2.0 million. The Company expects that after the sale and the
restructuring of the remaining business through headcount and other cost
reductions, annual operating expenses will be reduced by approximately $4.0
million when compared with annualized operating expenses for the second quarter
of 2004.
The Company intends to continue seeking acquisition opportunities that will
enhance long-term shareholder value. It is management's expectation that a
transaction will be completed within the next twelve months. While the Company
is currently exploring several opportunities, there are no assurances that a
transaction will be successfully completed.
For the six months ended June 30, 2004, 10 customers combined accounted for
approximately 71.9% of the Company's net sales, and three customers individually
accounted for more than 10% of total net sales, accounting for approximately
25.2%, 13.2% and 11.4% of net sales. For the six months ended June 30, 2003, 10
customers combined accounted for approximately 74.3% of the Company's net sales,
and two customers individually accounted for more than 10% of total net sales,
accounting for approximately 28.7% and 16.8% of net sales.
On March 15, 2004, the Company was notified by one customer, with an outstanding
accounts receivable balance of approximately $746,000, that it does not have
sufficient liquidity to repay the amount it owes the Company and has requested
an extended repayment plan. The Company negotiated terms of a monthly repayment
plan and has collected approximately $184,000 under that plan as of August 2,
2004; however, there is no assurance that the customer's restructured business
plan will be successful or that the outstanding amount of $562,000 plus interest
owed at June 30, 2004 will be collected. The Company believes, based on
historical write-offs and identified credit risks, it has established an
adequate reserve against the June 30, 2004 accounts and note receivable balance.
RESULTS OF OPERATIONS
The following results of operations reflect the historical results of the
related software licensing business in operation as of June 30, 2004 and for the
three and six months then ended. Based on the Company's determination to sell
the software licensing business, as discussed above, the historical results will
not be indicative or comparable to future results.
The Company reported a net loss available to common stockholders of $797,000, or
$0.10 per share, for the three months ended June 30, 2004, compared to net
income available to common stockholders of $62,000, or $0.01 per share, for the
2003 period. The discussion and analysis below includes the wound down portion
of the Company's U.S. distribution business.
Management analyzes the software licensing business separately from the
non-software licensing U.S. distribution business being wound down, to the
extent possible given the fact that a significant amount of resources is shared
between the groups. After the sale of the software licensing business, the
Company will have no on-going revenues, other than interest income. The
following table of summary selected financial data shows the analysis management
uses to evaluate results of the business (amounts in thousands): See "Recent
Developments, Risks and Uncertainties" above.
Three Months ended June 30, 2004 Three Months ended June 30, 2003
----------------------------------- ---------------------------------------
Software Other Total Software Other Total
Licensing Business Licensing Business
----------- ----------- ----------- --- ------------ ------------ -------------
Net sales $17,625 $17,625 $24,665 $24,665
Gross profit 661 $598 1,259 1,063 $89 1,152
Gross margin 3.8% 7.1% 4.3% 4.7%
Operating income (loss) (919) 501 (418) (118) 231 113
Interest, other income and income tax (45) 75 30 (40) 362 322
(expense) benefit, net
----------- ----------- ----------- --- ------------ ------------ -------------
Net income (loss) $ (964) $576 $(388) $(158) $593 $435
Six Months ended June 30, 2004 Six Months ended June 30, 2003
----------------------------------- ---------------------------------------
Software Other Total Software Other Total
Licensing Business Licensing Business
----------- ----------- ----------- --- ------------ ------------ -------------
Net sales $32,593 $32,593 $43,128 $43,128
Gross profit 1,406 $1,714 3,120 1,793 $575 2,368
Gross margin 4.3% 9.6% 4.2% 5.5%
Operating income (loss) (1,581) 2,100 519 (952) 1,531 579
Interest, other income and income tax (45) 204 159 (80) 887 807
(expense) benefit, net
----------- ----------- ----------- --- ------------ ------------ -------------
Net income (loss) $(1,626) $2,304 $678 $(1,032) $2,418 $1,386
Three Months Ended June 30, 2004 as Compared to the Three Months June 30, 2003.
Net Sales - The Company's net sales decreased 28.5% to $17,625,000 in the
quarter ended June 30, 2004 from $24,665,000 in the quarter ended June 30, 2003.
The decrease in net sales resulted from changes by some of our software
publishers in their channel strategies, and changes in the Company's sales
organization.
