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, 2000.
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 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 August 17, 2000
Common Stock, $.01 par value 80,309,046 Shares
<PAGE>
MERISEL, INC.
INDEX
Page Reference
PART I FINANCIAL INFORMATION
Consolidated Balance Sheets as of 1-2
June 30, 2000 and December 31, 1999
Consolidated Statements of Operations for the
Three Months and Six Months Ended June 30, 2000 and 1999 3
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 2000 and 1999 4
Notes to Consolidated Financial Statements 5-9
Management's Discussion and Analysis of 10-19
Financial Condition and Results of Operations
Quantitative and Qualitative Market Risk Disclosure 19
PART II OTHER INFORMATION 20
SIGNATURES 22
<PAGE>
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. These
factors are discussed elsewhere in this report, including, without limitation,
under the captions "Legal Proceedings" and "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.
<PAGE>
<TABLE>
<CAPTION>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
MERISEL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
ASSETS
June 30, December 31,
2000 1999
------------------- -------------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 36,448 $ 57,557
Accounts receivable (net of allowances
of $14,971 and $15,186 for 2000 and 1999, respectively) 214,516 182,352
Inventories 193,764 445,663
Prepaid expenses and other current assets 7,740 10,488
Deferred income taxes 892 914
------------------- -------------------
Total current assets 453,360 696,974
PROPERTY AND EQUIPMENT, NET 75,501 84,609
COST IN EXCESS OF NET ASSETS
ACQUIRED, NET 3,784 23,755
OTHER ASSETS 362 457
------------------- -------------------
TOTAL ASSETS $ 533,007 $ 805,795
=================== ===================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
MERISEL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, December 31,
2000 1999
------------------- --------------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 305,153 $ 540,843
Accrued liabilities 55,104 36,609
Long-term debt and capitalized lease obligations - current 5,904 2,906
------------------- --------------------
Total current liabilities 366,161 580,358
Long-term debt 87,500 128,900
Capitalized lease obligations 223 1,364
STOCKHOLDERS' EQUITY
Convertible preferred stock, $.01 par value, authorized 1,000,000
shares; 150,000 issued and outstanding 2
Common stock, $.01 par value, authorized
150,000,000 shares; 80,309,046 and 80,278,808
shares outstanding for 2000 and 1999, respectively 803 803
Additional paid-in capital 297,626 282,492
Accumulated deficit (210,008) (179,663)
Accumulated other comprehensive loss (9,300) (8,459)
------------------- --------------------
Total stockholders' equity 79,123 95,173
------------------- --------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 533,007 $ 805,795
=================== ====================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
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,
2000 1999 2000 1999
--------------- ---------------- ------------------ -----------------
<S> <C> <C> <C> <C>
NET SALES $924,844 $1,266,164 $2,091,608 $2,520,881
COST OF SALES 880,771 1,206,202 1,992,972 2,396,271
--------------- ---------------- ------------------ -----------------
GROSS PROFIT 44,073 59,962 98,636 124,610
SELLING, GENERAL &
ADMINISTRATIVE EXPENSES 52,116 60,261 109,361 114,316
IMPAIRMENT LOSSES 19,487 19,487
LITIGATION-RELATED
(RECOVERY) CHARGE (9,000) 12,000
--------------- ---------------- ------------------ -----------------
OPERATING (LOSS) INCOME (27,530) 8,701 (30,212) (1,706)
INTEREST EXPENSE 4,029 4,539 8,574 7,944
OTHER EXPENSE, NET 6,834 6,766 12,902 13,392
--------------- ---------------- ------------------ -----------------
LOSS BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM (38,393) (2,604) (51,688) (23,042)
INCOME TAX PROVISION 161 380 313 451
--------------- ---------------- ------------------ -----------------
LOSS BEFORE EXTRAORDINARY ITEM (38,554) (2,984) (52,001) (23,493)
EXTRAORDINARY GAIN ON DEBT
EXTINGUISHMENT, NET 21,656 21,656
--------------- ---------------- ------------------ -----------------
NET LOSS $(16,898) $(2,984) $(30,345) $(23,493)
=============== ================ ================== =================
NET LOSS PER SHARE
(BASIC AND DILUTED):
NET LOSS BEFORE
EXTRAORDINARY ITEM $(0.48) $(0.04) $(0.65) $(0.29)
EXTRAORDINARY GAIN .27 .27
=============== ================ ================== =================
NET LOSS $(0.21) $(0.04) $(0.38) $(0.29)
=============== ================ ================== =================
WEIGHTED AVERAGE NUMBER OF SHARES:
BASIC AND DILUTED 80,309 80,279 80,299 80,278
=============== ================ ================== =================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
MERISEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended June 30,
2000 1999
------------------ -------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (30,345) $ (23,493)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 11,009 8,800
Provision for doubtful accounts 7,666 7,547
Impairment losses 19,487
Gain on sale of property and equipment (1,538)
Extraordinary gain on extinguishment of debt (21,656)
Changes in operating assets and liabilities:
Accounts receivable (40,923) (31,087)
Inventories 249,851 94,150
Prepaid expenses and other current assets 2,031 (845)
Accounts payable (232,293) (53,248)
Accrued liabilities 18,571 1,415
------------------ -------------------
Net cash used for operating activities (18,140) 3,239
------------------ -------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (1,826) (18,708)
Proceeds from sale of property and equipment, net disposal cost 1,765
------------------ -------------------
Net cash used for investing activities (61) (18,708)
------------------ -------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving line of credit 40,000 172,150
Repayments under revolving line of credit (40,000) (172,150)
