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 March 31,
2010




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 01-17156




MERISEL,
INC.


(Exact
name of registrant as specified in its charter)





Delaware
            95-4172359(State
      or Other Jurisdiction of Incorporation or Organization)
            (I.
      R. S. Employer Identification No.)127
      West 30th
      Street, 5th
      Floor
              New
      York, NY
            10001(Address
      of Principal Executive Offices)
            (Zip
      Code)1
      (212) 594-4800(Registrant's
      Telephone Number, Including Area Code)





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 has submitted electronically and posted on its corporate Web site, if
any, every Interactive Data File required to be submitted and posted pursuant to
Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12
months (or for such shorter period that registrant was required to submit and
post such files). YES  ̈  NO   ̈





Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company.  See the definitions of
“accelerated filer,” “large accelerated filer” and “smaller reporting company”
in Rule 12b-2 of the Exchange Act. (Check one):





 ̈ LARGE ACCELERATED
FILER,   ̈
ACCELERATED FILER   ̈ NON-ACCELERATED FILER
x SMALLER REPORTING
COMPANY





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act.YES  ̈  NO  x





As of May 13, 2010 the registrant had
7,214,784 shares of Common Stock outstanding.










MERISEL,
INC. AND SUBSIDIARIES




TABLE
OF CONTENTS




ReferencePART
      I.    FINANCIAL INFORMATIONItem
      1.
            Financial
      StatementsCondensed
      Consolidated Balance Sheets as of March 31, 2010 (Unaudited) and December
      31, 2009
            1Condensed
      Consolidated Statements of Operations for the Three Months Ended March 31,
      2010 and 2009 (Unaudited)
            2Condensed
      Consolidated Statements of Cash Flows for the Three Months Ended March 31,
      2010 and 2009 (Unaudited)
            3Notes
      to Condensed Consolidated Financial Statements (Unaudited)
            4Item
      2.
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
            14Item
      4.
            Controls
      and Procedures
            18PART
      II.    OTHER INFORMATIONItem
      1.
            Legal
      Proceedings
            19Item
      6.
            Exhibits
            20SIGNATURES
            25





i




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,” “will,” “estimates,” “plans,” “intends,” and similar expressions
constitute “forward-looking statements” within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
We intend these forward-looking statements to be covered by the safe harbor
provisions for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995 and they are included for purposes of complying
with these safe harbor provisions. These forward-looking statements reflect
current views about the plans, strategies and prospects of Merisel, Inc. (the
“Company”), and are based upon information currently available to the Company
and on current assumptions.  These forward-looking statements involve
known and unknown risks, uncertainties and other factors that may cause actual
results, performance or achievements of the Company to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements.




In
evaluating these forward-looking statements, you should consider these risks and
uncertainties, together with the other risks described from time to time in the
Company’s other reports and documents filed with the Securities and Exchange
Commission (“SEC”).  You are cautioned not to place undue reliance on
these 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.




ii




PART
I.  FINANCIAL INFORMATION


Item
1.             Financial
Statements





MERISEL,
INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED BALANCE SHEETS


(In
thousands, except share and per share data)





March 31, 2010
            
            
            December 31, 2009ASSETSCurrent
      assets:Cash
      and cash equivalents
            
            $
            7,671
            
            
            $
            10,581Accounts
      receivable, net of allowance of $186 and $262,
respectively
            
            
            10,775
            
            
            
            12,456Inventories
            
            
            1,782
            
            
            
            1,706Prepaid
      expenses and other current assets
            
            
            1,567
            
            
            
            919Total
      current assets
            
            
            21,795
            
            
            
            25,662Property,
      plant and equipment, net
            
            
            6,933
            
            
            
            7,599Restricted
      cash
            
            
            2,232
            
            
            
            2,232Trademarks
            
            
            6,190
            
            
            
            6,190Other
      intangible assets, net
            
            
            3,389
            
            
            
            3,648Other
      assets
            
            
            73
            
            
            
            94Total
      assets
            
            $
            40,612
            
            
            $
            45,425LIABILITIES,
      TEMPORARY EQUITY, AND STOCKHOLDERS' EQUITY (DEFICIT)Current
      liabilities:Accounts
      payable
            
            $
            3,769
            
            
            $
            5,374Accrued
      liabilities
            
            
            4,759
            
            
            
            5,100Capital
      lease obligations, current maturities
            
            
            270
            
            
            
            269Revolving
      credit agreement
            
            
            7,065
            
            
            
            8,715Total
      current liabilities
            
            
            15,863
            
            
            
            19,458Capital
      lease obligations, less current maturities
            
            
            683
            
            
            
            749Other
      liabilities
            
            
            637
            
            
            
            670Total
      liabilities
            
            
            17,183
            
            
            
            20,877Commitments
      and ContingenciesTemporary
      equity:Convertible
      preferred stock, $.01 par value, authorized  600,000 shares;
      319,801 and 313,531 shares issued and outstanding,
      respectively
            
            
            32,620
            
            
            
            31,980Stockholders'
      equity (deficit):Common
      stock, $.01 par value, authorized 30,000,000 shares; 8,453,671 issued and
      7,214,784 outstanding
            
            
            84
            
            
            
            84Additional
      paid-in capital
            
            
            267,830
            
            
            
            268,468Accumulated
      deficit
            
            
            (275,161
            )
            
            
            (274,040
            )Treasury
      stock, at cost, 1,238,887 shares repurchased
            
            
            (1,944
            )
            
            
            (1,944
            )Total
      stockholders' equity (deficit)
            
            
            (9,191
            )
            
            
            (7,432
            )Total
      liabilities, temporary equity, and stockholders' equity
      (deficit)
            
            $
            40,612
            
            
            $
            45,425





See
accompanying notes to unaudited condensed consolidated financial
statements.




1




MERISEL,
INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS


(In
thousands, except per share data)


(Unaudited)





Three
      Months Ended March 31,2010
            
            
            2009Net
      sales
            
            $
            15,006
            
            
            $
            17,102Cost
      of sales
            
            
            9,311
            
            
            
            10,736Gross
      profit
            
            
            5,695
            
            
            
            6,366Selling,
      general & administrative expenses
            
            
            6,685
            
            
            
            6,150Operating
      (loss) income
            
            
            (990
            )
            
            
            216Interest
      expense, net
            
            
            131
            
            
            
            41(Loss)
      income before provision for income tax
            
            
            (1,121
            )
            
            
            175Income
      tax provision
            
            
            -
            
            
            
            75Net
      (loss) income
            
            
            (1,121
            )
            
            
            100Preferred
      stock dividends
            
            
            640
            
            
            
            592Loss
      available to common stockholders
            
            
            (1,761
            )
            
            $
            (492
            )Loss
      per share (basic and diluted):Net
      loss available to common stockholders
            
            $
            (0.24
            )
            
            $
            (0.07
            )Weighted
      average number of sharesBasic
            
            
            7,213
            
            
            
            7,241Diluted
            
            
            7,213
            
            
            
            7,241





See
accompanying notes to unaudited condensed consolidated financial
statements.




