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 September 30, 1998.

                                                        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                              November 12, 1998
Common Stock, $.01 par value                         80,237,934 Shares


<PAGE>






                                  MERISEL, INC.

                                      INDEX

                                                                  Page Reference
PART I   FINANCIAL INFORMATION

         Consolidated Balance Sheets as of                                  1-2
         September 30, 1998 and December 31, 1997

         Consolidated Statements of Operations for the
         Three Months and Nine Months Ended September 30, 1998 and 1997      3

         Consolidated Statements of Cash Flows for the
         Nine Months Ended September 30, 1998 and 1997                       4

         Notes to Consolidated Financial Statements                         5-8

         Management's Discussion and Analysis of                            9-20
         Financial Condition and Results of Operations

PART II  OTHER INFORMATION                                                 21-23

         SIGNATURES                                                          24





















                                        i


<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  may
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,  and (viii) other
risks  detailed  in this  report.  These  factors are  discussed  in more detail
elsewhere in this report. 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.






















                                      ii


<PAGE>





                                                       

                           PART 1. FINANCIAL INFORMATION

Item 1.  Financial Statements
<TABLE>
<CAPTION>

                            MERISEL, INC. AND SUBSIDIARIES
                              CONSOLIDATED BALANCE SHEETS
                                    (In thousands)
                                      (Unaudited)

                                         ASSETS

                                                                                          September 30, December 31,
                                                                                               1998       1997
                                                                                             --------   --------
<S>                                                                                          <C>        <C>
CURRENT ASSETS:
Cash and cash equivalents                                                                    $164,165   $ 36,447
Accounts receivable (net of allowances
     of  $21,220 and $18,549 for 1998 and 1997,
     respectively)                                                                            168,423    162,895
Inventories                                                                                   455,333    462,752
Prepaid expenses and other current assets                                                      14,541     12,352
Deferred income tax benefit                                                                       594        644
                                                                                             --------   --------
   Total current assets                                                                       803,056    675,090

PROPERTY AND EQUIPMENT, NET                                                                    55,341     40,142

COST IN EXCESS OF NET ASSETS
  ACQUIRED, NET                                                                                24,467     25,381

OTHER ASSETS                                                                                      445      6,498
                                                                                             --------   --------

TOTAL ASSETS                                                                                 $883,309   $747,111
                                                                                             ========   ========

               See  accompanying  notes  to  consolidated  financial statements.
</TABLE>




<PAGE>

<TABLE>
<CAPTION>

                              MERISEL, INC. AND SUBSIDIARIES
                                CONSOLIDATED BALANCE SHEETS
                              (In thousands, except share data)
                                         (Unaudited)

                           LIABILITIES AND STOCKHOLDERS' EQUITY

                                                                                           September 30, December 31,
                                                                                                1998         1997
                                                                                             ---------    ---------

<S>                                                                                          <C>          <C>
CURRENT LIABILITIES:
Accounts payable                                                                             $ 562,078    $ 437,211
Accrued liabilities                                                                             37,362       38,963
Long-term debt - current                                                                         1,822        1,762
                                                                                             ---------    ---------
    Total current liabilities                                                                  601,262      477,936

Long-term debt                                                                                 130,329      131,667
                                                                                             ---------    ---------
TOTAL LIABILITIES                                                                              731,591      609,603

STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, authorized 1,000,000
   shares; none issued or outstanding
Common stock, $.01 par value, authorized
  150,000,000 shares; 80,231,434 and 80,078,500
  shares outstanding for 1998 and 1997, respectively                                               802          801
Additional paid-in capital                                                                     282,295      281,701
Accumulated deficit                                                                           (120,657)    (137,005)
Cumulative translation adjustment                                                              (10,722)      (7,989)
                                                                                             ---------    ---------
Total stockholders' equity                                                                     151,718      137,508
                                                                                             ---------    ---------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                                   $ 883,309    $ 747,111
                                                                                             =========    =========



               See  accompanying  notes  to  consolidated  financial statements.
</TABLE>






<PAGE>

<TABLE>
<CAPTION>


                          MERISEL, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (In thousands, except per share data)
                                    (Unaudited)






                                                     Three Months Ended            Nine Months Ended
                                                       September 30,                  September 30,
                                                  1998            1997            1998           1997
                                               -----------     -----------     -----------    -----------
<S>                                            <C>             <C>             <C>            <C>
NET SALES                                      $ 1,144,317     $   965,238     $ 3,342,426    $ 2,974,093

COST OF SALES                                    1,077,042         906,730       3,151,697      2,794,954
                                               -----------     -----------     -----------    -----------

GROSS PROFIT                                        67,275          58,508         190,729        179,139

SELLING, GENERAL &
     ADMINISTRATIVE EXPENSES                        49,792          48,697         146,844        143,518
                                                -----------     -----------     -----------    -----------

OPERATING INCOME                                    17,483           9,811          43,885         35,621

INTEREST EXPENSE                                     3,649           7,029          11,323         23,412

OTHER EXPENSE                                        5,786           4,329          15,407         10,248

DEBT RESTRUCTURING COSTS                                             3,630                          3,630
                                                -----------     -----------     -----------    -----------

INCOME (LOSS)  BEFORE INCOME TAXES                   8,048          (5,177)         17,155         (1,669)

INCOME TAX PROVISION                                   444             156             807            488
                                                -----------     -----------     -----------    -----------

NET INCOME (LOSS) BEFORE                       $     7,604      $   (5,333)     $   16,348     $   (2,157)
      EXTRAORDINARY ITEM

EXTRAORDINARY LOSS ON
        EXTINGUISHMENT OF DEBT                                       3,744                          3,744

                                                -----------     -----------     -----------    -----------
NET INCOME (LOSS)                               $    7,604      $   (9,077)     $   16,348     $   (5,901)
                                                ===========     ===========     ===========    ===========

NET INCOME (LOSS) PER SHARE (BASIC AND DILUTED)
         LOSS BEFORE EXTRAORDINARY ITEM                         $    (0.17)                    $    (0.07)
         EXTRAORDINARY ITEM                                          (0.12)                         (0.12)
                                                ===========     ===========     ===========    ===========
NET INCOME (LOSS) PER SHARE (BASIC AND
      DILUTED)                                  $     0.09      $    (0.29)     $     0.20     $    (0.19)
                                                ===========     ===========     ===========    ===========
WEIGHTED AVERAGE NUMBER OF  SHARES
     BASIC                                          80,228          30,895          80,199         30,351
     DILUTED                                        80,473          30,895          80,529         30,351
                                                ===========     ===========     ===========    ===========