Proceeds from issuance of convertible preferred stock 15,000
Purchase of bonds (15,047)
Repayments under other financing arrangements (2,043) (1,159)
Proceeds from issuance of Common Stock 12
------------------ -------------------
Net cash used for financing activities (2,090) (1,147)
EFFECT OF EXCHANGE RATE CHANGES ON CASH (818) 1,354
------------------ -------------------
NET DECREASE IN CASH AND
CASH EQUIVALENTS (21,109) (15,262)
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD 57,557 36,341
------------------ -------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 36,448 $ 21,079
================== ===================
Supplemental disclosure of cash flow information:
(in thousands)
Cash paid (received) during the period for: 2000 1999
------------------ --------------------
Interest $ 10,185 $ 9,796
Income taxes (532) 189
Non cash activities:
Capital lease obligations entered into 120 --
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
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 leading distributor of computer
hardware and software products. From March 1997 through 1999, through its main
operating subsidiary Merisel Americas, Inc. ("Merisel Americas") and its
subsidiaries, the Company operated three distinct business units: United States
distribution, Canadian distribution and the Merisel Open Computing Alliance
(MOCA(TM)). In December 1999, Merisel announced plans to restructure and combine
its U.S. and Canadian distribution businesses and operate them as one business
unit, North American distribution. At the end of the quarter ended June 30,
2000, the Company decided to return to the use of separate product and inventory
management and sales management teams for its U.S. and Canadian distribution
businesses. Merisel's North American distribution business offers a full line of
products and services to a broad range of reseller customers, including
value-added resellers ("VARs"), commercial resellers, internet resellers and
retailers. MOCA provides enterprise-class solutions for Sun Microsystems servers
and the Solaris operating system to Sun Microsystems-authorized resellers and
consultants. Effective April 3, 2000, the operations of MOCA are conducted by
Merisel Open Computing Alliance, Inc. as a separate subsidiary.
The information for the three and six months ended June 30, 2000 and 1999 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 generally accepted accounting
principles 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. Certain amounts for 1999 have
been reclassified to conform with the 2000 presentation. 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, 1999.
2. Liquidity
At June 30, 2000, the Company had cash and cash equivalents of $36,448,000. In
the opinion of management, the Company will not have sufficient liquidity for
its U.S. distribution business unless it receives improved vendor credit support
for its U.S. distribution business and is able to maintain in place its asset
securitization facility for such business. If the Company is unable to either
substantially restructure or sell its U.S. distribution business,
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(UNAUDITED)
and obtain the required financing for such business, in the opinion of
management, the Company will have insufficient liquidity to meet its
requirements for the next 12 months.
3. New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities". As amended by SFAS No. 137, SFAS
No. 133 is effective for financial statements issued for all fiscal quarters of
all fiscal years beginning after June 15, 2000. The Company will adopt SFAS No.
133 as required in January 2001. SFAS No. 133 requires all derivatives to be
recorded on the balance sheet at fair value. The Company is in the process of
evaluating the effect that this new standard, as amended by SFAS No. 138, will
have on its financial statements.
In December 1999, the SEC released Staff Accounting Bulletin ("SAB") No. 101,
which provides the staff's views in applying generally accepted accounting
principles to selected revenue recognition issues. In March 2000, the SEC
released SAB No. 101A, which delayed for one quarter the implementation date of
SAB No. 101 for registrants with fiscal years beginning between December 16,
1999 and March 15, 2000. In June 2000, the SEC released SAB No. 101B, which
delayed the implementation date of SAB No. 101 until no later than the fourth
fiscal quarter of fiscal years beginning after December 15, 1999. The Company is
evaluating what impact, if any, SAB No. 101 may have on its consolidated
financial statements.
4. Fiscal Year
The Company's fiscal year is the 52- or 53-week period ending on the Saturday
nearest to December 31. The Company's second quarter is the 13-week period
ending on the Saturday nearest to June 30. For simplicity of presentation, the
Company has described the interim periods and year-end period as of June 30 and
December 31, respectively.
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(UNAUDITED)
5. Extraordinary Gain on Debt Extinguishment
In June 2000, the Company purchased $37,500,000 aggregate principal amount of
its outstanding 12-1/2% Senior Notes due 2004 (the "12.5% Notes"). The aggregate
cost to purchase the notes was $15,000,000 and, as a result, the Company
recognized an extraordinary gain, net of unamortized debt issuance costs, of
approximately $21,656,000, for the six months ended June 30, 2000.
6. Impairment Losses
As the result of its continuing losses and conditions in its business and the
industry in which it operates at June 30, 2000, the Company reviewed the
recoverability of its long-lived assets, including identifiable intangible
assets, to determine if there has been any permanent impairment. The review of
the Company's intangible assets indicated that the excess of cost over net
assets acquired related to the U.S. distribution business was impaired.
Accordingly, the Company has recorded an impairment loss totaling $19,487,000,
representing the unamortized goodwill attributable to the U.S. distribution
business.