2




MERISEL,
INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(In
thousands)


(Unaudited)




Three
      Months Ended March 31,2010
            
            
            2009CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      (loss) income
            
            $
            (1,121
            )
            
            $
            100Adjustments
      to reconcile net loss to net cash (used in) provided
      by  operating activities:Stock-based
      compensation expense
            
            
            2
            
            
            
            56Deferred
      occupancy costs
            
            
            (33
            )
            
            
            12Bad
      debt provision (benefit)
            
            
            38
            
            
            
            (84
            )Deferred
      income taxes
            
            
            -
            
            
            
            48Depreciation
      and amortization
            
            
            1,159
            
            
            
            1,239Changes
      in operating assets and liabilities:Accounts
      receivable
            
            
            1,643
            
            
            
            4,359Inventories
            
            
            (76
            )
            
            
            646Prepaid
      expenses and other assets
            
            
            (627
            )
            
            
            (2,121
            )Restricted
      cash
            
            
            -
            
            
            
            (21
            )Accounts
      payable
            
            
            (1,605
            )
            
            
            (2,561
            )Accrued
      liabilities
            
            
            (341
            )
            
            
            (694
            )Net
      cash (used in) provided by operating activities
            
            
            (961
            )
            
            
            979CASH
      FLOWS FROM INVESTING ACTIVITIES:Capital
      expenditures
            
            
            (234
            )
            
            
            (980
            )Net
      cash used in investing activities
            
            
            (234
            )
            
            
            (980
            )CASH
      FLOWS FROM FINANCING ACTIVITIES:Capital
      lease payments
            
            
            (65
            )
            
            
            (37
            )Installment
      note repayments
            
            
            -
            
            
            
            (200
            )Revolving
      credit agreement repayments
            
            
            (1,650
            )
            
            
            -Purchase
      of treasury stock
            
            
            -
            
            
            
            (112
            )Net
      cash used in financing activities
            
            
            (1,715
            )
            
            
            (349
            )NET
      DECREASE IN CASH AND CASH EQUIVALENTS
            
            
            (2,910
            )
            
            
            (350
            )CASH
      AND CASH EQUIVALENTS, BEGINNING OF PERIOD
            
            
            10,581
            
            
            
            9,752CASH
      AND CASH EQUIVALENTS, END OF PERIOD
            
            $
            7,671
            
            
            $
            9,402Cash
      paid during the period for:Interest
      expense
            
            $
            146
            
            
            $
            79Non-cash
      investing and financing activities:Preferred
      dividends accumulated
            
            
            640
            
            
            
            592





See
accompanying notes to unaudited condensed consolidated financial
statements.




3




MERISEL,
INC. AND SUBSIDIARIES


NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(In
thousands, except share and per share data)


(UNAUDITED)





1.      Description
of Business





Merisel,
Inc. and Subsidiaries (the “Company” or “Merisel”) operate in a single reporting
segment, the visual communications services business.  It entered that
business beginning March 2005, through a series of acquisitions, which continued
through 2006. These acquisitions include Color Edge, Inc. and Color Edge Visual,
Inc. (together “Color Edge”); Comp 24, LLC (“Comp 24”); Crush Creative, Inc.
(“Crush”); Dennis Curtin Studios, Inc. (“DCS”); Advertising Props, Inc.
(“AdProps”); and Fuel Digital, Inc. (“Fuel”). The acquisitions of the Company’s
seven operating entities are referred to below as “Acquisitions.”





2.      Basis
of Presentation





The
accompanying condensed consolidated financial statements as of March 31, 2010,
and for the three months ended March 31, 2010 and 2009, are unaudited. In the
opinion of management, the unaudited condensed consolidated financial statements
have been prepared on the same basis as the annual financial statements and
reflect all adjustments consisting of normal recurring adjustments necessary to
present fairly the consolidated financial position of Merisel as of March 31,
2010, and the consolidated results of operations and cash flows for the interim
periods ended March 31, 2010 and 2009. The financial data and other information
disclosed in these notes to the condensed consolidated financial statements
related to these periods are unaudited. The results of operations for any
interim period are not necessarily indicative of the results of operations for
any other future interim period or for a full fiscal year.





Certain
information and note disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to SEC rules and regulations. These unaudited
interim condensed consolidated financial statements should be read in
conjunction with the Company’s audited consolidated financial statements and
notes thereto for the year ended December 31, 2009, included in the Company’s
Annual Report on Form 10-K filed with the SEC on March 31, 2010. The condensed
consolidated balance sheet at December 31, 2009, has been derived from audited
consolidated financial statements at that date. The Company has evaluated
subsequent events through the date of issuance of the Company’s condensed
financial statements.




4




MERISEL,
INC. AND SUBSIDIARIES


NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(In
thousands, except share and per share data)


(UNAUDITED)





3.
            New
      and Recently Adopted Accounting
Standards





In
January 2010, the FASB published FASB Accounting Standards Update 2010-06, Fair
Value Measurements and Disclosures (Topic 820) — Improving Disclosures about
Fair Value Measurements. This update requires some new disclosures and clarifies
some existing disclosure requirements about fair value measurement as set forth
in Codification Subtopic 820-10. The FASB’s objective is to improve these
disclosures and, thus, increase the transparency in financial reporting.
Specifically, ASU 2010-06 amends Codification Subtopic 820-10 to now require:
(a) a reporting entity to disclose separately the amounts of significant
transfers in and out of Level 1 and Level 2 fair value measurements and describe
the reasons for the transfers; and (b) in the reconciliation for fair value
measurements using significant unobservable inputs, a reporting entity should
present separately information about purchases, sales, issuances, and
settlements. In addition, ASU 2010-06 clarifies the requirements of the
following existing disclosures: for purposes of reporting fair value measurement
for each class of assets and liabilities, a reporting entity needs to use
judgment in determining the appropriate classes of assets and liabilities and
should provide disclosures about the valuation techniques and inputs used to
measure fair value for both recurring and nonrecurring fair value measurements.
ASU 2010-06 is effective for interim and annual reporting periods beginning
after December 15, 2009, except for the disclosures about purchases, sales,
issuances, and settlements in the roll forward of activity in Level 3 fair value
measurements. Those disclosures are effective for fiscal years beginning after
December 15, 2010, and for interim periods within those fiscal years. As ASU
2010-06 relates specifically to disclosures, it will not have an impact on the
Company’s consolidated financial statements.





4.
            Inventories





Inventories
consist of the following:




March 31, 2010
            
            
            December 31, 2009Raw
      materials
            
            $
            1,200
            
            
            $
            1,199Work-in-progress
            
            
            585
            
            
            
            510Reserve
      for obsolescence
            
            
            (3
            )
            
            
            (3
            )Inventory,
      net
            
            $
            1,782
            
            
            $
            1,706





5.
            Intangibles




Intangible
assets, net of accumulated amortization, resulting primarily from the
Acquisitions accounted for under the purchase method of accounting, consist of
the following:




March 31, 2010
            
            
            December 31, 2009Customer
      relationships
            
            $
            2,620
            
            
            $
            2,681Non-compete
      agreements
            
            
            112
            
            
            
            268Trade
      know-how
            
            
            657
            
            
            
            699Total
            
            $
            3,389
            
            
            $
            3,648




Amortization
expense relating to intangible assets was $259 and $395 for the three months
ended March 31, 2010 and 2009, respectively.




5




MERISEL,
INC. AND SUBSIDIARIES




NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(In
thousands, except share and per share data)


(UNAUDITED)





Estimated
amortization expense on an annual basis for the succeeding five years is as
follows:




For
      the Twelve-Month Period Ended March 31,Amount2011
            
            $
            5232012
            
            
            4142013
            
            
            4132014
            
            
            3572015
            
            
            287Thereafter
            
            
            1,395Total
            
            $
            3,389





6.
            Fair
      Value Measurements





In
determining fair value, the Company utilizes valuation techniques that maximize
the use of observable inputs and minimize the use of unobservable inputs to the
extent possible as well as considers counterparty credit risk in its assessment
of fair value.