                                                                              
              See  accompanying  notes  to  consolidated  financial statements.
</TABLE>


<PAGE>
<TABLE>
<CAPTION>





                            MERISEL, INC. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (In thousands)
                                     (Unaudited)
                                                       Nine Months Ended September 30,
                                                              1998         1997
                                                          ---------     --------
<S>                                                       <C>           <C> 
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income                                                $  16,348     $ (5,901)
Adjustments to reconcile net loss to net
   cash provided by operating activities:
   Depreciation and amortization                              7,750        8,655
   Provision for doubtful accounts                            8,728       11,255
Loss (Gain) on Sale of Property and Equipment                     3       (1,530)
Changes in assets and liabilities:
   Accounts receivable                                      (48,654)     (60,262)
   Inventories                                                7,419       16,894
   Prepaid expenses and other assets                          3,864       (3,903)
   Accounts payable                                         124,867       55,267
   Accrued liabilities                                       (1,552)       9,761
                                                          ---------     --------
Net cash provided by operating activities                   118,773       30,236
                                                          ---------     --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment                          (22,684)      (4,439)
Proceeds from sale of property                                             5,020
                                                          ---------     --------
Net cash (used for) provided by investing activities        (22,684)         581
                                                          ---------     --------

CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving line of credit                                726,308
Repayments under revolving line of credit                               (811,516)
Proceeds from Convertible Notes                                          137,100
Net repayments under other bank facilities                   (1,278)      (1,176)
Repayment of senior notes                                                (56,805)
Proceeds from sale of accounts receivable                    34,802
Repayment of subordinated debt                                           (17,600)
Proceeds from issuance of Common Stock                          595       14,900
                                                          ---------     --------
Net cash provided by (used for) financing activities         34,119       (8,789)
                                                          ---------     --------

EFFECT OF EXCHANGE RATE CHANGES ON CASH                      (2,490)        (381)
                                                          ---------     --------
NET INCREASE IN CASH AND
   CASH EQUIVALENTS                                         127,718       21,647

CASH AND CASH EQUIVALENTS, BEGINNING OF
   PERIOD                                                    36,447       44,678
                                                          ---------     --------
CASH AND CASH EQUIVALENTS, END OF PERIOD                  $ 164,165     $ 66,325
                                                          =========     ========

                                                                             
             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, networking equipment and software products. Through its main operating
subsidiary,  Merisel Americas,  Inc. ("Merisel Americas"),  and its subsidiaries
the Company  markets  products and  services  throughout  North  America and has
achieved operational  efficiencies that have made it a valued partner to a broad
range  of  computer  resellers,   including   value-added   resellers  ("VARs"),
commercial  resellers/dealers,  and  retailers.  The Company  also  operates the
Merisel  Open  Computing  Alliance  (MOCA(TM)),  which  primarily  supports  Sun
Microsystems' UNIX(R)-based product sales and installations.

The  information for the three and nine months ended September 30, 1998 and 1997
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 have been omitted  pursuant to the requirements of the Securities and
Exchange Commission, although the Company believes that the disclosures included
in  these  financial  statements  are  adequate  to  make  the  information  not
misleading. Certain amounts for 1997 have been reclassified to conform with 1998
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, 1997.

2.  New Accounting Pronouncements

In  June  1997,  the  Financial  Accounting  Standards  Board  issued  Financial
Accounting  Standard No. 131,  "Disclosure  about  Segments of an Enterprise and
Related   Information"  ("SFAS  131"),  which  requires  disclosure  of  certain
information  about  operating  segments,  geographic  areas in which the Company
operates,  major customers, and products and services. The Company will evaluate
the effect  that this new  standard  has on the  Company's  financial  statement
presentation,  and the required  information  will be reflected in the financial
statements for the year ended December 31, 1998.

3.    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 third quarter is the 13-week period ending
on the Saturday  nearest to September 30. For  simplicity of  presentation,  the
Company has described the interim periods and year-end period as of September 30
and December 31, respectively.
<PAGE>

MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(UNAUDITED)



4.    Loan and Security Agreement

Merisel Americas entered into a Loan and Security Agreement dated as of June 30,
1998 (the "Loan and Security  Agreement") with BankAmerica Business Credit, Inc.
("BA"), acting as agent, which provides for borrowings on a revolving basis. The
Loan and Security Agreement permits borrowings of up to $100,000,000 outstanding
at any one time  (including  face  amounts  of letters  of  credit),  subject to
meeting  certain  availability  requirements  under a borrowing base formula and
other limitations.  Borrowings under the Loan and Security Agreement are secured
by a pledge of  substantially  all of the  inventory  held by Merisel  Americas.
Borrowings bear interest at the rate of LIBOR plus a specified margin or, at the
Company's  option,  BA'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 September 30, 1998.

The Revolving Credit  Agreement and Convertible  Promissory Note (the "BT Note")
entered  into in January 1998 by the Company and Merisel  Americas  with Bankers
Trust Company  expired in accordance  with its terms on July 2, 1998. No amounts
were outstanding under the BT Note on the expiration date.

5.   Dispositions

As of March 28, 1997, the Company completed the sale of substantially all of the
assets of its wholly owned  subsidiary  Merisel FAB, Inc.  ("Merisel  FAB") to a
wholly owned subsidiary of SYNNEX Information Technologies, Inc. ("Synnex").


<PAGE>



MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(UNAUDITED)



Following are summarized pro forma  operating  results for the nine months ended
September  30, 1997 assuming that the Company had sold the assets of Merisel FAB
as of January  1, 1997 and  summarized  actual  operating  results  for the nine
months ended September 30, 1998.


                                  (in thousands except per share data)
                                      Actual              Pro Forma
                                Nine Months              Nine Months
                                   Ended                    Ended
                                September 30,            September 30,
                                    1998                     1997
                                ----------------     --------------------
      Net Sales                 $  3,342,426         $      2,771,915
      Gross Profit                   190,729                  171,461
      Net Income (loss)               16,348                   (8,055)
                                ================     ====================    
      Net Income (loss) per     
      share                     $        .20         $          (0.27)
                                ================     ====================
      Weighted Average Shares
      Outstanding             
      (Diluted)                       80,529                   30,351
                                ================     ====================

                              


6.  Comprehensive Income

In June 1997,  the FASB issued  Statement of Financial  Accounting  Standard No.
130,  "Reporting for  Comprehensive  Income"  ("SFAS 130").  SFAS 130, which the
Company  adopted  in the  first  quarter  of  1998,  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             Nine Months Ended
                                                                September 30,                 September 30,
                                                             1998           1997           1998           1997
                                                             ----           ----           ----           ----
<S>                                                       <C>           <C>              <C>             <C>
 
Net Income                                                  7,604         (9,077)         16,348          (5,901)
Other comprehensive income, net of tax:
   Foreign currency translation adjustments                (1,642)          (665)         (2,733)           (474)
                                                          ----------    ----------       ---------      --------- 
Comprehensive income                                        5,962         (9,742)         13,615          (6,375)
                                                          ==========    ==========       =========      =========
</TABLE>


<PAGE>

MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(UNAUDITED)



7.  Earnings Per Share

The Company  calculates  earnings per share ("EPS") in accordance with Financial
Accounting  Standard No. 128, "Earnings Per Share".  Basic earnings per share is
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  outstanding  stock  options  using the
"treasury stock" method.  In both the three-month  period and nine-month  period
ended September 30, 1997,  there is no material  difference  between the primary
earnings per share  reported  previously by the Company,  and basic earnings per
share or diluted earnings per share methods adopted currently.