7. 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:
<TABLE>
<CAPTION>
(In thousands) (In thousands)
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net loss $(16,898) $(2,984) $(30,345) $(23,493)
Other comprehensive income -
Foreign currency translation adjustments (726) 783 (841) 1,531
---------------- ---------------- ------------- ---------------
Comprehensive loss $(17,624) $(2,201) $(31,186) $(21,962)
================ ================ ============= ===============
</TABLE>
8. Earnings Per Share
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
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(UNAUDITED)
"treasury stock" method. There was no difference between basic and diluted
weighted average shares outstanding for each of the June 30, 2000 and 1999
periods as the impact of stock options would be anti-dilutive in both periods.
9. Segment Information
The Company reports segment information in accordance with SFAS No. 131,
"Disclosure about Segments of an Enterprise and Related Information". SFAS No.
131 requires disclosure of certain information about operating segments,
geographic areas in which the Company operates, major customers, and products
and services. From March 1997 through late 1999, the Company operated three
distinct business units: United States distribution, Canadian distribution and
MOCA. Prior to December 1999, each of these segments had a dedicated management
team and was managed separately primarily because of geography (United States
and Canada) and differences in product categories, marketing strategies and
customer base (MOCA). In December 1999, the Company announced a restructuring
plan that would combine the U.S. and Canadian distribution segments into one
operating segment, the North American distribution segment ("NAM"). At the end
of the quarter ended June 30, 2000, the Company decided to return to the use of
separate product and inventory management and sales management teams for its
U.S. and Canadian distribution businesses. Effective April 3, 2000, the
operations of MOCA are conducted by Merisel Open Computing Alliance, Inc. as a
separate subsidiary.
In accordance with SFAS No. 131, the Company has prepared the following tables
which present information related to each operating segment included in internal
management reports.
<TABLE>
<CAPTION>
Three Months Ended
June 30, 2000
(in thousands)
---------------------------------------------------------------------------------------------
United
States Canada NAM MOCA Other Total
---------- ---------- -------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net sales to external
customers $469,808 $158,476 $628,284 $296,560 $924,844
Segment operating
(loss) profit $(32,238) $(1,037) $(33,275) $8,588 $(2,843) $(27,530)
Total segment assets $283,319 $99,071 $401,877 $137,567 $13,050 $533,007
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
June 30, 1999
(in thousands)
---------------------------------------------------------------------------------------------
United
States Canada NAM MOCA Other Total
---------- ---------- -------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net sales to external
customers $794,596 $204,595 $999,191 $266,973 $1,266,164
Segment operating
(loss) profit $(7,802) $1,695 $(6,107) $5,808 $9,000 $8,701
</TABLE>
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30, 2000
(in thousands)
---------------------------------------------------------------------------------------------
United
States Canada NAM MOCA Other Total
---------- ---------- -------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net sales to external
customers $1,140,700 $392,148 $1,532,848 $558,760 $2,091,608
Segment operating
(loss) profit $(43,818) $(1,763) $(45,581) $15,369 $(30,212)
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1999
(in thousands)
---------------------------------------------------------------------------------------------
United
States Canada NAM MOCA Other Total
---------- ---------- -------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net sales to external
customers $1,583,941 $464,535 $2,048,476 $472,405 $2,520,881
Segment operating
(loss) profit $(3,879) $5,156 $1,277 $9,017 $(12,000) $(1,706)
</TABLE>
<PAGE>
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"), is a leading distributor of computer
hardware and software products. From March 1997 through 1999, through its main
operating subsidiary Merisel Americas, Inc. ("Merisel Americas") and its
subsidiaries, the Company operated three distinct business units: United States
distribution, Canadian distribution and the Merisel Open Computing Alliance
(MOCA(TM)). In December 1999, Merisel announced plans to restructure and combine
its U.S. and Canadian distribution businesses and operate them as one business
unit, the North American distribution business. At the end of the quarter ended
June 30, 2000, the Company decided to return to the use of separate product and
inventory management and sales management teams for its U.S. and Canadian
distribution businesses. Merisel's North American distribution business offers a
full line of products and services to a broad range of reseller customers,
including value-added resellers ("VARs"), commercial resellers, internet
resellers and retailers. MOCA provides enterprise-class solutions for Sun
Microsystems servers and the Solaris operating system to Sun
Microsystems-authorized resellers and consultants. Effective April 3, 2000, the
operations of MOCA are conducted by Merisel Open Computing Alliance, Inc. as a
separate subsidiary.
With respect to the U.S. distribution business, the Company has determined that,
primarily as a result of a significant contraction in sales and continuing
substantial operating losses, it must operate the business at a significantly
lower cost structure than it has historically. Accordingly, the Company expects
that it will either restructure and substantially decrease the size and scope of
the U.S. distribution business or complete a transaction to sell substantially
all of that business. See "Liquidity and Capital Resources." With respect to its
Canadian distribution business, the Company is undertaking a major restructuring
in order to reduce operating costs to bring them into alignment with projected
sales levels and return the business to profitability but is also considering
other strategic options. With respect to the MOCA business, which has remained
profitable, the Company is also considering strategic options.
RESULTS OF OPERATIONS
Three Months Ended June 30, 2000 as Compared to the Three Months Ended June 30,
1999.