The fair
value hierarchy consists of three broad levels, which gives the highest priority
to unadjusted quoted prices in active markets for identical assets or
liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).
The three levels of the fair value hierarchy under FASB ASC 820 (FAS No. 157,
“Fair Value Measurements”) are described as follows:





·
            Level
      1- Unadjusted quoted prices in active markets for identical assets or
      liabilities that are accessible at the measurement
  date.


·
            Level
      2- Inputs other than quoted prices included within Level 1 that are
      observable for the asset or liability, either directly or indirectly.
      Level 2 inputs include quoted prices for similar assets or liabilities in
      active markets; quoted prices for identical or similar assets or
      liabilities in markets that are not active; inputs other than quoted
      prices that are observable for the asset or liability; and inputs that are
      derived principally from or corroborated by observable market data by
      correlation or other means.


·
            Level
      3- Inputs that are unobservable for the asset or
  liability.





On a
nonrecurring basis, the Company uses fair value measures when analyzing asset
impairment. Long-lived tangible assets are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. If it is determined such indicators are present and the
review indicates that the assets will not be fully recoverable, based on
undiscounted estimated cash flows over the remaining amortization periods, their
carrying values are reduced to estimated fair value. The Company uses an income
approach and inputs that constitute level 3. During the fourth quarter of each
year and earlier if necessary, the Company evaluates indefinite-lived and
definite-lived intangibles for impairment at the reporting unit
level.




6




MERISEL,
INC. AND SUBSIDIARIES




NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(In
thousands, except share and per share data)


(UNAUDITED)





Financial
instruments include cash and cash equivalents. The approximate fair values of
cash and cash equivalents, accounts receivable, security deposits, and accounts
payable approximate their carrying value because of their short-term nature. The
revolving credit fair value approximates carrying value due to the variable
nature of the interest rate.





7.
            Accrued
      Liabilities





Accrued
liabilities consist of the following:




March 31, 2010
            
            
            December 31, 2009Accrued
      liabilities:Compensation
      and other benefit accruals
            
            
            2,380
            
            
            
            2,403Other
      accruals
            
            
            2,379
            
            
            
            2,697Total
      accrued liabilities
            
            $
            4,759
            
            
            $
            5,100





8.
            Income
      Taxes





At
December 31, 2009, after weighing both the positive and negative evidence of
realizing the deferred tax asset, management determined that, based on the
weight of all available evidence, it was more likely than not that the Company
would not realize its deferred tax assets. The most influential weighted
negative evidence considered was two consecutive years of current taxable losses
and uncertainty as to when taxable profit can be predicated in the future due to
current economic environment. As such, the Company placed a full valuation
allowance on its net deferred tax assets as of March 31, 2010 and December 31,
2009.





The
valuation allowance on the Company’s net deferred tax assets is reviewed
quarterly and will be maintained until sufficient positive evidence exists to
support the reversal of the valuation allowance. In addition, until such time
that the Company determines it is more likely than not that it will generate
sufficient taxable income to realize all or a portion of its deferred tax
assets, income tax benefits associated with future period losses will be fully
reserved. The valuation allowance increased $459 in the three months ended March
31, 2010, compared to no change to the valuation allowance for the three months
ended March 31, 2009. The net increase in the valuation allowance for three
months ended March 31, 2010 primarily consists of a $577 increase in the federal
net operating loss generated in the period, and a decrease of $118 related to
other temporary differences.




7




MERISEL,
INC. AND SUBSIDIARIES




NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(In
thousands, except share and per share data)


(UNAUDITED)




9.
            Debt




In
connection with the Company's financing of the Comp 24 and Color Edge
acquisitions, the Company entered into two credit agreements with Amalgamated
Bank (“Amalgamated”) dated March 1, 2005. The credit agreements provided for two
three-year revolving credit facilities and two term loans.  The credit
agreement has been amended several times to date, the most recent of which was
on September 30, 2009 (the “Amended and Restated Credit Agreement” or the
“Agreement”).  The Agreement is for a single $12,000 revolving credit
facility (the “Facility”) and required the early retirement of the remaining
balance of the existing term loan prior to its maturity on December 31, 2009,
which the Company paid off the balance in full on September 30, 2009. The
Facility includes two financial covenants requiring the Company to maintain a
minimum tangible net worth of $15,500 at all times, and no EBITDA losses on a
consolidated basis in any quarterly period beginning with the quarter ending
December 31, 2009.





As of
December 31, 2009 and March 31, 2010, the minimum tangible net worth of the
Company is below the required $15,500.  Accordingly, the Company is
not in compliance with the covenant under the Agreement, and as such the Bank
may request repayment of the loan at any time.  Based on this, the
Company has classified the outstanding balance as of March 31, 2010 and December
31, 2009, as short term on its balance sheet. The Company believes that in the
event Amalgamated requests repayment of the loan, the Company would be able to
obtain a replacement facility.





The
maturity date of the Facility is August 31, 2011, and the interest rate is at a
“Base Rate,” which is a floating rate equal to the greater of (a) Amalgamated’s
prime rate in effect on such day and (b) the Federal Funds Effective Rate in
effect on such day, plus 2.5%. As of March 31, 2010, this rate was
5.75%.





As of
December 31, 2009, the Company had $8,715 outstanding on the
Facility.  During the three months ended March 31, 2010, the Company
paid down the outstanding balance on the revolving credit agreement by $1,650.
As of March 31, 2010, the balance on the revolving line of credit is
$7,065.





10.
            Commitments
      and Contingencies





In
September 2007, Nomad Worldwide, LLC and ImageKing Visual Solutions, Inc.
(“ImageKing”) filed a civil complaint in the Supreme Court of the State of New
York, New York County naming as defendants Color Edge Visual, and its sales
employee, Edwin Sturmer.  The plaintiffs allege that Sturmer breached
a confidentiality and non-solicitation agreement by soliciting plaintiffs’
customers, Banana Republic and the Gap, while employed by Color Edge
Visual.  The plaintiffs allege causes of action for breach of
contract, breach of fiduciary duty, conversion, tortious interference with
contractual relations, tortious interference with prospective business
relations, misappropriation of trade secrets, unfair competition and unjust
enrichment. The plaintiffs seek compensatory and punitive damages totaling
$5,000.  The defendants have answered the complaint, asserting various
affirmative defenses, and denied liability.  The parties were
previously engaged in discovery.  On May 1, 2008, ImageKing filed for
relief under Chapter 11 of the United States Bankruptcy Code in the United
States Bankruptcy Court for the Southern District of New York (Docket Number
08-11654-AJG).  The United States Trustee recently moved to have the
bankruptcy case converted to Chapter 7 or dismissed on the grounds that
ImageKing has failed to show a reasonable likelihood of
rehabilitation.  ImageKing has not taken any steps to prosecute the
Nomad case since its bankruptcy filing. The Company has not accrued for payment
because the likelihood of an adverse ruling is not currently
probable.




8




MERISEL,
INC. AND SUBSIDIARIES




NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(In
thousands, except share and per share data)


(UNAUDITED)





On March
30, 2009, Merisel and TU Holdings, Inc. and TU Merger, Inc., both subsidiaries
of American Capital Strategies, Ltd. (collectively, “ACAS”) executed a
settlement agreement under which ACAS agreed to pay Merisel the total amount of
$2,000 and the parties agreed to dismiss with prejudice their claims against one
another. The Company recorded this income in the first quarter of 2009. The
Company recorded expenses related to legal and investment banking fees related
to the sale of the Company to ACAS of $73 for the three months ended March 31,
2009. These income and expenses are recorded in selling, general, and
administrative expenses in the Company’s Statements of Operations. There was no
comparable income or expense for the three months ended March 31,
2010.