The following table is a  reconciliation  of the weighted average shares used in
the  computation  of basic and  diluted  EPS for the  income  statement  periods
presented herein:
<TABLE>
<CAPTION>

                                                               (in thousands)                 (in thousands)
                                                             Three months Ended             Nine Months Ended
                                                                September 30,                 September 30,
<S>                                                          <C>            <C>            <C>            <C> 
Weighted average shares outstanding                          1998           1997           1998           1997
-----------------------------------                          ----           ----           ----           ----

Basic                                                       80,228         30,895         80,199         30,351
Assumed exercises of stock options                             245                           330
                                                           --------        --------       -------        -------
Diluted                                                     80,473         30,895         80,529         30,351
                                                           ========        ========       ========       =======
</TABLE>



8. Supplemental Disclosure of Cash Flow Information

Cash paid  (received) in the  three-month  periods and nine-month  periods ended
September 30 for interest and income taxes was as follows:
<TABLE>
<CAPTION>

                                                  (in thousands)                  (in thousands)
                                                Three Months Ended              Nine Months Ended
                                                   September 30,                  September 30,
                                                1998            1997           1998           1997
                                                ----            ----           ----           ----

<S>                                            <C>           <C>             <C>          <C>      
       Interest                                $  32         $  4,167        $  7,369     $  18,412
       Income taxes                            $ 463         $ (3,285)       $    348     $  (6,687)
</TABLE>

Effective  March 28, 1997, the Company sold  substantially  all of the assets of
Merisel  FAB.  The  recorded  sale  price  was  $31,992,000,  consisting  of the
assumption  of  $11,992,000  of trade  payables  and accrued  liabilities  and a
$20,000,000 extended payable due to a third party, in full consideration for the
assets.


<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, networking equipment and software products. Through its main operating
subsidiary,  Merisel Americas,  Inc. ("Merisel Americas"),  and its subsidiaries
the Company  markets  products and  services  throughout  North  America and has
achieved operational  efficiencies that have made it a valued partner to a broad
range  of  computer  resellers,   including   value-added   resellers  ("VARs"),
commercial  resellers/dealers,  and  retailers.  The Company  also  operates the
Merisel  Open  Computing  Alliance  (MOCA(TM)),  which  primarily  supports  Sun
Microsystems' UNIX(R)-based product sales and installations.

As of March 28, 1997, the Company completed the sale of substantially all of the
assets of its wholly owned  subsidiary  Merisel FAB, Inc.  ("Merisel  FAB") to a
wholly owned subsidiary of SYNNEX Information  Technologies,  Inc. The Company's
operations are now focused  exclusively on  distribution  in North America.  The
Company's sales were $3.85 billion for 1997,  excluding revenues from operations
sold in the first  quarter  of 1997.  As the North  American  Business  (defined
below) represents the ongoing business of the Company,  the following discussion
and analysis will compare the components of operating income for the nine months
ended September 30, 1998 and September 30, 1997 for the North American  Business
only.  As used  in this  discussion  and  analysis,  the  term  "North  American
Business"   refers  to  Merisel's   United  States  and  Canadian   distribution
businesses,  and  the  term  "Former  Operations"  refers  to  the  Merisel  FAB
operations disposed of by Merisel in the first quarter of 1997.

On  September  19,  1997,  the  Company  and  Merisel  Americas  entered  into a
definitive Stock and Note Purchase  Agreement with Phoenix  Acquisition  Company
II, L.L.C.  ("Phoenix"),  a Delaware limited liability company whose sole member
is Stonington  Capital  Appreciation  1994 Fund, L.P.  Pursuant to the Stock and
Note Purchase  Agreement,  on September 19, 1997 Phoenix  acquired a Convertible
Note for  $137,100,000  (the  "Convertible  Note")  and  4,901,316  shares  (the
"Initial   Shares")  of  the  Company's   common  stock  ("Common   Stock")  for
$14,900,000. The Convertible Note was an unsecured obligation of the Company and
Merisel Americas and provided that, upon the satisfaction of certain conditions,
including   obtaining   stockholder   approval,   the  Convertible   Note  would
automatically  convert into 45,098,684  shares of Common Stock (the  "Conversion
Shares").  The Company used  substantially  all of the  $152,000,000 in proceeds
from the  issuance  of the  Initial  Shares  and the  Convertible  Note to repay
indebtedness  of its  operating  subsidiaries  (the  "Operating  Company  Debt")
consisting of $80,697,000  principal amount outstanding under a revolving credit
agreement,   $53,798,000  principal  amount  of  its  11.5%  senior  notes,  and
$13,200,000 principal amount of subordinated notes. On October 10, 1997, Phoenix
exercised  its option to convert,  without any  additional  payment,  $3,296,286
principal  amount of the Convertible Note into 1,084,305 shares of Common Stock,
representing  the maximum  amount  that could be  converted  prior to  obtaining
stockholder  approval.  On December 19, 1997,  following  receipt of stockholder
approval,  the remaining  portion of the  Convertible  Note was  converted  into
Common Stock. The $152,000,000 in proceeds from the
<PAGE>

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                 (Continued)



issuance of the Initial Shares and the Convertible  Note was partially offset by
professional fees and other direct costs related thereto totaling  approximately
$12,099,000, which were recorded as a reduction to additional paid in capital at
the time of  conversion.  As of September  30, 1998,  Phoenix  owned  50,000,000
shares of Common Stock, or approximately 62.3% of the outstanding Common Stock.

RESULTS OF OPERATIONS

Three  Months  Ended  September  30, 1998 as Compared to the Three  Months Ended
September 30, 1997.