The Company's net sales decreased 27.0% from $1,266,164,000 in the quarter ended
June 30, 1999 to $924,844,000 in the quarter ended June 30, 2000. The decrease
resulted from a 37.1% decline in net sales for the North American distribution
business to $628,284,000 from $999,191,000, offset in part by an increase in net
sales for MOCA of 11.1% to $296,560,000 from $266,973,000. The decrease in net
sales for North American distribution, which the Company also experienced for
the quarter ended March 31, 2000, has resulted from a number of factors. The
decrease primarily resulted initially from the focus on restructuring activities
during the first half of the first quarter and from decreased customer orders in
reaction to Merisel's price increases implemented in the latter half of the
first quarter. The decline in sales initially
<PAGE>
contributed to excess inventory positions resulting in a delay in some vendor
payments while inventory levels were reduced to be in line with the lower sales
levels. These circumstances, combined with vendor concern caused by the
bankruptcy filings of three major distributors during the first half of 2000,
contributed to a significant loss of vendor credit support during the quarter
ended June 30, 2000. This loss of credit support has affected the Company's
ability to obtain sufficient inventory in the U.S. distribution business, which
has significantly reduced product availability and caused further declines in
sales for the U.S. distribution business.
MOCA sales growth was primarily the result of strong demand for Sun-related
computer products and services, but was offset in part by the impact of the loss
of certain customers during the quarter.
Hardware and accessories accounted for 82% of net sales and software accounted
for 18% of net sales in the second quarter of 2000, as compared to 79% and 21%
for the same categories, respectively, in the second quarter of 1999.
Gross profit decreased 26.5% or $15,889,000 from $59,962,000 in the second
quarter of 1999 to $44,073,000 in the 2000 period, which primarily reflects the
decline in sales in the 2000 period. Gross profit as a percentage of sales, or
gross margin, increased modestly from 4.74% in the second quarter of 1999 to
4.77% in the second quarter of 2000. Gross margins in the North American
distribution business and MOCA were 4.03% and 6.32%, respectively, for the
second quarter of 2000, compared to 4.51% and 5.58%, respectively, for the
second quarter of 1999. The increase in gross margins for MOCA was primarily due
to one-time adjustments related to lower customer returns and lower costs of
certain goods sold during the 2000 period.
Over the past year, the Company has taken various actions to address the issue
of declining margins in its North American distribution business. During the
first quarter of 2000, the Company took more direct measures to improve margins
by implementing sales price increases across a broad range of product offerings.
As a result of these price increases, front-end selling margins related to the
U.S. portion of the North American distribution business for the second quarter
of 2000 increased 52 basis points over the first quarter of 2000, and 119 basis
points over the second quarter of 1999. Notwithstanding these increases, gross
margins for the North American distribution business for the second quarter of
2000 declined from the prior year period because the increase in front-end
selling margins was not sufficient to offset the continued reduction in vendor
rebates and price protection losses. The lower sales levels contributed further
to the decline in vendor rebates.
Selling, general and administrative expenses decreased by 13.5% from $60,261,000
in the second quarter of 1999 to $52,116,000 in the second quarter of 2000. This
decrease is primarily related to reductions in expenses resulting from the
combination of the Company's U.S. and Canadian distribution businesses announced
in December 1999 and a reduction in variable expenses as a result of the decline
in sales. Selling, general and administrative expenses as a percentage of sales
increased from 4.76% for the second quarter of 1999 to 5.64% for the same period
in 2000. The increase in selling, general and administrative expenses as a
percentage of sales reflects the 27.0% decline in sales for the second quarter
of 2000 over the second quarter of 1999, as a substantial portion of such
expenses are fixed and could not be reduced.
<PAGE>
As the result of its continuing losses and conditions in the business and
industry in which it operates at June 30, 2000, the Company determined that its
excess of costs over net assets acquired related to its U.S. distribution was
impaired. In the second quarter of 2000, the Company recorded an impairment loss
totaling $19,487,000, representing the unamortized goodwill attributable to the
U.S. distribution business.
In the second quarter of 1999, the Company recorded a $9,000,000 insurance
recovery representing insurance reimbursement of a portion of the $21,000,000
charge recorded in the first quarter of 1999 relating to the settlement of the
litigation pending in Delaware Chancery Court between the Company and certain
holders and former holders of the Company's 12-1/2% Senior Notes due 2004 (the
"12.5% Notes").
As a result of the above items, operating income decreased by $36,231,000 from
income of $8,701,000 for the second quarter of 1999 to a loss of $27,530,000 for
the second quarter of 2000. Excluding the $9,000,000 insurance recovery, the
Company would have had an operating loss of $299,000 for the second quarter of
1999. Excluding the $19,487,000 goodwill impairment charge, the Company would
have had an operating loss of $8,043,000 for the second quarter of 2000.
In June 2000, the Company purchased $37,500,000 aggregate principal amount of
the 12.5% Notes for an aggregate cost of $15,000,000, which was funded by
proceeds from the issuance of convertible preferred stock. As a result, the
Company recognized an extraordinary gain of approximately $21,656,000, net of
unamortized debt issuance costs, in the three months ended June 30, 2000. See
"Debt Obligations, Financing Sources and Capital Expenditures."
Six Months Ended June 30, 2000 as Compared to the Six Months Ended June 30,
1999.