In
connection with the Asset Purchase Agreement among Crush Creative, Inc., its
shareholders and MCRU, LLC dated July 6, 2005 (the “Crush APA”), Merisel
informed the former shareholders of Crush Creative, Inc. (the “Crush Sellers”)
in April 2009 that Crush Creative’s continuing business had not met the
performance criteria that would entitle the Crush Sellers to an earnout payment
for the one-year period ended December 31, 2008.  On April 29, 2009
and September 14, 2009, Merisel received notice from the Crush Sellers that they
contest the calculations Merisel used to reach this conclusion. The Company and
the Crush Sellers attempted to resolve this dispute through negotiations, but
were unable to do so.  The parties are now following the process set
forth in the APA for resolving such disputes through the appointment of a
third-party accounting firm (the “Arbitration Firm”), which will arbitrate the
dispute.  If the Arbitration Firm finds that Crush Creative has met
the performance criteria set forth in the APA, the Crush Sellers will be
entitled to a payment of up to $750.  Under the APA, the Arbitration
Firm’s determination is final, conclusive and binding.  The Company
has not accrued for payment because the  likelihood of an adverse
ruling is not currently probable.





On May
19, 2009, the President of Crush Creative provided the Company with a letter of
resignation, claiming that he was resigning for "Good Reason," as defined by his
employment agreement.  In particular, he claimed that the Company had
breached his employment agreement by reducing his base salary and materially
reducing his responsibilities, and that the Company had defamed
him.  The Company responded by letter dated June 5, 2009, in which it
denied the employee’s allegations, provided 60-day notice of non-renewal of the
employee’s employment agreement (as required by that agreement), and offered to
work with the employee to address, for the remainder of his tenure, the concerns
he had raised in his letter.  On July 2, 2009, the employee departed
the Company.





On June
19, 2009, the Company received a letter from the American Arbitration
Association (“AAA”) advising that the employee had filed a Demand for
Arbitration with the AAA, asserting a $2,500 claim for alleged unpaid bonuses,
base salary, loss of future earnings, damages, and punitive
damages.  Merisel filed an Answer to this claim, in which it denied
the substantive allegations, denied that the employee is entitled to the relief
demanded, and asserted various affirmative defenses.  The parties are
currently engaged in discovery, and a hearing date has not yet been scheduled
for the arbitration. The Company has not accrued for payment because the
likelihood of an adverse ruling is not currently probable.




9




MERISEL,
INC. AND SUBSIDIARIES




NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(In
thousands, except share and per share data)


(UNAUDITED)





11.
            Stock-Based
      Compensation





On
December 19, 1997, the Company’s stockholders approved the Merisel Inc. 1997
Stock Award and Incentive Plan (the “1997 Plan”).  On December 3,
2008, the Company’s stockholders approved the Merisel, Inc. 2008 Stock Award and
Incentive Plan (the “2008 Plan”).  Under both the 1997 Plan and the
2008 Plan, incentive stock options and nonqualified stock options as well as
other stock-based awards may be granted to employees, directors, and
consultants.  The 1997 Plan authorized the issuance of an aggregate of
800,000 shares of Common Stock less the number of shares of Common Stock that
remain subject to outstanding option grants under any of the Company’s other
stock-based incentive plans for employees after December 19, 1997 and are not
either canceled in exchange for options granted under the 1997 Plan or
forfeited.  The 2008 Plan authorized the issuance of an aggregate of
500,000 shares of Common Stock, less the same limit for outstanding
options.  At March 31, 2010, 51,839 shares were available for grant
under the 1997 Plan, and 500,000 shares were available for grant under the 2008
Plan.  The grantees, terms of the grant (including option prices and
vesting provisions), dates of grant and number of shares granted under the plans
are determined primarily by the Board of Directors or the committee authorized
by the Board of Directors to administer such plans, although incentive stock
options are granted at prices which are no less than the fair market value of
the Company's Common Stock at the date of grant.





Stock Option
Grants





As of
March 31, 2010, 300,000 options remain outstanding under the 1997 Plan. A
summary of the Company’s stock option activity and weighted average exercise
price is as follows:




Options
            
            
            Weighted
              Average
              Exercise
      PriceOutstanding
      at
              December
      31, 2009
            
            
            300,000
            
            
            $
            8.33Granted
            
            
            -
            
            
            
            N/AExercised
            
            
            -
            
            
            
            N/ACanceled
            
            
            -
            
            
            
            N/AOutstanding
      at
              March
      31, 2010
            
            
            300,000
            
            
            $
            8.33Options
      exercisable at March 31, 2010
            
            
            300,000
            
            
            $
            8.33Weighted
      average fair value  at date of grant of
      options  granted during the quarter
            
            
            N/A
            
            
            
            N/A





10





MERISEL,
INC. AND SUBSIDIARIES




NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(In
thousands, except share and per share data)


(UNAUDITED)





The
following table summarizes information about stock options outstanding and
exercisable at March 31, 2010:





Options
      Outstanding
            
            
            Options
      ExercisableWeightedAverage
            
            
            Weighted
            
            
            
            
            
            WeightedNumber
            
            
            Remaining
            
            
            Average
            
            
            Number
            
            
            AverageRange
      of
            
            Outstanding
            
            
            Life
            
            
            Exercise
            
            
            Exercisable
            
            
            ExerciseExercise
      Prices
            
            At
      3/31/10
            
            
            In
      Years
            
            
            Price
            
            
            At
      3/31/10
            
            
            Price$5.00
            
            
            100,000
            
            
            
            4.6
            
            
            $
            5.00
            
            
            
            100,000
            
            
            $
            5.00$8.00
            
            
            100,000
            
            
            
            4.6
            
            
            $
            8.00
            
            
            
            100,000
            
            
            $
            8.00$12.00
            
            
            100,000
            
            
            
            4.6
            
            
            $
            12.00
            
            
            
            100,000
            
            
            $
            12.00$5.00
      to $12.00
            
            
            300,000
            
            
            
            
            
            
            $
            8.33
            
            
            
            300,000
            
            
            $
            8.33





As of
March 31, 2010, all stock options were fully vested. There is no total intrinsic
value of options outstanding or exercisable at March 31, 2010.





As of
March 31, 2010, there was no unrecognized compensation costs related to
stock-based employee compensation expense.





Restricted Stock
Grants





On
December 13, 2006, the Company awarded 185,500 shares of restricted stock to key
officers and employees under the 1997 Plan. Compensation expense, measured by
the fair value of the restricted stock at the grant date, is recorded over the
related three-year vesting period starting in December 2006. Compensation
expense was $53 for the three months ended March 31, 2009. There was no expense
for the three months ended March 31, 2010.





During
2007, the Company awarded 17,500 shares of restricted stock to key officers and
employees under the 1997 Plan. Compensation expense, measured by the fair value
at the grant date of the Company’s common stock issuable in respect of the
units, is recorded over the related three-year vesting period. Compensation
expense was $2 and $3 for the three months ended March 31, 2010 and 2009,
respectively.