Net sales increased  18.6% from  $965,238,000 in the quarter ended September 30,
1997 to $1,144,317,000 in the quarter ended September 30, 1998. The increase was
the result of a 20.1% increase in net sales for the U.S. and a 11.1% increase in
Canada.  All of the Company's U.S. customer bases contributed to the growth rate
in the U.S.,  with  particularly  strong  growth in MOCA and retail  sales.  The
growth  rate in Canada in terms of  Canadian  dollar  sales was  23.3%,  but the
decline in the value of the Canadian dollar hampered the growth rate in terms of
U.S.
dollars, as was also the case in the first two quarters of 1998.

Hardware and accessories  accounted for 79% of net sales and software  accounted
for 21% of net sales in the third  quarter of 1998,  as  compared to 78% and 22%
for the same categories, respectively, in the third quarter of 1997.

Gross profit increased 15.0% or $8,767,000 from $58,508,000 in the third quarter
of 1997 to $67,275,000 in the same period in 1998.  Gross profit as a percentage
of sales, or gross margin,  decreased from 6.06% in 1997 to 5.88% in 1998. Gross
margins in the United States and Canada were 5.81% and 6.25%, respectively,  for
the third quarter of 1998,  compared to 6.01% and 6.30%,  respectively,  for the
third  quarter of 1997.  The  decrease  in margins as a  percentage  of sales is
partially  the  result of changes  in  customer  and  product  mix,  and is also
significantly affected by intense competitive pricing pressures. The Company has
committed  resources  to  reverse  the  deterioration  of  margins  by  focusing
attention on more  profitable  product lines,  expanding the Company's  customer
base and improving  controls over margin management  related  activities such as
sales  execution,  processes,  vendor rebate programs and purchasing  discounts.
However,  the  Company  believes  that it will  continue to face  intense  price
competition.

Selling,  general and administrative  expenses for the Company increased by 2.2%
from  $48,697,000  in the  third  quarter  of 1997 to  $49,792,000  in the third
quarter of 1998.  However,  selling,  general and  administrative  expenses as a
percentage of sales  decreased from 5.05% of sales in 1997 to 4.35% for the same
period in 1998.  This decrease is primarily  attributable  to efforts to control
operating  expenses while the Company  experienced  sales growth of 18.6% during
the  period.  In  addition,  expenses  for the  third  quarter  of 1997  include
compensation  charges of $1,950,000  related to the debt  restructuring  without
which  selling,  general and  administrative  expenses as a percentage  of sales
would have been 4.84%.
<PAGE>

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                   (Continued)



As a result of the above  items,  operating  income for the Company  improved by
$7,672,000  from $9,811,000 for the third quarter of 1997 to $17,483,000 for the
third quarter of 1998.

Nine Months  Ended  September  30,  1998 as  Compared  to the Nine Months  Ended
September 30, 1997.

The following table sets forth the unaudited results of operations for the North
American  Business  and for the  Former  Operations  for the nine  months  ended
September 30, 1998 and September 30, 1997.
<TABLE>
<CAPTION>

                                     Nine Months Ended                                 Nine Months Ended
                                    September 30, 1998                                September 30, 1997   
                                (In Thousands) (Unaudited)                        (In Thousands) (Unaudited)
                     --------------------------------------------------   -----------------------------------------------          
                         North                                               North
                        American          Former          Consolidated     American            Former       Consolidated
                         Business       Operations            Total        Business          Operations          Total
                     ---------------    ------------    --------------    -------------     ------------    -------------          
                                                          
<S>                  <C>                <C>             <C>               <C>               <C>             <C>         
Net Sales            $  3,342,426                       $  3,342,426      $  2,771,915      $  202,178      $  2,974,093
Cost of Sales           3,151,697                          3,151,697         2,600,454         194,500         2,794,954
                     ---------------    ------------    --------------    -------------     ------------    -------------
Gross Profit              190,729                            190,729           171,461           7,678           179,139

SG&A Expenses             146,844                            146,844           137,318           6,200           143,518
                     ---------------    ------------    --------------    -------------     ------------    -------------
Operating
Income               $     43,885                       $     43,885      $     34,143      $    1,478      $     35,621
                      ==============    ============    ==============    =============     ===========     =============
                                        
</TABLE>
                                                       



For the nine months ended  September 30, 1998,  net sales for the North American
Business  increased  by 20.6%  from  $2,771,915,000  for the nine  months  ended
September  30, 1997 to  $3,342,426,000  for the nine months ended  September 30,
1998. The increase  resulted from a 22.7% increase in net sales for the U.S. and
a 12.2%  increase  in  Canada.  The growth  rate in Canada in terms of  Canadian
dollars was 19.7%. The growth rate reflects  improved year over year performance
due to the same  factors  summarized  in the  discussion  of sales for the three
months ended  September 30, 1998 and 1997 as well as, for the first two quarters
of 1998, strong growth in commercial reseller/dealer sales.

In the North American  Business,  hardware and accessories  accounted for 78% of
net sales and software  accounted  for 22% of net sales in the first nine months
of 1998, as compared to 77% and 23% for the same  categories,  respectively,  in
the first nine months of 1997.

Gross profit for the North American Business increased 11.2% or $19,268,000 from
$171,461,000  for the first nine  months of 1997 to  $190,729,000  for the first
nine months of 1998.  Gross profit as a percentage  of sales,  or gross  margin,
decreased  from  6.19% for the 1997  period to 5.71%  for the 1998  period.  The
decrease is  attributable  to the same factors  summarized in the  discussion of
gross  profit for the three  months  ended  September  30, 1998 and 1997.  Gross
margins in the United States and Canada were 5.66% and 5.90%, respectively,  for
the first nine

<PAGE>



                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                 (Continued)



months of 1998,  compared to 6.20% and 6.14%,  respectively,  for the first nine
months of 1997.  The  decrease  in margin is  attributable  to the same  factors
summarized  in the  discussion  of  gross  profit  for the  three  months  ended
September 30, 1998 and 1997.

Selling,  general and  administrative  expenses for the North American  Business
increased by 6.9% from  $137,318,000 in the nine months ended September 30, 1997
to $146,844,000 in the nine months ended September 30, 1998.  However,  selling,
general and  administrative  expenses as a percentage  of sales  decreased  from
4.95% of sales in 1997 to 4.39% for the same  period in 1998.  This  decrease is
primarily  attributable  to  efforts  to control  operating  expenses  while the
Company  experienced  sales  growth of 20.6%  during the  period.  In  addition,
without the debt  restructuring-related  compensation  charges referenced in the
discussion for the three months ended September 30, 1998,  selling,  general and
administrative  expenses  as a  percentage  of sales for the nine  months  ended
September 30, 1997 would have been 4.88%.