For the six months ended June 30, 2000, net sales decreased by 17.0% from
$2,520,881,000 for the six months ended June 30, 1999 to $2,091,608,000 for the
six months ended June 30, 2000. The decrease resulted from a 25.2% decrease in
net sales for the North American distribution business to $1,532,848,000 from
$2,048,476,000, offset in part by an increase in net sales for MOCA of 18.3% to
$558,760,000 from $472,405,000.
Hardware and accessories accounted for 82% of net sales and software accounted
for 18% of net sales in the first six months of 2000, as compared to 79% and 21%
for the same categories, respectively, in the first six months of 1999.
Gross profit decreased 20.8% or $25,974,000 from $124,610,000 for the first six
months of 1999 to $98,636,000 for the first six months of 2000. Gross profit as
a percentage of sales, or gross margin, decreased from 4.94% for the 1999 period
to 4.72% for the 2000 period. Gross margins in the North American distribution
business and MOCA were 4.31% and 5.84%, respectively, for the first six months
of 2000, compared to 4.80% and 5.58%, respectively, for the first six months of
1999. The decrease in margin in the U.S. is attributable to substantially the
same factors summarized in the discussion of gross profit for the three months
ended June 30, 2000.
<PAGE>
Selling, general and administrative expenses decreased by 4.3% from $114,316,000
in the six months ended June 30, 1999 to $109,361,000 in the six months ended
June 30, 2000. This decrease is primarily related to reductions in expenses
resulting from the combination of the Company's U.S. and Canadian distribution
businesses announced in December 1999 and a reduction in variable expenses as a
result of the decline in sales. The decrease was partially offset by $2,843,000
in litigation-related reserves recorded in the first quarter of 2000 as well as
an increase in depreciation and amortization expense of $3,463,000. Selling,
general and administrative expenses as a percentage of sales increased from
4.53% of sales in 1999 to 5.23% for the same period in 2000.
As the result of its continuing losses and conditions in its business and the
industry in which it operates at June 30, 2000, the Company determined that its
excess of costs over net assets acquired related to its U.S. distribution was
impaired. In the second quarter of 2000, the Company recorded an impairment loss
totaling $19,487,000, representing the unamortized goodwill attributable to the
U.S. distribution business.
Results for the six months ended June 30, 1999 also reflected the $21,000,000
charge recorded by the Company in the first quarter of 1999 relating to the
settlement of the litigation pending in Delaware Chancery Court between the
Company and certain holders and former holders of the 12.5% Notes, offset in
part by the $9,000,000 insurance recovery recorded by the Company in the second
quarter of 1999.
As a result of the above items, operating loss increased by $28,506,000 from
$1,706,000 for the six-month period ended June 30, 1999 to $30,212,000 for the
same period in 2000. Excluding the litigation-related charge and related
insurance recovery, the Company would have had operating income of $10,294,000
for the six-month period ended June 30, 1999. Excluding the $19,487,000 goodwill
impairment charge, the Company would have had an operating loss of $10,725,000
for the six-month period ended June 30, 2000.
In June 2000, the Company purchased $37,500,000 aggregate principal amount of
the 12.5% Notes for an aggregate cost of $15,000,000, which was funded by
proceeds from the issuance of convertible preferred stock. As a result, the
Company recognized an extraordinary gain, net of unamortized debt issuance
costs, of approximately $21,656,000, in the six months ended June 30, 2000. See
"Debt Obligations, Financing Sources and Capital Expenditures."
Interest Expense; Other Expense; and Income Tax Provision
Interest expense for the Company decreased 11.2% from $4,539,000 in the second
quarter of 1999 to $4,029,000 in the 2000 period. For the six months ended June
30, 2000, interest expense for the Company increased 7.9% from $7,944,000 in the
1999 period to $8,574,000 in the 2000 period. This increase is primarily related
to the capitalization of $1,227,000 of interest related to the SAP
implementation in the first quarter of 1999. As SAP was implemented in the U.S.
in April 1999, there was no capitalization of interest required subsequent to
the second quarter of 1999.
<PAGE>
Other expenses for the Company increased from $6,766,000 in the three months
ended June 30, 1999 to $6,834,000 for the three months ended June 30, 2000, and
decreased from $13,392,000 in the six months ended June 30, 1999 to $12,902,000
for the six months ended June 30, 2000. The decrease in the six-month period is
primarily related to a $1,538,000 gain recorded on the sale of the Company's
Marlborough, Massachusetts call center in January 2000. The decrease was
partially offset by a $274,000 increase in foreign exchange losses. The average
proceeds drawn from the sale of accounts receivable under the Company's
securitization facilities as of the end of each month decreased from
$411,788,000 for the six months ended June 30, 1999 to $299,983,000 for the same
period in 2000, however, securitization fees remained flat due to higher rates
experienced in the first six months of 2000.
The income tax provision decreased from $380,000 and $451,000 for the three and
six months ended June 30, 1999, respectively, to $161,000 and $313,000 for the
same periods in 2000. In both periods, the income tax rate reflects primarily
the minimal statutory tax requirements in the various states and provinces in
which the Company conducts business, as the Company has sufficient net operating
loss provisions to offset federal income taxes in the current period.