Gross Profit - Gross profit increased $107,000 to $1,259,000 in the second
quarter of 2004 from $1,152,000 in the second quarter of 2003. Gross profit as a
percentage of sales, or gross margin, was 7.1% for the three months ended June
30, 2004 compared to 4.7% for the three months ended June 30, 2003. The 2004 and
2003 periods reflect reductions in cost of sales of approximately $598,000 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 3.8% and 4.3% for the
three months ended June 30, 2004 and 2003, respectively. The decrease in gross
margins in the software licensing business is related to continuing competitive
pressures and declining backend vendor rebate opportunities.
Selling, General and Administrative - Selling, general and administrative
expenses increased by 47.2% to $1,600,000 in the second quarter of 2004 from
$1,087,000 in the second quarter of 2003 and as a percentage of sales were 9.1%
in the second quarter of 2004 compared to 4.4% in 2003. The 2004 period reflects
approximately $20,000 of expenses related to the wind-down of the U.S.
distribution business. The 2003 period reflects approximately $210,000 of
favorable adjustments related to the wind-down of the U.S. distribution
business. Excluding these adjustments, selling, general and administrative
expenses as a percentage of sales would have been 9.0% in the second quarter of
2004 compared to 5.3% in 2003. The increase in selling, general and
administrative expenses is largely attributable to additional sales and
marketing expenses incurred in an effort to enhance the growth of the software
licensing business. The increase in selling, general and administrative expenses
as a percentage of sales is related to the expenses discussed above and certain
fixed costs that could not be practically reduced as fast as sales volumes
declined.
Restructuring - During the second quarter of 2004, the Company recorded a
restructuring charge of $77,000 to reflect updated estimates of real property
lease commitments. 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.
Operating Income - As a result of the above factors, the Company had an
operating loss of $418,000 for the three-month period ended June 30, 2004
compared to operating income of $113,000 for the three-month period ended June
30, 2003.
Interest Income - Interest income decreased to $116,000 in the second quarter of
2004 from $225,000 in the second quarter of 2003. The decrease reflects a
decrease in the average interest rate earned on excess cash balances and the
interest-related portion of a state income tax refund received in the second
quarter of 2003.
Other Income - Other income was $19,000 in the three-month period ended June 30,
2004 compared to $17,000 in the 2003 period. Other income in both periods
reflects a gain recognized on the sale of property, plant and equipment that had
been fully depreciated.
Income Taxes - The Company recognized $105,000 of income tax expense for the
quarter ended June 30, 2004 related to minimum statutory requirements and an
on-going state income tax audit. The Company recognized an income tax benefit of
$80,000 for the three months ended June 30, 2003 due to various federal and
state tax refunds.
Net Income - As a result of the above items, the Company had a net loss of
$388,000 for the three months ended June 30, 2004 compared to net income of
$435,000 for the three months ended June 30, 2003.
Six Months Ended June 30, 2004 as Compared to the Six Months June 30, 2003.
Net Sales - The Company's net sales decreased 24.4% to $32,593,000 in the six
months ended June 30, 2004 from $43,128,000 in the six months ended June 30,
2003. The decrease in net sales resulted from changes by some of our software
publishers in their channel strategies, and changes in the Company's sales
organization.
Gross Profit - Gross profit increased $752,000 to $3,120,000 in the first half
of 2004 from $2,368,000 in the first half of 2003. Gross profit as a percentage
of sales, or gross margin, was 9.6% for the six months ended June 30, 2004
compared to 5.5% for the six months ended June 30, 2003. The 2004 and 2003
periods reflect reductions in cost of sales of approximately $1,714,000 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 4.3% and
4.2% for the six months ended June 30, 2004 and 2003, respectively. The increase
in gross margins in the software licensing business is related to the timing of
the recognition of vendor discounts.
Selling, General and Administrative - Selling, general and administrative
expenses increased by 82.2% to $2,880,000 in the first half of 2004 from
$1,581,000 in the first half of 2003 and as a percentage of sales were 8.8% in
the first half of 2004 compared to 3.7% in 2003. The 2004 and 2003 periods
reflect approximately $107,000 and $1,280,000, respectively, of favorable
adjustments related to the wind-down of the U.S. distribution business.