As a result of the above items, operating income for the North American Business
improved by  $9,742,000  from  $34,143,000  for the first nine months of 1997 to
$43,885,000 for the first nine months of 1998.

Interest Expense; Other Expense; and Income Tax Provision

Interest expense for the Company  decreased 48.1% from $7,029,000 in the quarter
ended  September 30, 1997 to $3,649,000 in the quarter ended September 30, 1998.
For the nine months ended September 30, 1998,  interest  expense for the Company
decreased  51.6% from  $23,412,000 in the 1997 period to $11,323,000 in the 1998
period.  The  decrease  in  interest  expense  is  primarily  attributable  to a
reduction  of the  Company's  debt  largely  from the use of  proceeds  from the
issuance of the Initial Shares and the Convertible  Note to repay  substantially
all of the Operating Company Debt in September 1997.

Other expenses for the Company increased from $4,329,000 and $10,248,000 for the
three and nine months ended September 30, 1997, respectively,  to $5,786,000 and
$15,407,000  for the same  periods in 1998,  respectively.  The increase for the
quarter is due primarily to a $1,042,000  increase in foreign  currency  losses.
For the nine month period, the increase is attributable in part to the recording
of a gain on the sale of property held in North  Carolina for  $1,530,000 in the
second  quarter of 1997,  which  reduced  other  expenses for that  period.  The
increase is also  attributable  to a  $1,277,000  increase  in foreign  currency
losses and a $1,460,000  increase in asset  securitization  fees.  The increased
securitization fees are due to increased sales of accounts  receivables in order
to fund sales growth and daily operations.  The average proceeds  resulting from
the sale of accounts receivable at month end under the Company's  securitization
facilities  increased from  $255,578,000 for the nine months ended September 30,
1997 to $272,272,000 for the same period in 1998.


<PAGE>


                       MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                    FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                     (Continued)



The income tax provision  increased from an expense of $156,000 and $488,000 for
the three and nine months ended September 30, 1997, respectively,  to an expense
of $444,000  and $807,000 for the same  periods in 1998.  In both  periods,  the
income tax rate reflects  only 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.

Debt Restructuring Costs;  Extraordinary Item

During the three months ended  September  30, 1997,  the Company  recognized  as
expenses $3,630,000 of transaction costs relating to professional fees and other
costs  associated with the termination of a Limited Waiver and Voting  Agreement
entered  into with certain  holders of the  Company's  12-1/2%  Senior Notes due
2004.  Also for that period,  in connection with the repayments of the Operating
Company Debt in September 1997, the Company  recorded an  extraordinary  loss on
the extinguishment of debt of $3,744,000.

Consolidated Net Income

On a  consolidated  basis,  net income for the Company  increased from a loss of
$9,077,000  and  $5,901,000  for the three and nine months ended  September  30,
1997, respectively,  to a net income of $7,604,000 and $16,348,000 for the three
and nine months  ended  September  30,  1998,  respectively,  due to the factors
described  above.  Net income per share  increased from a loss of $.29 per share
for the three  months ended  September  30, 1997 to net income of $.09 per share
for the three months ended  September 30, 1998.  Net income per share  increased
from a loss of $.19 per share for the nine months  ended  September  30, 1997 to
net income of $.20 per share for the nine months ended September 30, 1998.

SYSTEMS AND PROCESSES

Merisel has made significant investments in new, 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  warehouses now
utilize Merisel's  Information and Logistical  Efficiency  System  ("MILES"),  a
computerized  warehouse  management  system,  which uses infrared bar coding and
advanced computer hardware and software to maintain high picking,  receiving and
shipping accuracy rates.

Merisel  is in the  process  of  converting  its  U.S.  operations  to  the  SAP
client/server operating system. The Company plans to convert its U.S. operations
to the SAP system  during  the first half of 1999.  The  Company  converted  its
Canadian  operations from a mainframe to the SAP client/server  operating system
in August 1995. SAP is an enterprise-wide system which integrates all functional
areas of the business including order entry, inventory management and finance in
a  real-time  environment.  The  new  system  is  designed  to  provide  greater
transaction functionality,  automated controls,  flexibility, and custom pricing
applications.
<PAGE>

                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                  (Continued)



The design and  implementation  of these new systems are  complex  projects  and
involve certain risks. The U.S. SAP implementation in particular, because of its
scope and complexity,  involves risks that could have a material  adverse impact
on operations and financial results.

YEAR 2000 ISSUES

Introduction

The term  "Year  2000  issue" is a general  term used to  describe  the  various
problems  that  may  result  from the  improper  processing  of  dates  and date
sensitive  calculations  by  computers  and other  equipment as the year 2000 is
approached  and  reached.  These  problems  generally  arise  from the fact that
computers and equipment have  historically  used two-digit fields that recognize
dates  using the  assumption  that the first two digits are "19".  On January 1,
2000,  systems using  two-digit date fields could recognize a date using "00" as
the year 1900 rather than the year 2000.

Year 2000 Project 

The Company believes that implementation of the SAP operating system in the U.S.
will  address  its major Year 2000  issues for its core  information  technology
("IT") systems.  See "Systems and Processes"  above. The Company has developed a
plan for  addressing  the remainder of its Year 2000 issues which focuses on the
following  six  areas:  core  IT  systems;  off-line  IT  subsystems;  technical
infrastructure (e.g.,  networks,  servers,  desktop computers);  vendor/customer
interfaces  (consisting of electronic  data  interchange  or "EDI");  facilities
(including security systems,  elevators,  and heating and cooling systems);  and
third-party suppliers, vendors and customers ("External Parties"). For the first
five areas, the Company's Year 2000 plan consists of the following  phases:  (1)
conducting an inventory of items with Year 2000 implications;  (2) assessment of
Year 2000 compliance;  (3) remediation or replacement of material items that are
determined not to be Year 2000 compliant;  (4) testing (including  re-testing of
material items that were remediated or replaced);  and (5) certification of Year
2000 compliancy.

The Company has substantially  completed the inventory phase with respect to all
areas.  The  assessment  phase is in process and is  scheduled  to be  completed
during  the first  quarter  of 1999,  the  remediation  phase  during the second
quarter of 1999 and the testing  phase by the early part of the third quarter of
1999. In addition, the Company intends to conduct integration testing during the
early part of the third quarter of 1999. The Company currently plans to complete
the Year 2000 project by the beginning of the fourth quarter of 1999.

With respect to External Parties that provide critical goods and services to the
Company,  including  utility  companies,  telecommunication  service  companies,
shipping companies and other service providers outside of the Company's control,
the Company is seeking assurances,

<PAGE>

                        MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                      FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                      (Continued)



either through  formal  communications  or otherwise,  that such parties will be
Year 2000 ready. As a general matter, the Company is vulnerable to the inability
of material  External Parties to remedy their own year 2000 issues.  See "Risks"
below.