11




MERISEL,
INC. AND SUBSIDIARIES




NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(In
thousands, except share and per share data)


(UNAUDITED)





A summary
of the status of the Company’s nonvested restricted shares as of March 31, 2010,
and changes during the three months ended March 31, 2010, is as
follows:




Shares
            
            
            Weighted
      Average Grant-Date Fair ValueNonvested
      shares at December 31, 2009
            
            
            2,000
            
            
            $
            4.98Granted
            
            
            -
            
            
            
            N/AVested
            
            
            -
            
            
            
            N/ACancelled
            
            
            -
            
            
            
            N/ANonvested
      shares at March 31, 2010
            
            
            2,000
            
            
            $
            4.98




As of
March 31, 2010, there was $3 of unrecognized compensation cost related to
nonvested restricted share-based compensation arrangements. A majority of that
cost is expected to be recognized over a weighted average period of
approximately three months.




12.
            Temporary
      Equity





In June
2000, an affiliate of Stonington Partners, Inc., a majority shareholder,
purchased 150,000 shares of convertible preferred stock (the “Convertible
Preferred”) issued by the Company for an aggregate purchase price of
$15,000.  The Convertible Preferred provides for an 8% annual dividend
payable quarterly 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. As of March 31,
2010, 176,197 shares of Convertible Preferred have been accrued as dividends and
169,801 shares have been issued to Stonington Partners, Inc. in payment of that
accrual. The remaining 6,396 shares were issued on April 1, 2010. Additionally,
cumulative accrued dividends of $17,620 and $16,980 were recorded as temporary
equity at March 31, 2010 and December 31, 2009, 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, after September 30, 2008, the Company may
redeem outstanding shares of the Convertible Preferred at $100 per share 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.




12




MERISEL,
INC. AND SUBSIDIARIES




NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(In
thousands, except share and per share data)


(UNAUDITED)





In
accordance with FASB ASC 480-10 (EITF Abstracts, Topic D-98 “Classification and
Measurement of Redeemable Securities”), the Company has determined that the
Convertible Preferred should be treated outside of permanent equity. Regulation
S-X requires preferred securities that are redeemable for cash to be classified
outside of permanent equity if they are redeemable (1) at a fixed or
determinable price on a fixed or determinable date, (2) at the option of the
holder, or (3) upon the occurrence of an event that is not solely within the
control of the issuer. The SEC staff believes that if the preferred security
holders control a majority of the votes of the board of directors through direct
representation on the board of directors or through other rights, the preferred
security is redeemable at the option of the holder and its classification
outside of permanent equity is required. During the first quarter of 2009,
Stonington Partner’s ownership percentage of the Company’s common stock
increased such that, according to the Company’s bylaws, it now has sufficient
votes to change the size and composition of the board of directors. As such, the
Company believes the Convertible Preferred is redeemable at the option of the
holder and the Company has re-classified the Convertible Preferred outside of
permanent equity. Prior to 2009, in no case were the convertible preferred
mandatorily redeemable or was redemption outside of the Company’s control and as
such the Convertible Preferred was classified at permanent equity. The Company
will continue to accrue dividends on the Convertible Preferred, which will
increase temporary equity and continue to decrease net income available to
common shareholders.





13.
            Earnings
      Per Share and Stockholders Equity





Basic
earnings per share are calculated using the average number of common shares
outstanding.  Diluted earnings per share is computed on the basis of
the average number of common shares outstanding plus the effect of dilutive
outstanding stock options using the “treasury stock” method.





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. On August 14, 2006, the Company announced that its Board of Directors
had authorized the expenditure of up to an additional $2,000 for repurchasing
the Company’s common stock at a maximum share price to be determined by the
Board of Directors from time to time.  As of March 31, 2010, the
Company had repurchased 1,238,887 shares, for an aggregate cost of $1,944; the
repurchased shares are reflected as treasury stock in the accompanying condensed
consolidated balance sheets.  The Company repurchased 127,038 shares
for an aggregated cost of $112 during the three months ended March 31, 2009. The
Company did not repurchase any shares during the first quarter of
2010.




13
 
 
 Item
2. Management’s Discussion and Analysis of Financial Condition and Results of
Operations




The
following discussion of the Company’s consolidated historical results of
operations and financial condition should be read in conjunction with its
unaudited condensed consolidated financial statements and the notes thereto
included elsewhere in this report.





Merisel
is a leading supplier of visual communication solutions.  Until August
2004, the Company’s primary operations consisted of a software licensing
solutions business. Thereafter, between March 2005 and October 2006, the
Company, which conducts its operations through its main operating subsidiary,
Merisel Americas, Inc. (“Americas”), acquired its current
businesses:





·
            On
      March 1, 2005, the Company acquired its New York-based graphics solutions,
      premedia and retouching services businesses, Color Edge, Inc. (“Color
      Edge”) and Color Edge Visual, Inc. (“Color Edge Visual”), and its New
      York-based prototype services provider, Comp 24, LLC (“Comp
      24”);




·
            On
      August 8, 2005, the Company acquired its California-based graphics
      solutions business, Crush Creative, Inc.
  (“Crush”);




·
            On
      May 5, 2006, the Company acquired its California-based prototypes
      business, Dennis Curtin Studios, Inc.
(“DCS”);




·
            On
      May 10, 2006, the Company acquired its Georgia-based prototypes business,
      Advertising Props, Inc. (“AdProps”);
and




·
            On
      October 1, 2006, the Company acquired its New York-based premedia and
      retouching services business, Fuel Digital, Inc.
  (“Fuel”).




All of
the acquired businesses operate as a single reportable segment in the graphic
imaging industry, and the Company is subject to the risks inherent in that
industry.




14





RESULTS
OF OPERATIONS(amounts
in thousands except as noted or for per share data)





The
Company reported a loss available to common shareholders of $(1,761) or $(0.24)
per share for the three months ended March 31, 2010, as compared to a loss of
$(492) or $(0.07) per share for the three months ended March 31,
2009.





Three Months Ended March 31,
2010, as Compared to the Three Months Ended March 31, 2009





Net Sales
- Net sales were $15,006 for the three months ended March 31, 2010, compared to
$17,102 for the three months ended March 31, 2009. The decrease of $2,096 or
12.3% was due primarily to continued reduced demand for our client services and
in part to pricing pressure due to the ongoing weak economic conditions
throughout the United States, and specifically in the retail market, which
represents a significant portion of our customer base. The decline in sales was
due primarily to a decrease in volume with the Company’s existing customers, as
the Company’s customer base remains substantially intact.





Gross
Profit – Total gross profit was $5,695 for the three months ended March 31,
2010, compared to $6,366 for the three months ended March 31, 2009. The decrease
in total gross profit of $671 or 10.5% was primarily due to the 12.3% decline in
net sales. Gross profit percentage increased slightly to 38.0% for the three
months ended March 31, 2010, from 37.2% for the three months ended March 31,
2009. The increase is primarily attributable to a decrease in production
salaries as a percentage of sales.





Selling,
General and Administrative – Total Selling, General and Administrative expenses
increased to $6,685 for the three months ended March 31, 2010, from $6,150 for
the three months ended March 31, 2009. The increase of $535 or 8.7% was due
primarily to the $1,927 legal settlement, net of expenses, with ACAS, which was
recorded as a credit against selling, general, and administrative expense during
the first quarter of 2009.  This increase was offset by decreases in
sales salaries and commission expense of $959, other compensation costs of $268,
and depreciation and amortization of $131. Excluding the net settlement of
$1,927 in the 2009 period, total Selling, General and Administrative expenses
decreased by $1,392 during the three months ended March, 31, 2010 compared to
the three months end March 31, 2009. Excluding the net settlement with ACAS,
total Selling, General and Administrative expenses as a percentage of net sales
decreased to 44.5% for the three months ended March 31, 2010, compared to 47.2%
for the three months ended March 31, 2009.