Excluding these adjustments, selling, general and administrative expenses as a
percentage of sales would have been 9.2% in the first quarter of 2004 compared
6.6% in 2003. The increase in selling, general and administrative expenses is
largely attributable to an increase in the bad debt provision during the first
quarter of 2004 and additional sales and marketing expenses incurred during the
first half of 2004 in an effort to enhance the growth of the software licensing
business. The increase in selling, general and administrative expenses as a
percentage of sales is related to the added expenses discussed above and certain
fixed costs that could not be practically reduced as fast as sales volumes
declined.
Restructuring - During the first quarter of 2004, the Company negotiated
settlements with certain of its equipment lease commitment vendors. As a result
of these settlements, the Company recorded a favorable adjustment of $356,000 to
previously recorded estimated restructuring charges. During the second quarter
of 2004, the Company recorded a restructuring charge of $77,000 to reflect
updated estimates of real property lease commitments.
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.
Operating Income - The Company had operating income of $519,000 for the
six-month period ended June 30, 2004 compared to $579,000 for the six-month
period ended June 30, 2003.
Interest Income - Interest income decreased to $243,000 in the first half of
2004 from $513,000 in the first half of 2003. The decrease reflects a decrease
in the average interest rate earned on excess cash balances, the
interest-related portion of a state income tax refund received in the 2003
period and the cessation of recognizing interest income during the quarter ended
June 30, 2003 on the note receivable related to the sale of the building in
Cary, North Carolina.
Other Income - Other income was $21,000 in the six-month period ended June 30,
2004 and $18,000 in the comparable 2003 period. Other income in both periods
reflects a gain recognized on the sale of property, plant and equipment that had
been fully depreciated.
Income Taxes - The Company recognized $105,000 of income
tax expense for the six months ended June 30, 2004 related to minimum statutory
obligations and an on-going state income tax audit. The Company recognized an
income tax benefit of $276,000 for the six months ended June, 2003 due to
various federal and state tax refunds.
Net Income - As a result of the above items, the Company had net income of
$678,000 for the six months ended June 30, 2004 compared to $1,386,000 for the
six months ended June 30, 2003.
VARIABILITY OF QUARTERLY RESULTS AND SEASONALITY
The Company's decision to sell the software licensing business will have a
direct impact upon the future results and variability in the business. Following
the sale of the software licensing business, the Company's only revenues will
consist of interest income from remaining cash balances. Until such time as the
Company identifies and consummates an acquisition, the Company's results of
operations will not be comparable to previous periods.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow Activity
Net cash provided by operating activities was $3,413,000 during the six months
ended June 30, 2004. The primary source of cash was a decrease in accounts
receivable of $9,441,000, which was partially offset by decreases in accounts
payable and accrued expenses of $5,436,000 and $1,484,000, respectively. Net
cash used in operating activities was $2,136,000 during the six months ended
June 30, 2003. The primary use of cash was a decrease in accrued expenses of
$5,015,000, which was partially offset by net income of $1,386,000 and a
decrease in accounts receivable of $1,643,000.
For the six months ended June 30, 2004, net cash used in investing activities
was $3,565,000 which was used to purchase property and equipment. $3,500,000 of
this amount was related to the potential repurchase of a parcel of land located
in Cary, North Carolina, and was held in an escrow account at June 30, 2004. The
Company has certain repurchase rights related to this property, which was sold
in 1997, and today it is believed the property has a greater value than the
repurchase amount. The Company was required to remit the $3,500,000 to an escrow
account in order to exercise these repurchase rights. As the sale was not
consummated, the escrowed funds were returned to the Company on July 2, 2004.
For the six months ended June 30, 2003, net cash used in investing activities
was $44,000, primarily related to an investment of securities of $62,000,
partially offset by proceeds for the sale of property and equipment of $18,000.
For the six months ended June 30, 2003, net cash used in financing activities
was $7,000 used in the repurchase of treasury stock.
Financing Sources and Capital Expenditures
Given the Company's significant cash balances and limited working capital needs
of the software licensing business, the Company was able to finance its
operations without debt. However, the Company may seek to establish a working
capital financing facility to provide additional funding for acquisitions if
needed.
At June 30, 2004, the Company had cash and cash equivalents of approximately $45
million. Following the sale of the software licensing business, the Company will
have no on-going revenues, other than interest income, anticipates incurring
certain related restructuring costs of approximately $1.0 million to $2.0
million and estimates that the annual ongoing operating expenses will be reduced
by approximately $4.0 million when compared with annualized operating expenses
for the second quarter of 2004.