Costs

The Company currently estimates that the aggregate cost of its Year 2000 project
will be approximately  $4.2 million,  of which less than $200,000 had been spent
through  October 31, 1998,  although  the total  amount  could be greater.  This
amount  excludes the cost of implementing  the SAP operating  system in the U.S.
and costs incurred pursuant to the Company's  technology  upgrade strategy where
the  upgrades  were not  accelerated  due to Year 2000 issues.  In  addition,  a
portion of the estimated  total costs of the Year 2000 project will be funded by
reallocating  existing  resources rather than incurring  incremental costs. This
reallocation  of resources is not expected to have a  significant  impact on the
day-to-day  operations  of the Company,  including  any  material  effect on the
implementation of any IT project. The Company's aggregate cost estimate does not
include  costs that may be incurred by the Company as a result of the failure of
any third parties,  including  suppliers,  to become Year 2000 ready or costs to
implement any  contingency.  The Year 2000 project costs will be expensed by the
Company as incurred.

Risks

The  Company  believes  that the  completion  of its Year 2000  project  and the
implementation of the SAP operating system in the U.S. as planned will result in
the Company being Year 2000 compliant in a timely manner.  However,  the failure
to correct a material Year 2000 problem could result in an interruption in, or a
failure of,  certain  normal  business  activities  or  operations,  which could
materially and adversely affect the Company's  results of operations,  liquidity
and  financial  condition.  In addition,  if third parties that provide goods or
services  that  are  critical  to the  Company's  business  activities  fail  to
adequately  address  their Year 2000 issues,  there could be a similar  material
adverse  effect on the Company.  The Company  believes that its most  reasonably
likely worst case scenario is the failure of such a third party.  Such a failure
could result in, for example,  the inability of the Company to ship  product,  a
telecommunications  failure  at one or more of the  Company's  call  centers,  a
decrease in customer orders,  delays in product deliveries from vendors or power
outages at one or more of the  Company's  facilities.  The  Company's  Year 2000
project is expected to  significantly  reduce the Company's level of uncertainty
about the Year 2000 problem and, in particular,  about the Year 2000  compliance
and readiness of material External Parties.  The Company believes that, with the
completion of its Year 2000 project as scheduled, the possibility of significant
interruptions of normal operations should be reduced.


<PAGE>


                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                 (Continued)



Contingency Plans

As part of the Company's Year 2000 project, Year 2000-specific contingency plans
will be developed.  The Company  expects that these plans will be  substantially
completed by the end of February  1999,  but that the plans will  continue to be
modified as the Company obtains additional  information  regarding the Company's
internal  systems and equipment during the remediation and testing phases of its
Year 2000  program  and  regarding  the  status of the Year  2000  readiness  of
External  Parties.  In addition,  as a normal  course of  business,  the Company
maintains  and  deploys  contingency  plans  designed to address  various  other
potential business  interruptions.  These plans may be applicable to address the
failure of  External  Parties to provide  goods or  services to the Company as a
result of their failure to be Year 2000 ready.


Readers are cautioned that forward-looking statements contained under "Year 2000
Issues" should be read in conjunction with the Company's  disclosures  under the
heading: "SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION" on page ii.

VARIABILITY OF QUARTERLY RESULTS AND SEASONALITY

Historically,  the  Company  has  experienced  variability  in its net sales and
operating margins on a quarterly basis and expects these patterns to continue in
the  future.   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 of existing products;  and (iii) 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
characteristics  of the computer product  distribution  industry,  the Company's
revenues and earnings may be subject to material  volatility,  particularly on a
quarterly basis.

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 in 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" below.





<PAGE>


                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                 (Continued)



LIQUIDITY AND CAPITAL RESOURCES

Cash Flow Activity

Net cash provided by operating activities during the nine months ended September
30, 1998 was $118,773,000. The primary sources of cash from operating activities
include an increase in accounts  payable of  $124,867,000.  The primary  uses of
cash during the period  include a $48,654,000  increase in accounts  receivable.
The increase in accounts  payable  primarily  reflects the growth in the overall
business as well as the Company's  efforts to increase vendor financing  through
increased  credit limits and more  favorable  payment  terms.  The increase also
reflects a higher  level of  inventory  of one of the  Company's  large  vendors
resulting  from  purchases  made to offset the expected  effect of that vendor's
suspension of inventory  shipments during a subsequent  system  conversion.  The
increase in accounts receivable is related primarily to increased sales volume.

Net cash used in investing  activities was $22,684,000  consisting  primarily of
capital  expenditures  incurred in connection with the  implementation of SAP in
the U.S.  Capital  expenditures  were also  made for the  purchase  of  computer
equipment for internal use and for improvements of existing facilities.

Net cash  provided by financing  activities  was  $34,119,000  and was comprised
primarily of proceeds from the sale of accounts  receivable  under the Company's
asset securitization facilities.

Securitization Facilities

Funds  generated by the sale of  receivables  in the U.S.  are provided  through
Merisel  Capital  Funding,  Inc.  ("Merisel  Capital  Funding"),  a wholly owned
subsidiary of Merisel  Americas.  Merisel Capital Funding's sole business is the
ongoing  purchase of trade  receivables from Merisel  Americas.  Merisel Capital
Funding  sells  these   receivables,   in  turn,   under  an  agreement  with  a
securitization  company, whose purchases yield proceeds of up to $500,000,000 at
any point in time. The maximum  commitment under the facility was increased from
$300,000,000  to  $500,000,000  pursuant to an amendment  entered into effective
July 30,  1998.  Merisel  Capital  Funding is a separate  corporate  entity with
separate  creditors who, upon its liquidation,  are entitled to be satisfied out
of  Merisel  Capital  Funding's  assets  prior to any  value  in the  subsidiary
becoming available to the subsidiary's equity holder. The agreement, as amended,
expires October 2003.

Funds are also provided to Merisel Canada,  Inc.  ("Merisel  Canada")  through a
receivables purchase agreement with a securitization company. In accordance with
this agreement,  Merisel Canada sells receivables to the securitization company,
which yields proceeds of up to  CND$150,000,000.  The facility  expires December
12, 2000, but is extendible by notice from the securitization  company,  subject
to the Company's approval.