Consolidated Net Loss
On a consolidated basis, net loss before extraordinary item for the Company
increased from $2,984,000 and $23,493,000 for the three and six months ended
June 30, 1999, respectively, to a net loss of $38,554,000 for the three months
ended June 30, 2000 and $52,001,000 for the six months ended June 30, 2000 due
to the factors described above. Net loss per share before extraordinary item
increased from $0.04 per share for the three months ended June 30, 1999 to a net
loss of $0.48 per share for the three months ended June 30, 2000. Net loss per
share before extraordinary item increased from $0.29 per share for the six
months ended June 30, 1999 to a net loss of $0.65 per share for the six months
ended June 30, 2000.
Results for the six months ended June 30, 2000 also reflect an extraordinary
gain of $21,656,000 related to the purchase of $37,500,000 aggregate principal
amount of the 12.5% Notes.
SYSTEMS AND PROCESSES
Merisel has made significant investments in advanced computer and warehouse
management systems for its North American operations to support sales growth and
improve service levels. All of Merisel's nine North American distribution
centers and its Raleigh, North Carolina, co-location facility utilize the MILES
computerized warehouse management system, which uses infrared bar coding and
advanced computer hardware and software to improve shipping, receiving and
picking accuracy rates.
In 1993, the Company began designing an SAP R/3 enterprise-wide information
system that would integrate all functional areas of the business, including
sales and distribution, inventory management, financial services, and marketing,
in a real-time environment. Merisel converted its Canadian operations from a
mainframe system to the new SAP system in August 1995, and successfully
completed the conversion of its North American operations in April 1999.
<PAGE>
VARIABILITY OF QUARTERLY RESULTS AND SEASONALITY
Historically, the Company has experienced variability in its net sales and
operating margins on a quarterly basis. 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 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.
Additionally, in the U.S. and Canada, the Company's net sales in the fourth
quarter have been historically higher than in its other 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. Net sales in the Canadian operations are also historically strong in
the first quarter of the fiscal year, which is primarily due to buying patterns
of Canadian government agencies. See "Liquidity and Capital Resources."
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow Activity
Net cash used by operating activities during the six months ended June 30, 2000
was $18,140,000. The primary uses of cash from operating activities include an
increase in accounts receivable of $40,923,000 and a decrease in accounts
payable of $232,293,000 which was offset by a decrease in inventory of
$249,851,000. The decrease in accounts payable and inventory are primarily
related to the loss of vendor credit support and significant decline in sales.
The increase in accounts receivable is primarily due to a larger percentage of
the Company's receivables being ineligible under the Company's securitization
facilities as a result of concentration limitations as well as a decrease in the
amount of proceeds drawn from the sale of accounts receivable relative to the
total amount of receivables sold.
Net cash used in investing activities related to capital expenditures of
$1,826,000, which were primarily related to various information systems
projects. This was largely offset by $1,765,000 in cash proceeds from the sale
of the Marlborough, Massachusetts call center in January 2000.
Net cash used for financing activities was $2,090,000 and was comprised
primarily of repayments under capitalized lease obligations and promissory
notes. In addition, $15,047,000 of cash was used to purchase $37,500,000
aggregate principal of the 12.5% Notes, which was offset by $15,000,000 of
proceeds from the issuance of convertible preferred stock.
<PAGE>
Securitization Facilities
The Company's wholly owned subsidiary, Merisel Americas, sells trade
receivables on an ongoing basis to its wholly owned subsidiary Merisel Capital
Funding, Inc. ("Merisel Capital Funding"). Pursuant to an agreement with a
securitization company (the "Receivables Purchase and Servicing Agreement"),
Merisel Capital Funding, in turn, sells such receivables to the securitization
company on an ongoing basis, which yields proceeds of up to $250,000,000 at any
point in time. Merisel Capital Funding's sole business is the purchase of trade
receivables from Merisel Americas and, upon the commencement of MOCA's
operations as a separate subsidiary on April 3, 2000, Merisel Open Computing
Alliance, Inc. Merisel Capital Funding is a separate corporate entity with its
own separate creditors, which in the event of its liquidation will be entitled
to be satisfied out of Merisel Capital Funding's assets prior to any value in
Merisel Capital Funding becoming available to Merisel Capital Funding's equity
holders. This facility expires in October 2003. The Receivables Purchase and
Servicing Agreement contains certain financial covenants that require, among
other things, minimum levels of net worth and cash flow. Because of the
impairment charge recorded by the Company for the three months ended June 30,
2000, the Company was required to obtain, and did obtain, amendments and waivers
with respect to certain covenants under the Receivables Purchase and Servicing
Agreement. Such amendment requires that, by no later than September 30, 2000,
the Company shall have either (i) approved a plan to restructure its U.S.
distribution business, or (ii) entered into an agreement to sell substantially
all of its U.S.distribution business, or (iii) approved a plan to wind down the
operations of its U.S. distribution business, which in each case must be
satisfactory to the securitization company. In addition, the amendment provides
that, by no later than October 30, 2000, the Company shall have either completed
the sale of, or commenced the restructuring or wind down of, its U.S.
distribution business. The failure of the Company to meet such obligations would
result in a default under the Receivables Purchase and Servicing Agreement, and
there is no assurance that the Company would be able to obtain any further
waivers.