Management believes that with its cash balances after existing U.S. distribution
wind-down related expenditures and anticipated expenditures related to the sale
of the software licensing business and related restructuring it has sufficient
liquidity for the foreseeable future. All anticipated U.S. distribution related
wind-down expenditures, excluding software licensing, are currently recorded as
accrued liabilities 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.
The Company's lease on its El Segundo, California headquarters will expire on
November 1, 2004. The Company expects to either extend its current lease or
enter into a new lease agreement at another location on or before this date.
Based upon the pending sale of the software licensing business, the Company
estimates that approximately 5,000 square feet will be required for those
personnel related to the Company's acquisition activity and will be leased at
current market rates.
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 stock (the "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 $5,693,000 and $4,882,000 were recorded at June
30, 2004 and December 31, 2003, respectively. At the option of the holder, the
Convertible Preferred is convertible into the Company's common stock at a per
share conversion price of $17.50. At the option of the Company, the Convertible
Preferred can be converted into Common Stock when the average closing price of
the Common Stock for any 20 consecutive trading days is at least $37.50. At the
Company's option, on or after June 30, 2003, the Company may redeem outstanding
shares of the Convertible Preferred initially at $105 per share and declining to
$100 on or after June 30, 2008, plus accrued and unpaid dividends. In the event
of a defined change of control, holders of the Convertible Preferred have the
right to require the redemption of the Convertible Preferred at $101 per share
plus accrued and unpaid dividends. As of June 30, 2004, no redemptions have been
made and the Company has no plans to exercise its redemption rights in the
foreseeable future.
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, 2004,
the Company's largest customer represented 41%, or $4,535,000, of the Company's
total trade receivables. The Company believes it has established an adequate
reserve against the June 30, 2004 accounts receivable balance.
CONTRACTUAL OBLIGATIONS, COMMITMENTS AND OFF BALANCE SHEET ARRANGEMENTS
The Company has various contractual obligations which are recorded as
liabilities in the consolidated financial statements. There were no significant
changes, except payments, to the Company's contractual commitments and
obligations during the three and six months ended June 30, 2004. The Company's
contractual obligations, commitment and off balance sheet arrangements are
described in its Annual Report on Form 10-K for the year ended December 31,
2003.
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. During the first half of 2004, the Company
increased the provision for bad debts due to identified customer credit risks.
The Company's critical accounting policies and estimates are described in its
Annual Report on Form 10-K for the year ended December 31, 2003.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At June 30, 2004, the Company had cash investments of $43,469,000 held in
overnight, interest-bearing accounts invested through high-credit quality
financial institutions. Additionally, the Company had cash balances of
$1,327,000 maintained in various checking accounts at June 30, 2004. The Company
has no outstanding long-term debt and no significant foreign currency risk.
Item 4. CONTROLS AND PROCEDURES
The Company completed an evaluation, under the supervision and with the
participation of the Company's chief executive officer and chief financial
officer of the effectiveness of the Company's disclosure controls and procedures
pursuant to Rule 13a-14 of the Exchange Act. Based on this evaluation, the
Company's chief executive officer and chief financial officer concluded that, as
of the end of the period covered by this report, 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.
There have been no changes in the Company's internal controls or in other
factors that occurred during the period covered by this report that has
materially affected, or is reasonably likely to materially affect, the internal
controls 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. See Part II, Item 1 of the
Company's 10-Q for the quarter ended March 31, 2004.
Item 5. Other Matters
The Company's 2004 annual meeting of stockholders ("2004 Meeting") will be held
on October 27, 2004. The deadline to submit shareholder proposals for inclusion
in the proxy statement related to the 2004 Meeting is September 15, 2004.
Proposals will be considered untimely if received by the Company after such
date.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10.1-Amended and Restated First Amendment to Retention
Agreement dated as of July 1, 2004, by and between Merisel,
Inc., Merisel Americas, Inc., and Timothy N. Jenson.
Exhibit 31.1-Certification of Chief Executive Officer pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 31.2-Certification of Chief Financial Officer pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 32-Certification of Chief Executive Officer and Chief
Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted 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, 2004.
Current report on Form 8-K, dated April 29, 2004, announcing
the Company's earnings for the period ended March 31, 2004.
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 16, 2004
Merisel, Inc.
By: /s/Timothy N. Jenson
------------------------------------
Timothy N. Jenson
Chief Executive Officer, President and
Chief Financial Officer
(Principal Executive and Financial Officer)