SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K
                        FOR ANNUAL AND TRANSITION REPORTS
                     PURSUANT TO SECTIONS 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

(Mark One)
[X]     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
        ACT OF 1934

        For the fiscal year ended January 1, 2000

                                       OR

[  ]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

        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       (I.R.S. Employer Identification No.)
       of incorporation or organization)

         200 Continental Boulevard
         El Segundo, California                     90245-0948
         (Address of principal executive offices)   (Zip Code)


Registrant's telephone number, including area code: (310) 615-3080

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$0.01 Par Value

     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 if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

     As of March 28, 2000,  the  aggregate  market value of voting stock held by
non-affiliates  of the  Registrant  based on the last sales price as reported by
the Nasdaq  National  Market  System  was  $48,350,397  (29,662,820  shares at a
closing price of $1.63).

     As of March 28, 2000, the Registrant had 80,309,046  shares of Common Stock
outstanding.

                       Documents Incorporated By Reference

Portions of the  Registrant's  definitive  Proxy  Statement  for its 2000 annual
meeting of stockholders are incorporated by reference into Part III.


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                                TABLE OF CONTENTS




                                                                                                              PAGE
                                     PART I

<S>   <C>                                                                                                     <C>
Item  1.  Business.......................................................................................     1
Item  2.  Properties.....................................................................................     9
Item  3.  Legal Proceedings..............................................................................     9
Item  4.  Submission of Matters to a Vote of Security Holders............................................     9

                                     PART II

Item  5.  Market for the Registrant's Common Equity and Related Stockholder Matters......................    10
Item  6.  Selected Financial Data........................................................................    11
Item  7.  Management's Discussion and Analysis of Financial Condition and Results of Operations..........    12
Item  7A. Quantitative and Qualitative Market Risk Disclosure............................................    21
Item  8.  Financial Statements and Supplementary Data....................................................    22
Item  9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...........    43

                                    PART III

Item  10. Directors and Executive Officers of the Registrant.............................................    44
Item  11. Executive Compensation.........................................................................    44
Item  12. Security Ownership of Certain Beneficial Owners and Management.................................    44
Item  13. Certain Relationships and Related Transactions.................................................    44

                                     PART IV

Item  14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K...............................    44


</TABLE>

<PAGE>


               SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION



         Certain  statements  contained  in this  Annual  Report  on Form  10-K,
including  without  limitation   statements  containing  the  words  "believes,"
"anticipates,"    "expects"   and   words   of   similar   import,    constitute
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended.  Such  forward-looking  statements  involve known and unknown risks,
uncertainties and other factors which may cause the actual results,  performance
or achievements of Merisel,  Inc. (the "Company"),  or industry  results,  to be
materially  different  from any  future  results,  performance  or  achievements
expressed or implied by such forward-looking statements.  These factors include,
but are not limited to, the effect of (i) economic  conditions  generally,  (ii)
industry  growth,  (iii)  competition,  (iv) liability and other claims asserted
against the Company,  (v) the loss of  significant  customers  or vendors,  (vi)
operating margins, (vii) business disruptions, (viii) the ability to attract and
retain qualified personnel,  and (ix) other risks detailed in this report. For a
detailed  discussion  of  certain  of these  factors,  see  "Business  - Certain
Business  Factors."  These factors are also discussed  elsewhere in this report,
including,   without   limitation,   under  the  captions   "Business,"   "Legal
Proceedings" and  "Management's  Discussion and Analysis of Financial  Condition
and Results of Operations." Given these uncertainties, readers are cautioned not
to  place  undue  reliance  on  such  forward-looking  statements.  The  Company
disclaims any obligation to update any such factors or to publicly  announce the
result of any revisions to any of the  forward-looking  statements  contained or
incorporated by reference herein to reflect future events or developments.


<PAGE>


                                     PART I

Item 1. Business.