Interest
Expense, Net - Interest expense, net increased to $131 in the three months ended
March 31, 2010, from $41 in the three months ended March 31, 2009. The increase
was primarily due to an increase in interest expense of $72 resulting from
increased rates on the revolving line of credit and additional interest from two
new capital leases and interest income decreased by $18 due to lower rates of
return on lower balances in short-term interest-bearing investments classified
as cash and cash equivalents.





Income
Taxes – As of March 31, 2010 and December 31, 2009, the Company has placed a
full valuation allowance on its net deferred tax assets. The valuation allowance
on the Company’s net deferred tax assets is reviewed quarterly and will be
maintained until sufficient positive evidence exists to support the reversal of
the valuation allowance. In addition, until such time that the Company
determines it is more likely than not that it will generate sufficient taxable
income to realize all or a portion of its deferred tax assets, income tax
benefits associated with future period losses will be fully reserved. As such,
the Company did not record any income tax benefit on its loss of $1,121 for the
three months ended March 31, 2010. The Company recorded income tax provision of
$75 on income of $175 for the three months ended March 31, 2009. Income tax for
that quarter was recorded at an effective tax rate of 42.8%.





Net Loss
- As a result of the above items, the Company had net loss of $1,121 for the
three months ended March 31, 2010, compared to income of $100 for the three
months ended March 31, 2009.




15





LIQUIDITY AND CAPITAL
RESOURCES





Cash Flow
Activity





Net cash
used in operating activities was $961 during the three months ended March 31,
2010.  The primary uses of cash were decreases in accounts payable of
$1,605 and accrued liabilities of $341 and an increase in prepaid assets of
$627, partially offset by a decrease in accounts receivable of $1,643 and
depreciation and amortization of $1,159.





Net cash
provided by operating activities was $979 during the three months ended March
31, 2009.  The primary source of cash was a decrease of $4,359 in
accounts receivable and depreciation and amortization of $1,239 partially offset
by decreases in accounts payable of $2,561 and accrued liabilities of $694 and
and an increase in prepaid and other assets of $2,121, primarily due to the ACAS
settlement.





Net cash
used in investing activities for capital expenditures was $234 and $980 for the
three months ended March 31, 2010 and 2009, respectively.





For the
three months ended March 31, 2010, net cash used in financing activities was
$1,715 primarily due to $1,650 in repayments on the revolving line of credit.
For the three months ended March 31, 2009, net cash used in financing activities
was $349 of which $237 related to repayments of installment notes and capital
lease payments. Additionally the Company used $112 to repurchase treasury stock
during the three months ended March 31, 2009.





Financing Sources and
Capital Expenditures





In June
2000, an affiliate of Stonington Partners, Inc., which currently owns
approximately 69% 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 $15,000.  The
Convertible Preferred provides for an 8% annual dividend payable quarterly 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. As of March 31, 2010, 176,197 shares of Convertible
Preferred have been accrued as dividends and 169,801 shares have been issued to
Stonington Partners, Inc. in payment of that accrual. The remaining 6,396 shares
were issued on April 1, 2010. Additionally, cumulative accrued dividends of
$17,620 and $16,980 were recorded as temporary equity at March 31, 2010 and
December 31, 2009, 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, after September 30, 2008, the Company may redeem outstanding
shares of the Convertible Preferred at $100 per share 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.





In
connection with the Company's financing of the Comp 24 and Color Edge
acquisitions, the Company entered into two credit agreements with Amalgamated
Bank (“Amalgamated”) dated March 1, 2005. The credit agreements provided for two
three-year revolving credit facilities and two term loans.  The credit
agreement has been amended several times to date, the most recent of which was
on September 30, 2009 (the “Amended and Restated Credit Agreement” or the
“Agreement”).  The Agreement is for a single $12,000 revolving credit
facility (the “Facility”) and required the early retirement of the remaining
balance of the existing term loan prior to its maturity on December 31, 2009,
which the Company paid in full on September 30, 2009. The Facility includes two
financial covenants requiring the company maintains a minimum tangible net worth
of $15,500 at all times, and no EBITDA losses on a consolidated basis in any
quarterly period beginning with the quarter ending December 31,
2009.  The maturity date of the Facility is August 31, 2011, and the
interest rate is at a “Base Rate,” which is a floating rate equal to the greater
of (a) Amalgamated’s prime rate in effect on such day and (b) the Federal Funds
Effective Rate in effect on such day, plus 2.5%. As of March 31, 2010, this rate
was 5.75%.




16





The
Company’s borrowing base under the Facility is set at 80% of its eligible
accounts receivable and the Facility must be prepaid when the amount of the
borrowings exceeds the borrowing base. In addition, borrowings under the
Facility must be prepaid with net cash proceeds that result from certain sales
or issuances of stock or from capital contributions. Voluntary prepayments are
permitted, in whole or in part, without premium or penalty, at the Company’s
option, in minimum principal amounts of $100.





As of
December 31, 2009, the Company had $8,715 outstanding on the
Facility.  During the three months ended March 31, 2010, the Company
paid down the outstanding balance on the revolving credit agreement by $1,650.
As of March 31, 2010, the balance on the revolving line of credit is
$7,065.





Color
Edge, Color Edge Visual and Crush are named as borrowers under the
Agreement.  All borrowings under the Agreement are guaranteed by the
Company, Merisel Americas, and each of their existing operating subsidiaries, as
guarantors, and must be guaranteed by all of their future subsidiaries. The
borrowings are secured by a first priority lien on substantially all, subject to
certain exceptions, of the borrowers’ and the guarantors’ properties and assets,
and the properties and assets of their existing and future
subsidiaries.





As of
March 31, 2010 and December 31, 2009, the minimum tangible net worth of the
Company is below the required $15,500.  Accordingly, the Company is
not in compliance with the covenant under the Agreement, and as such the Bank
may request repayment of the loan at any time.  Based on this, the
Company has classified the outstanding balance as of March 31, 2010 and December
31, 2009, as short term on its balance sheet.





Management
believes that, with its cash balances and anticipated cash balances, it has
sufficient liquidity for the next twelve months and believes that in the event
Amalgamated requests repayment of the loan, the Company would be able to obtain
a replacement facility. However, the Company’s operating cash flow can be
impacted by macroeconomic factors outside of its control.





CRITICAL
ACCOUNTING POLICIES ANDESTIMATES





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
condensed 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 condensed 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.





There
have been no material changes in our critical accounting policies and estimates
from those disclosed in Item 8 of our Annual Report on Form 10-K for the year
ended December 31, 2009.





17





Item
4.  Controls and Procedures





Changes
in Internal Control Over Financial Reporting





There
were no changes in the Company’s internal control over financial reporting
during the fiscal quarter ended March 31, 2010, that have materially affected,
or are reasonably likely to materially affect, the Company’s internal control
over financial reporting.





Management’s
Report on Internal Control over Financial Reporting





Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as defined in Exchange Act Rules 13a-15(f) and
15d-15(f). Our internal control over financial reporting is a process designed
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. Because of its inherent
limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate. Under the supervision and with the participation of
our management, including our Chief Executive Officer and Chief Financial
Officer, we conducted an evaluation of the effectiveness of our internal control
over financial reporting as of March 31, 2010, based on the criteria established
inInternal Control —
Integrated Framework and additional guidance provided byInternal Control over Financial
Reporting – Guidance for Smaller Public Companies as issued by the
Committee of Sponsoring Organizations of the Treadway Commission.