Effective December 15, 1995, Merisel Canada Inc. ("Merisel Canada") entered into
a receivables purchase agreement with a securitization company to provide
funding for Merisel Canada. In accordance with this agreement, Merisel Canada
sells receivables to the securitization company, which yields proceeds of up to
$150,000,000 Canadian dollars at any point in time. The facility expires
December 12, 2000, but is extendible by notice from the securitization company,
subject to the Company's approval. Due to the Company's recent performance, the
securitization company has indicated that it will not likely extend the facility
unless the Company can demonstrate a plan that will return its Canadian
distribution business to profitability. If the facility is not extended, the
Company believes that it will be able to secure alternative financing for its
Canadian operations, subject to its ability to demonstrate a plan for
profitability. There are no assurances it will be successful in securing the
necessary financing.
Under these securitization agreements, the receivables are sold at face value
with payment of a portion of the purchase price being deferred. As of June 30,
2000, the total amount outstanding under these agreements was $214,221,000. Fees
incurred in connection with the sale of accounts receivable for the three and
six months ended June 30, 2000 were $5,752,000 and $12,266,000 compared to
$5,916,000 and $12,292,000 incurred for the three and six months ended June 30,
1999 and are recorded as other expense.
<PAGE>
Debt Obligations, Financing Sources and Capital Expenditures
In June 2000, the Company purchased $37,500,000 aggregate principal amount of
the 12.5% Notes for an aggregate cost of $15,000,000, which was funded by
proceeds from the issuance of convertible preferred stock. As a result, the
Company recognized an extraordinary gain, net of unamortized debt issuance
costs, of approximately $21,656,000 in the quarter ended June 30, 2000.
At June 30, 2000, Merisel, Inc. had outstanding $87,500,000 principal amount of
the 12.5% Notes. In July 2000, the Company purchased an additional $20,105,000
of the 12.5% Notes, reducing the outstanding balance to $67,395,000. The 12.5%
Notes provide for an interest rate of 12.5% payable semi-annually. The 12.5%
Notes are redeemable, in whole or in part, at the option of the Company at any
time on or after December 31, 1999, initially at 106.25% of principal amount and
at redemption prices declining to 100% of principal amount for redemptions on or
after December 31, 2002. By virtue of being an obligation of Merisel, Inc., the
12.5% Notes are effectively subordinated to all liabilities of the Company's
subsidiaries, including trade payables, and are not guaranteed by any of the
Company's subsidiaries. The indenture relating to the 12.5% Notes contains
certain covenants that, among other things, limit the type and amount of
additional indebtedness that may be incurred by the Company or any of its
subsidiaries and impose limitations on investments, loans, advances, sales or
transfers of assets, the making of dividends and other payments, the creation of
liens, sale-leaseback transactions with affiliates and certain mergers.
At June 30, 2000, the Company had a promissory note outstanding with an
aggregate balance of $4,211,000. This note provides for interest at a rate of
7.7% per annum. Remaining payments due under this note are $311,000 in 2000 and
$3,900,000 in 2001. The note is collateralized by certain of the Company's real
property and equipment.
In June 2000, an affiliate of Stonington Partners, Inc., which owns
approximately 62 percent of the Company's common stock, purchased convertible
preferred stock of the Company for an aggregate purchase price of $15 million
(the "Convertible Preferred"). The Convertible Preferred provides for an 8%
dividend payable in additional shares of Convertible Preferred. The Convertible
Preferred is convertible into the Company's common stock at a per share
conversion price of $1.75. At the option of the Company, the Convertible
Preferred will be converted into common stock when the average closing price of
the common stock for any 20 consecutive trading days is at least $3.75. The
Convertible Preferred is not convertible during the first six months after
issuance and is not redeemable during the first three years after issuance,
except in the event of certain extraordinary corporate events, including a
change of control.
Merisel Americas is party to a Loan and Security Agreement dated as of June 30,
1998 (the "Loan and Security Agreement") with Bank of America NT&SA ("BA"),
acting as agent, that provides for borrowings on a revolving basis. Borrowings
under the Loan and Security Agreement are secured by a pledge of a majority of
the inventories held by Merisel Americas, and are subject to meeting certain
availability requirements under a borrowing-base formula and other limitations.
The amount available for borrowing under the Loan and Security Agreement at any
time may be further limited by restrictions under the indenture relating to the
12.5% Notes. Because the decline in inventory pledged under the Loan and
Security Agreement had
<PAGE>
essentially eliminated borrowing availability, in May 2000 the Loan and Security
Agreement was amended to reduce the commitment from $100 million to $35 million
and to change the borrowing-base formula to increase availability. The Loan and
Security Agreement also contains covenants that require minimum levels of gross
profit and limit capital expenditures. Borrowings bear interest at LIBOR plus a
specified margin or, at the Company's option, the agent's prime rate. An annual
fee of 0.375% is payable with respect to the unused portion of the commitment.
The Loan and Security Agreement has a termination date of June 30, 2003. No
amounts were outstanding under the Loan and Security Agreement as of June 30,
2000. There is currently minimal borrowing availability under the Loan and
Security Agreement and the Company expects to cancel the facility in the near
future.
In addition to its requirements for working capital for operations, the Company
presently anticipates that its capital expenditures will be less than
$5,000,000 for 2000. Capital expenditures are expected to consist primarily of
costs associated with maintaining the Company's infrastructure (including
information systems, warehouse systems and other Company facilities) as is
required to support the Company's continuing operations.