Overview

Merisel,  Inc., a Delaware  corporation and a holding company (together with its
subsidiaries,  "Merisel" or the "Company"), is a leading distributor of computer
hardware and software products. Merisel markets products and services throughout
the United States and Canada,  and has achieved  operational  efficiencies  that
have  made it a valued  partner  to a broad  range  of  computer  resellers.  In
addition,  the  Company  supports  the  growth  of its  partners  with  business
development  and  educational  services,   expert  technical  support,  flexible
financing options,  certified configuration services, and progressive e-business
solutions. The Company distributes more than 35,000 products from the industry's
leading  hardware  and  software  manufacturers.   These  manufacturers  include
American Power Conversion,  Apple, Compaq,  Hewlett-Packard,  IBM/Lotus,  Intel,
Microsoft, 3Com, Sun Microsystems,  Symantec, Toshiba and ViewSonic. The breadth
of Merisel's  product line,  together with its extensive  distribution  network,
enables the Company to provide its  customers  with a single  supply  source and
prompt product delivery.

For a discussion of certain  business and other factors that may have an adverse
effect  on  the  Company,  see  "Certain  Business  Factors"  and  "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

The Company was  incorporated  in 1980 as Softsel  Computer  Products,  Inc. and
changed its name to Merisel,  Inc. in 1990 in connection with the acquisition of
Microamerica,  Inc.  ("Microamerica").  In the years following the  Microamerica
acquisition,  the Company's  revenues  increased  rapidly  through both internal
growth and acquisition.  This increase  reflected the substantial growth in both
domestic and  international  sales as the worldwide market for computer products
expanded and  manufacturers  increasingly  turned to wholesale  distributors for
product  distribution.  From 1996 through the first quarter of 1997, the Company
engaged in the  process of  divesting  of its  operations  outside of the United
States  and  Canada  and  its  non-distribution  operations.  See  "Management's
Discussion  and  Analysis of  Financial  Condition  and Results of  Operations -
Overview." As a result, the Company's  operations are now focused exclusively in
the United States and Canada.

From  March 1997  through  late 1999 the  Company,  through  its main  operating
subsidiary  Merisel Americas,  Inc.  ("Merisel  Americas") and its subsidiaries,
operated three distinct  business units:  United States  distribution,  Canadian
distribution and the Merisel Open Computing Alliance(R)  (MOCA(TM)).  At the end
of 1999,  Merisel  announced  plans to  restructure  and  combine  its U.S.  and
Canadian distribution  businesses.  The Company accomplished this reorganization
in early 2000 and began  operating two distinct North American  business  units:
North American  distribution  and MOCA.  Merisel's  North American  distribution
business  offers  a full  line of  products  and  services  to a broad  range of
reseller  customers,   including  value-added  resellers  ("VARs"),   commercial
resellers,  Internet  resellers and  retailers.  MOCA provides  enterprise-class
solutions for Sun Microsystems  servers and the Solaris  operating system to Sun
Microsystems-authorized resellers and consultants.  Effective April 3, 2000, the
operations of MOCA will be conducted by Merisel Open Computing Alliance, Inc. as
a wholly owned subsidiary of Merisel, Inc.

The Company's  sales were  approximately  $5.2 billion for 1999. Of these sales,
81.6% were generated by North American Distribution, and 18.4% were generated by
MOCA. On a geographical basis, 81.7% of these sales were generated in the United
States and 18.3% were generated in Canada. See "Notes to Consolidated  Financial
Statements - Note 13 - Segment Information."


The Industry

The primary  participants  in the computer  products  distribution  industry are
manufacturers,  wholesale  distributors  and  resellers.  The  supply  chain was
traditionally  based on a model through which  manufacturers would sell directly
to wholesalers,  resellers and end users;  wholesale  distributors would sell to
resellers;  and  resellers  would sell to other  resellers  and  directly to end
users.  As the industry  continues to mature,  the roles of channel  players are
becoming less clearly defined. Generally, full-line wholesale distributors, like
Merisel,  purchase a wide range of products in bulk directly from  manufacturers

<PAGE>

and  then  ship  products  in  smaller  quantities  to many  different  types of
resellers. Types of resellers include corporate resellers, value-added resellers
or "VARs,"  system  integrators,  original  equipment  manufacturers  or "OEMs,"
direct marketers, independent dealers, mass merchants and computer chain stores,
and resellers conducting business via the Internet  ("E-tailers").  In addition,
resellers  are often  defined  and  distinguished  by the  types of  value-added
services  they  provide and by the end-user  markets  they serve,  such as large
corporate accounts, small to medium-sized businesses, and home users.