Based on
the results of this evaluation, we concluded that our internal control over
financial reporting was effective as of March 31, 2010.




18





PART
II.  OTHER INFORMATION





Item
1.  Legal Proceedings





There
have been no material developments in the Company’s legal proceedings from those
disclosed in Item 3 of our Annual Report on Form 10-K for the year ended
December 31, 2009.





19





Item 6. Exhibits


Index
of Exhibits




Exhibit
            
            Description
            
            Method of Filing2.1
            
            Asset
      Purchase Agreement dated as of December 24, 2004, as amended, by and among
      Merisel, Inc., MCEV, LLC, Color Edge Visual, Inc. (“CEV”), Photobition New
      York, Inc. (“PBNY”) and the direct or indirect shareholders or members of
      CEV and PBNY signatories thereto.
            
            Filed
      as Exhibit 2.2 to the Company’s Current Report on Form 8-K filed with the
      SEC on March 7, 2005. **2.2
            
            Asset
      Purchase Agreement dated as of December 24, 2004, as amended, by and among
      Merisel, Inc., MC24, LLC, Comp 24, LLC (“Comp 24”) and the direct and
      indirect shareholders or members of Comp 24 signatories
      thereto.
            
            Filed
      as Exhibit 2.3 to the Company’s Current Report on Form 8-K filed with the
      SEC on March 7, 2005. **2.3
            
            Amendment
      and Waiver to Asset Purchase Agreement dated as of March 1, 2005 by and
      among MCEI, LLC, Merisel, Inc. and Color Edge, Inc. and the direct and
      indirect shareholders set forth on the signature pages
      thereto.
            
            Filed
      as Exhibit 2.4 to the Company’s Current Report on Form 8-K filed with the
      SEC on March 7, 2005. **2.4
            
            Amendment
      and Waiver to Asset Purchase Agreement dated as of March 1, 2005 by and
      among MCEV, LLC, Merisel, Inc. and Color Edge Visual, Inc. and the direct
      and indirect shareholders set forth on the signature pages
      thereto.
            
            Filed
      as Exhibit 2.5 to the Company’s Current Report on Form 8-K filed with the
      SEC on March 7, 2005. **2.5
            
            Amendment
      and Waiver to Asset Purchase Agreement dated as of March 1, 2005 by and
      among MC24, LLC, Merisel, Inc. and Comp 24, LLC and the direct and
      indirect shareholders set forth on the signature pages
      thereto.
            
            Filed
      as Exhibit 2.6 to the Company’s Current Report on Form 8-K filed with the
      SEC on March 7, 2005. **2.6
            
            Asset
      Purchase Agreement dated as of July 6, 2005 by and among Merisel, Inc.,
      MCRU, LLC, Crush Creative, Inc. (“Crush”) and the shareholders of Crush
      signatories thereto, as amended by that certain Amendment and Waiver to
      Asset Purchase Agreement, dated as of August 8, 2005 by and among Merisel,
      MCRU, Crush and Guy Claudy as Shareholders Representative.
            
            Filed
      as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the
      SEC on August 9, 2005. **2.7
            
            Amendment
      and Waiver to Asset Purchase Agreement, dated as of August 8, 2005 by and
      among Merisel, Inc., MCRU, LLC, Crush Creative, Inc. and Guy Claudy as
      Shareholders Representative.
            
            Filed
      as Exhibit 2.2 to the Company’s Current Report on Form 8-K filed with the
      SEC on August 9, 2005. **  20
  2.8
            
            Asset
      Purchase Agreement, dated as of October 4, 2006 by and among Merisel,
      Inc., Merisel FD, LLC, Fuel Digital, Inc. and the shareholders of Fuel
      signatories thereto.
            
            Filed
      as Exhibit 2.1 to the Company's Current Report on Form 8-K filed with the
      SEC on October 6, 2006. **3.1
            
            Restated
      Certificate of Incorporation of Merisel, Inc., as amended.
            
            Filed
      as Exhibit 3.1 to the Company’s Annual Report on Form 10-K for the year
      ended December 31, 2005. **3.2
            
            Bylaws
      of Merisel, Inc., as amended.
            
            Filed
      as Exhibit 3.2 to the Company’s Annual Report on Form 10-K for the year
      ended December 31, 2005. **4.1
            
            Certificate
      of Designation of Convertible Preferred Stock of Merisel,
    Inc.
            
            Filed
      as Exhibit 99.2 to the Company’s Current Report on Form 8-K dated June 9,
      2000. ***10.1
            
            Merisel,
      Inc. 1997 Stock Award and Incentive Plan.
            
            Filed
      as Annex II to the Company’s Schedule 14A dated October 6, 1997.
      ***10.2
            
            Form
      of Nonqualified Stock Option Agreement under the Merisel, Inc. 1997 Stock
      Award and Incentive Plan.
            
            Filed
      as Exhibit 10.7 to the Company’s Annual Report on Form 10-K for the year
      ended December 31, 1997. **10.3
            
            Stock
      Subscription Agreement by and between Merisel, Inc. and Phoenix
      Acquisition Company II, L.L.C. dated as of June 2, 2000.
            
            Filed
      as Exhibit 99.1 to the Company’s Current Report on Form 8-K, dated June 9,
      2000. **10.4
            
            Amended
      and Restated Registration Rights Agreement dated June 9, 2000 (executed
      November 7, 2002) between Merisel, Inc. and Phoenix Acquisition Company
      II, L.L.C.
            
            Filed
      as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the
      quarter ended September 30, 2002. ***10.5
            
            Employment
      Agreement dated November 22, 2004 between Merisel, Inc. and Donald R.
      Uzzi.
            
            Filed
      as Exhibit 99.1 to the Company’s Current Report on Form 8-K filed with the
      SEC on November 24, 2004. **10.6
            
            Credit
      Agreement dated as of March 1, 2005 by and among MCEI, LLC, MCEV, LLC,
      Merisel, Inc., Merisel Americas, Inc., MC24, LLC and Amalgamated
      Bank.
            
            Filed
      as Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the
      SEC on March 7, 2005. **10.7
            
            Pledge
      Agreement, dated as of March 1, 2005, made among MCEI, LLC, MCEV, LLC,
      Merisel, Inc., Merisel Americas, Inc., and Amalgamated Bank.
            
            Filed
      as Exhibit 10.5 to the Company’s Current Report on Form 8-K filed with the
      SEC on March 7, 2005. **10.8
            
            Security
      Agreement, dated as of March 1, 2005, made by MCEI, LLC, MCEV, LLC,
      Merisel, Inc., Merisel Americas, Inc., and MC24, LLC, in favor of
      Amalgamated Bank.
            
            Filed
      as Exhibit 10.6 to the Company’s Current Report on Form 8-K filed with the
      SEC on March 7, 2005. **  21
  10.9
            
            Corporate
      Guarantee, dated as of March 1, 2005, made among each signatory hereto, in
      favor of Amalgamated Bank.
            
            Filed
      as Exhibit 10.7 to the Company’s Current Report on Form 8-K filed with the
      SEC on March 7, 2005. **10.10
            
            Credit
      Agreement dated as of March 1, 2005 by and among MC24, LLC, Merisel, Inc.,
      Merisel Americas, Inc., MCEI, LLC, MCEV, LLC and Amalgamated
      Bank.
            
            Filed
      as Exhibit 10.8 to the Company’s Current Report on Form 8-K filed with the
      SEC on March 7, 2005. **10.11
            
            Pledge
      Agreement, dated as of March 1, 2005, made among MC24, LLC, Merisel, Inc.,
      Merisel Americas, Inc., and Amalgamated Bank.
            