<PAGE>

                       MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                   FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                    (Continued)



Under these  securitization  facilities,  the receivables are sold at face value
with payment of a portion of the purchase price being deferred.  As of September
30, 1998, the total amount  outstanding under these facilities was $345,363,000.
Subsequent to September 30, 1998, a  substantial  portion of the Company's  cash
and cash  equivalents  was used to  reduce  the  amount  outstanding  under  the
securitization facilities. Fees incurred in connection with the sale of accounts
receivable  for the  three  and  nine  months  ended  September  30,  1998  were
$4,211,000 and $12,876,000  compared to $4,066,000 and $11,416,000  incurred for
the three and nine months  ended  September  30, 1997 and are  recorded as other
expense.

Debt Obligations, Financing Sources and Capital Expenditures

At September 30, 1998,  Merisel,  Inc. had  outstanding  $125,000,000  principal
amount of 12-1/2%  Senior  Notes due 2004 (the "12.5%  Notes").  The 12.5% Notes
provide for an interest rate of 12.5% payable semi-annually.  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,  asset sales or transfers,  dividends and other payments, the creation
of liens, sale-leasebacks, transactions with affiliates and certain mergers.

At September 30, 1998,  the Company had  promissory  notes  outstanding  with an
aggregate balance of $7,151,000.  Such notes provide for interest at the rate of
approximately 7.7% per annum and are repayable in 48 and 60 monthly installments
that  commenced  February 1, 1996,  with balloon  payments due at maturity.  The
notes  are  collateralized  by  certain  of  the  Company's  real  property  and
equipment.

Merisel Americas entered into a Loan and Security Agreement dated as of June 30,
1998 (the "Loan and Security  Agreement") with BankAmerica Business Credit, Inc.
("BA"), acting as agent, which provides for borrowings on a revolving basis. The
Loan and Security Agreement permits borrowings of up to $100,000,000 outstanding
at any one time  (including  face  amounts  of letters  of  credit),  subject to
meeting  certain  availability  requirements  under a borrowing base formula and
other limitations.  Borrowings under the Loan and Security Agreement are secured
by a pledge of  substantially  all of the  inventory  held by Merisel  Americas.
Borrowings  bear interest at the rate of LIBOR plus a specified  margin,  or, at
the Company's  option,  BA'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 September 30, 1998.


<PAGE>


                       MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                    FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                     (Continued)



In addition to its requirements for working capital for operations,  the Company
presently  anticipates that its capital expenditures will be between $35,000,000
and  $45,000,000  for  1998,  primarily  consisting  of  costs  associated  with
implementing  the SAP operating system (which includes all external direct costs
of materials and  services,  purchased  hardware and  software,  and payroll and
payroll-related   costs  of   employees   directly   associated   with  the  SAP
implementation),   developing  the  Company's   co-location  and   configuration
capabilities,  enhancing  electronic  services,  upgrading warehouse systems and
other Company facilities,  and building the Company's  infrastructure to support
growth. The Company intends to fund its capital  expenditures through internally
generated cash and long-term  financing.  The Company's capital expenditures for
1998 will result in a  significant  increase in  depreciation  expense in future
periods.

At  September  30,  1998,   the  Company  had  cash  and  cash   equivalents  of
$164,165,000.  A substantial  portion of the cash and cash equivalents  balance,
which is  significantly  larger than the Company's  average cash balances during
the  quarter,  was used to reduce the  amount  outstanding  under the  Company's
securitization facilities subsequent to September 30, 1998. The Company does not
intend to maintain this level of cash  balances.  In the opinion of  management,
anticipated  cash from  operations in 1998,  together  with  proceeds  under the
Company's  securitization  and revolving credit facilities and trade credit from
vendors,  will be sufficient to meet the Company's  requirements for the next 12
months.  This assumes,  however,  that there are not material adverse changes in
the  Company's  relationships  with  its  vendors,  customers  or  lenders.  Any
unforeseen event that adversely  impacts the industry or the Company's  position
in the  industry  could have a direct  and  material  unfavorable  effect on the
liquidity of the Company.

ASSET MANAGEMENT

Merisel attempts to manage its inventory  position to maintain levels sufficient
to achieve high product  availability  and same-day order fill rates.  Inventory
levels may vary from period to period,  due to factors  including  increases  or
decreases in sales levels,  Merisel's practice of making large-volume  purchases
when  it  deems  such  purchases  to be  attractive  and  the  addition  of  new
manufacturers and products.  The Company has negotiated  agreements with many of
its manufacturers which contain stock balancing and price protection  provisions
intended  to  reduce,  in part,  Merisel's  risk of loss due to  slow-moving  or
obsolete inventory or manufacturer price reductions.  The Company is not assured
that these  agreements  will  succeed in reducing  this risk.  In the event of a
manufacturer  price  reduction,  the  Company  generally  receives  a credit for
products  in  inventory.  In  addition,  the  Company  has the right to return a
certain percentage of purchases,  subject to certain limitations.  Historically,
price protection and stock return privileges, as well as the Company's inventory
management  procedures,  have  helped  to  reduce  the risk of loss of  carrying
inventory.  In recent months,  however,  certain computer systems  manufacturers
that are among the Company's  largest  vendors have  announced  changes in price
protection  and other  terms and  conditions  which could  adversely  affect the
Company.  The  Company  is working  closely  with  these  manufacturers  and has
developed buying procedures and controls to manage

<PAGE>



                        MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                     FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                      (Continued)



inventory purchases to minimize any adverse impact from these changes,  although
there is no assurance that such efforts will be successful.

The Company  purchases  foreign exchange  contracts to minimize foreign exchange
transaction  gains and losses.  The Company  intends to continue the practice of
purchasing foreign exchange contracts and is currently  considering  adjustments
to its hedging strategy to further minimize foreign exchange risks. 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.  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,  hardware and software leasing, and escrow programs.  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.

COMPETITION

Competition  in  the  computer  products   distribution   industry  is  intense.
Competitive factors include price, brand selection,  breadth and availability of
product offering,  financing options,  shipping and packaging accuracy, speed of
delivery,  level of training  and  technical  support,  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 include large United States-based
distributors and aggregators such as Gates/Arrow, Inacom, Ingram Micro, Pinacor,
SYNNEX  Information  Technologies,  Inc. and Tech Data  Corporation,  as well as
regional distributors and franchisers.

Merisel  also  competes  with  manufacturers  that  sell  directly  to  computer
resellers,  sometimes  at prices  below  those  charged by Merisel  for  similar
products. The Company believes its broad product offering, product availability,
prompt  delivery  and  support  services  may  offset  a  manufacturer's   price
advantage.  In addition,  many  manufacturers  concentrate their direct sales on
large computer  resellers  because of the relatively high costs  associated with
dealing with small-volume computer reseller customers.