At June 30, 2000, the Company had cash and cash equivalents of $36,448,000. In
the opinion of management, the Company will not have sufficient liquidity for
its U.S. distribution business unless it receives improved vendor credit support
for its U.S. distribution business and is able to maintain in place its asset
securitization facility for such business. With respect to its Canadian
distribution and MOCA businesses, if the Company is unable to complete one of
the options outlined above with respect to its U.S. distribution business and
obtain the financing for Canadian distribution and MOCA businesses as discussed
above, in the opinion of management, the Company will have insufficient
liquidity to meet its requirements for the next 12 months.
ASSET MANAGEMENT
Merisel attempts to manage its inventory position to maintain levels sufficient
to achieve high product availability and same-day order fill rates. Due to
insufficient vendor credit support, the Company recently has not been able to
achieve this for its U.S. distribution business. Inventory levels may vary from
period to period, due to factors including increases or decreases in sales
levels, special term large-volume purchases, and the addition of new
manufacturers and products. The distribution agreements entered into between the
Company and its vendors generally provide Merisel with stock-balancing and
price-protection provisions that partially reduce Merisel's risk of loss due to
slow-moving inventory, supplier price reductions, product updates or
obsolescence.
Stock balancing provisions typically give the distributor the right to return
for credit or exchange for other products a portion of the inventory items
purchased, within a designated period of time, but are not generally provided by
the major PC systems manufacturers. Under price-protection provisions, suppliers
will credit the distributor for declines in inventory value resulting from the
supplier's price reductions if the distributor complies with certain conditions.
In the past two years, however, certain major PC manufacturers that are among
the Company's largest vendors have reduced the availability of price protection
for distributors by shortening the time periods during which distributors may
receive rebates or credit for decreases in manufacturer prices on unsold
inventory and changed other terms and conditions. These changes have increased
the
<PAGE>
Company's exposure to inventory valuation risks and have adversely affected the
Company's gross margins for the last several quarters.
The Company purchases exchange contracts to reduce foreign exchange transaction
gains and losses. The Company intends to continue the practice of purchasing
foreign exchange contracts, however, the risk of foreign exchange transaction
losses cannot be completely eliminated.
The Company offers credit terms to qualifying customers and also sells on a
prepay, early pay, credit card and cash-on-delivery basis. In addition, the
Company has developed a number of customer financing alternatives, including
escrow programs and selected bid financing arrangements. The Company also
arranges a wide variety of programs through which third parties provide
financing to certain of its customers. These programs include floor plan
financing and hardware and software leasing. 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. In addition, the Company purchases credit insurance as it deems
appropriate. Historically, the Company has not experienced credit losses
materially in excess of established credit loss reserves. However, if the
Company's receivables experience a substantial deterioration in their
collectibility or if the Company cannot obtain credit insurance at reasonable
rates, the Company's financial condition and results of operations may be
adversely impacted.
COMPETITION
Competition in the computer products distribution industry is intense.
Competitive factors include price, breadth and availability of products and
services, credit availability and financing options, shipping accuracy, speed of
delivery, availability of technical support and product information, marketing
services and programs, and ability to influence a buyer's decision. Certain of
Merisel's competitors have substantially greater financial resources than
Merisel.
Merisel's principal competitors for its North American distribution business
include large United States-based distributors such as Ingram Micro and Tech
Data, as well as regional distributors and franchisers. MOCA's competitors are
GE Access, which is owned by GE Capital, and Ingram Micro.
Merisel also competes with manufacturers that sell directly to computer
resellers and end users, sometimes at prices below those charged by Merisel for
similar products, and larger resellers and E-tailers that sell to resellers.
Item 3. QUANTITATIVE AND QUALITATIVE MARKET RISK DISCLOSURE
No material changes have occurred in the quantitative and qualitative market
risk disclosure of the Company as presented in the Company's Annual Report on
Form 10-K for the period ended December 31, 1999.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On March 16, 1998, the Company received a summons and complaint, filed in the
Superior Court of California, County of Santa Clara, in a matter captioned
Official Unsecured Creditors Committee of Media Vision Technology, Inc. v.
Merisel, Inc. In July 2000, the parties entered into a settlement agreement to
resolve all disputes arising and related to this action. Under the settlement,
the Company was not required to make any material payment.
The Company is involved in certain other legal proceedings arising in the
ordinary course of business, none of which is expected to have a material impact
on the financial condition or business of Merisel.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Amendment No. 8 to Purchase Agreement dated as of May 19, 2000 among
Merisel Americas, Inc., Merisel Capital Funding, Inc., Redwood
Receivables Corporation and General Electric Capital Corporation.
10.2 Amendment No. 4 to Loan and Security Agreement dated as of May 10,
2000 among Merisel Americas, Inc. and Bank of America, National
Association.
(b) The following Report on Form 8-K was filed during the quarter
ended June 30, 2000.
Current report on Form 8-K, dated June 9, 2000 which
reports the issuance and sale of 150,000 shares of
convertible preferred stock to Phoenix Acquisition
Company II, L.L.C.
<PAGE>
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 18, 2000
Merisel, Inc.
By:/s/ Timothy N. Jenson
----------------------------------
Timothy N. Jenson
Chief Financial Officer and
Executive Vice President
(Principal Financial and Accounting Officer)