            Filed
      as Exhibit 10.9 to the Company’s Current Report on Form 8-K filed with the
      SEC on March 7, 2005. **10.12
            
            Security
      Agreement, dated as of March 1, 2005 made by MC24, LLC, Merisel, Inc.,
      Merisel Americas Inc., MCEI, LLC, MCEV, LLC, and each of their
      Subsidiaries from time to time parties thereto, in favor of Amalgamated
      Bank.
            
            Filed
      as Exhibit 10.10 to the Company’s Current Report on Form 8-K filed with
      the SEC on March 7, 2005. **10.13
            
            Corporate
      Guarantee, dated as of March 1, 2005, made among each signatory hereto, in
      favor of Amalgamated Bank.
            
            Filed
      as Exhibit 10.11 to the Company’s Current Report on Form 8-K filed with
      the SEC on March 7, 2005. **10.14
            
            Amendment
      No. 1 to Credit Agreement dated as of August 8, 2005 by and among MCRU,
      Color Edge LLC (formerly known as MCEI, LLC), Color Edge Visual, LLC
      (formerly known as MCEV, LLC), Comp 24 LLC (formerly known as MC24, LLC),
      Merisel Americas, Inc., the Company and Amalgamated Bank, entered into in
      connection with the MCEI/MCEV Credit Agreement.
            
            Filed
      as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the
      SEC on August 9, 2005. ***10.15
            
            Amendment
      to Employment Agreement dated November 22, 2004 between Merisel, Inc. and
      Donald R. Uzzi.
            
            Filed
      as Exhibit 10.1 to the Company’s current report on Form 8-K filed with the
      SEC on March 9, 2006.***10.16
            
            Form
      of Indemnity Agreement entered into between Merisel, Inc. and each of its
      Directors and certain Officers.
            
            Filed
      as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the
      SEC on March 9, 2006.**10.17
            
            Amendment
      No. 2 to Asset Purchase Agreement and Amendment to Confidentiality and
      Non-Competition Agreement (MCEI).
            
            Filed
      as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the
      SEC on May 1, 2006. **  22
  10.18
            
            Amendment
      No. 2 to Asset Purchase Agreement and Amendment to Confidentiality and
      Non-Competition Agreement (MCEV).
            
            Filed
      as Exhibit 10.2 to the Company's Current Report on Form 8-K filed with the
      SEC on May 1, 2006. ***10.19
            
            1997
      Merisel Inc. Stock Award and Incentive Plan Form of Restricted Stock
      Agreement for Executives and Key Employees.
            
            Filed
      as Exhibit 10.1to the Company’s
      Current Report on Form 8-K filed with the SEC on December 19, 2006.
      **10.20
            
            Amendment
      No. 2 to Credit Agreement, dated February 27, 2009, among Color Edge LLC,
      Color Edge Visual LLC and Crush Creative LLC, as borrowers, the Company,
      Merisel Americas, Inc., Comp 24 LLC, Fuel Digital, LLC, Dennis Curtin
      Studios, LLC, MADP, LLC and Advertising Props, Inc., as guarantors, and
      Amalgamated Bank, as lender.
            
            Filed
      as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the
      SEC on March 4, 2009.**10.21
            
            Reaffirmation
      and Confirmation Agreement (Security Documents), dated February 27, 2009,
      among Color Edge LLC, Color Edge Visual LLC and Crush Creative LLC, as
      borrowers, the Company, Merisel Americas, Inc., Comp 24 LLC, Fuel Digital,
      LLC, Dennis Curtin Studios, LLC, MADP, LLC and Advertising Props, Inc., as
      guarantors, in favor of Amalgamated Bank.
            
            Filed
      as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the
      SEC on March 4, 2009.***10.22
            
            Amendment to 1997 Merisel Inc. Stock Award and
      Incentive Plan Form of Restricted Stock Agreement forDirectors.
            
            Filed
      as Exhibit 10.50 to the Company’s Annual Report on Form 10-K for the year
      ended December 31, 2007. ***10.23
            
            Amendment No. 2 to Employment Agreement, dated
      January 18, 2009, between Merisel, Inc. and Donald R.
      Uzzi.
            
            Filed
      as Exhibit 10.51 to the Company’s Annual Report on Form 10-K for the year
      ended December 31, 2007. ***10.24
            
            Merisel,
      Inc. 2009 Stock Award and Incentive Plan.
            
            Filed
      as Annex A to the Company’s Schedule 14A dated November 7, 2009.
      **10.25
            
            Amendment
      No. 3 to Credit Agreement, dated March 26, 2009, among Color Edge LLC,
      Color Edge Visual LLC and Crush Creative LLC, as borrowers, the Company,
      Merisel Americas, Inc., Comp 24 LLC, Fuel Digital, LLC, Dennis Curtin
      Studios, LLC, MADP, LLC and Advertising Props, Inc., as guarantors, and
      Amalgamated Bank, as lender.
            
            Filed
      as Exhibit 10.30 to the Company’s Annual Report on Form 10-K for the year
      ended December 31, 2009.*10.26
            
            Employment
      Agreement dated May 6, 2009 by and between Merisel, Inc. and Victor L.
      Cisario.
            
            Filed
      as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the
      SEC on June 12, 2009.**  23
  *10.27
            
            Amendment
      #3 to Employment Agreement, dated June 29, 2009 by and between Merisel,
      Inc. and Donald R. Uzzi.
            
            Filed
      as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the
      SEC on September 30, 2009.**10.28
            
            Amended
      and Restated Credit Agreement dated September 30, 2009, among Color Edge
      LLC, Color Edge Visual LLC and Crush Creative LLC, as borrowers, the
      Company, Merisel Americas, Inc. and certain other affiliates of borrowers,
      as corporate guarantors, and Amalgamated Bank, as lender.
            
            Filed
      as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the
      SEC on October 5, 2009.**10.29
            
            Second
      Reaffirmation and Confirmation Agreement (Security Documents) dated
      September 30, 2009, among Color Edge LLC, Color Edge Visual LLC and Crush
      Creative LLC, as borrowers, the Company, Merisel Americas, Inc. and
      certain other affiliates of borrowers, as corporate guarantors, in favor
      of Amalgamated Bank.
            
            Filed
      as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the
      SEC on October 5, 2009.***10.30
            
            Employment
      Agreement, dated January 8, 2010 by and between Merisel, Inc. and Raymond
      E. Powers.
            
            Filed
      herewith.14.1
            
            Code
      of Business Conduct.
            
            Filed
      as exhibit 99.2 to the Company’s
              Annual
      Report on Form 10-K for the year
              ended
      December 31, 2002.**31.1
            
            Certification of the Chief Executive Officer
      pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002.
            
            Filed herewith.31.2
            
            Certification of the Chief Financial Officer
      pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002.
            
            Filed herewith.32
            
            Certification of Chief Executive Officer and Chief
      Financial Officer pursuant to 18 U.S.C. Section 1350.
            
            Filed herewith.99.1
            
            Press
      release dated May 13, 2010
            
            Filed
herewith.





*   Management
contract or executive compensation plan or arrangement.


**
Incorporated by reference.




24




SIGNATURE





Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.




Date:  May
      13, 2010
              Merisel, Inc.By:
              /s/ Donald
      R. UzziDonald R. UzziChairman, Chief Executive Officer, and
    PresidentBy:
              /s/
      Victor L. CisarioVictor L. CisarioChief Financial Officer


25