<PAGE>


                             PART II - OTHER INFORMATION

Item 1. Legal Proceedings

         In June 1994, Merisel and certain of its officers and/or directors were
named in putative  securities  class actions filed in the United States District
Court for the Central  District of  California,  consolidated  as In re Merisel,
Inc.  Securities  Litigation.  The parties executed a Stipulation of Settlement,
which is  subject to  approval  by the  district  court.  Under the  settlement,
Merisel was not required to make any material payment.

        Effective  April 14, 1997, the Company entered into a Limited Waiver and
Voting Agreement (the "Limited Waiver  Agreement") with holders of more than 75%
of the outstanding  principal  amount of the Company's  12-1/2% Senior Notes due
2004 (the "12.5% Notes"). Pursuant to the terms of the Limited Waiver Agreement,
upon the  fulfillment  of certain  conditions,  holders of the 12.5% Notes would
exchange (the "Exchange") their 12.5% Notes for common stock of the Company (the
"Common Stock"),  which would equal  approximately 80% of the outstanding shares
of Common Stock  immediately  after the Exchange.  The Limited Waiver  Agreement
also provided that,  immediately  after the  consummation  of the Exchange,  the
Company  would issue certain  warrants to the existing  holders of Common Stock.
The  conditions  to the Exchange  were not met and, on September  19, 1997,  the
Limited Waiver Agreement  terminated in accordance with its terms.  Prior to the
termination  of the Limited  Waiver  Agreement  on September  19, 1997,  certain
disagreements  arose  between the Company and certain  holders of the  Company's
12.5% Notes ("Noteholders") over the interpretation of the Company's obligations
under the Limited Waiver Agreement,  including that the Limited Waiver Agreement
did not require  either the Board of Directors  of the Company (the  "Board") or
the Company to recommend to its stockholders  proposals relating to the proposed
debt  restructuring  in which the  Noteholders  would have exchanged their 12.5%
Notes for Common Stock (the "Noteholder Restructuring") and that the Company was
not obligated to seek confirmation of a "prepackaged  plan" of reorganization by
means of the "cramdown" provisions of the Bankruptcy Code. On September 4, 1997,
the  Company  filed suit in  Delaware  Chancery  Court (the  "Delaware  Action")
seeking a declaratory judgment with respect to these issues. The Company intends
to  vigorously  prosecute  its  claim in the  Delaware  Action.  There can be no
assurance,  however, that the Company will ultimately be successful with respect
to its claims.

        On  September  11,  1997,  certain  Noteholders  filed an  answer to the
Company's complaint in the Delaware Action as well as a counterclaim against the
Company  asserting  claims for breach of the Limited  Waiver  Agreement,  unjust
enrichment and a declaratory  judgment (the "Noteholder  Suit").  The Noteholder
Suit also asserts a claim for unjust  enrichment  against Dwight A.  Steffensen,
the Company's  Chief  Executive  Officer.  The Noteholder  Suit seeks damages in
excess of $100 million from the Company. The Company's alleged breaches include,
among other things,  that the Board changed its  recommendation  with respect to
proposals  relating  to  the  Noteholder  Restructuring.  The  Company  and  Mr.
Steffensen  filed  motions  for  judgment  on the  pleadings  on October 7, 1997
seeking to have the Noteholder Suit dismissed.  On January 5, 1998, the Delaware
Chancery Court (the "Court") denied both motions. Under the current schedule set
by the Court,  in February  1999 the Court will  consider  any summary  judgment
motions filed by the parties.  It is Merisel's  current intention to file such a
motion  although  there can be no certainty that the Court will resolve the case
by means of such a motion.  If the Court denies any such motion,  in whole or in
part,  or if the  parties  do not  elect  to file any such  motion,  trial  will
commence on March 15, 1999 or as soon thereafter as is convenient for the Court.

<PAGE>

The Company and Mr. Steffensen believe that they have strong defenses to each of
the claims asserted and intend to defend themselves vigorously.  There can be no
assurance, however, as to the ultimate outcome of these claims.

        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. The plaintiff alleges that certain executive  officers of
Media Vision  Technology,  Inc.  ("Media  Vision")  committed fraud and breached
fiduciary  duties  owed to  Media  Vision  through,  inter  alia,  the  improper
recognition  and  reporting  of sales,  revenue  and income  and the  failure to
properly  recognize and report  product  returns  during 1993 and 1994,  thereby
overstating  the  financial  condition  of  Media  Vision  as  reflected  in its
financial  statements for 1993. The plaintiff  further  alleges that the Company
aided,  abetted,  conspired  and/or made possible such acts and omissions of the
Media Vision executives.  The plaintiff seeks to recover  compensatory  damages,
including interest thereon,  exemplary and punitive damages, and costs including
attorneys'  fees.  On May 6, 1998,  the  Company  filed a motion to dismiss  the
complaint  on various  legal  grounds as well as a motion to strike the punitive
damages prayer. In response to the motions,  the plaintiff filed a first amended
complaint on August 31, 1998, adding a claim for unfair business practices under
California Business & Professions Code ss. 17200 and additional allegations. The
plaintiff's  filing  of an  amended  complaint  mooted  the  Company's  original
motions.  The Company has filed a motion to dismiss  the  amended  complaint  on
various  grounds  and a motion to strike  the  punitive  damages  prayer.  These
motions are set for hearing on January 14, 1999.  The Company  intends to defend
itself vigorously against this claim.

        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 5. Other Information

         The  Securities and Exchange  Commission  (the  "Commission")  recently
amended  certain rules under the  Securities  Exchange Act of 1934 regarding the
use  of a  company's  discretionary  proxy  voting  authority  with  respect  to
shareholder  proposals  submitted  to  the  Company  for  consideration  at  the
Company's next annual meeting.

         Shareholder proposals submitted to the Company outside the processes of
Rule 14a-8 (i.e.,  the  procedures for placing a  shareholder's  proposal in the
Company's proxy  materials) with respect to the Company's 1999 annual meeting of
shareholders  will be  considered  untimely if  received  by the  Company  after
February 24, 1999.  Accordingly,  the proxy with respect to the  Company's  1999
annual meeting of shareholders  will confer  discretionary  authority to vote on
any shareholder proposals received by the Company after February 24, 1999.



Item 6. Exhibits and Reports on Form 8-K

         (a)  Exhibits

         27     Financial Data Schedule for the quarter ended September 30, 1998


         (b) The  following  Reports on Form 8-K were filed  during the  quarter
             ended September 30, 1998.

                  None.





<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:  November 16, 1998

                                         Merisel, Inc.



                                         By     /s/Timothy N. Jenson
                                                -----------------------------
                                                Timothy N. Jenson
                                                Senior Vice President - Finance
                                                Chief Financial Officer