Resellers  rely on wholesale  distributors  like Merisel for their broad product
offerings,  product  availability,  flexible financing  alternatives,  technical
support, and prompt and efficient delivery.  In addition, as resellers intensify
their focus on sales and  customer  service,  they are  increasingly  relying on
distributors for "back-office"  support services,  such as product  procurement,
configuration,  fulfillment,  logistics  and end-user  financing.  Manufacturers
benefit from using  wholesale  distribution as an alternative to direct sales to
resellers by not having to maintain large sales forces, warehouse facilities and
distribution  networks.  Manufacturers  also rely on wholesale  distributors  to
provide marketing and support services as well as credit for reseller customers.

The computer products distribution industry continues to experience double-digit
growth throughout North America. Recent trends in wholesale distribution include
custom   configuration  of  products  by  distributors,   various  supply  chain
management strategies to eliminate time and cost, and accelerated development of
electronic  commerce  and  information  systems.  Additional  industry  dynamics
include the rapid  emergence of Internet  and other  "virtual"  businesses  that
operate with minimal  infrastructure,  changing terms and conditions  from major
systems  manufacturers,  aggressive  pricing  practices and  continued  industry
consolidation.

In order to compete  more  effectively  and lower their  costs,  major  computer
systems manufacturers that rely on the two-tier distribution model have begun to
take  steps  to  reduce  their  own  inventories  and the  inventories  of their
distributors and resellers.  One such strategy is "co-location,"  which involves
the  distributor  occupying  space in the  manufacturer's  facility,  and taking
possession of and shipping the manufacturer's  product.  Configuration  services
may also be performed at the co-location  facilities.  Electronic  business,  or
eBusiness,  refers to the use of electronic systems and applications to exchange
information  and  transact  business.  These  systems and  applications  include
electronic  data  interchange,  or "EDI,"  and  Internet-based  order-entry  and
information systems.  Electronic business can simplify account set-up, ordering,
shipping and support, and thereby facilitate sales while decreasing both selling
and purchasing costs.  Electronic business continues to increase in significance
in the computer products distribution industry.


Business Strategy

Merisel is a full-line  wholesale  distributor  offering  leading  products  and
services to resellers at  competitive  prices.  The Company  provides  dedicated
sales support and customized programs and services to targeted customer groups.

Merisel  believes  that a high level of customer  satisfaction  is  important to
achieve  and  maintain  success  in  the  very  competitive   computer  products
distribution  industry.  The  Company  measures  customer  satisfaction  by such
standards as accuracy and  efficiency in the delivery of products,  services and
information.  Merisel  strives on an ongoing  basis to improve  its  operational
processes and achieve optimum levels of customer satisfaction.

Leading Products and Services. The Company's objective is to offer a broad range
of leading brands of systems, peripherals,  networking products and software. By
stocking a broad mix of products,  the Company  meets the needs of resellers who
prefer to deal with a single source for their product requirements.  The Company
continually  evaluates new products,  the demand for current  products,  and its
overall  product  mix,  and seeks to  develop  distribution  relationships  with
suppliers of products that enhance the Company's product  offering.  The Company
believes that the size of its reseller customer base,  combined with the breadth
and quality of its  marketing  support  programs,  gives  Merisel a  competitive
advantage over smaller,  regional  distributors  in developing  and  maintaining
supplier  relationships,  although the  Company's  larger  competitors  may have
advantages over the Company due to their size.

Customer  Groups.  Merisel  serves a variety of  reseller  channels,  which have
diverse product, financing and support requirements. Merisel was among the first
major  wholesale  distributors  in the  industry to offer its  various  customer
groups  a  customer-segmented  sales  force  as  well  as a  customized  product
offering, financing programs, and

<PAGE>


marketing and technical support  programs,  all of which are tailored to address
the differing  needs of these customer  groups.  The Company intends to continue
focusing  on the  profitability  of the  markets it serves in order to  identify
customer opportunities and develop sales and marketing programs that serve these
groups most effectively.

2000 Initiatives.  To capitalize on its strengths and differentiate Merisel from
its  competitors  in 2000,  the Company is focused on key  initiatives  aimed at
generating new ways to support its customers,  increase sales and gross margins,
and enhance stockholder  returns.  The Company is focused on expanding its reach
to  specific  customer  groups  that  offer   significant   revenue  and  margin
opportunities,  such as VARs,  Internet  and  other  "virtual"  businesses,  and
high-end  resellers  that  offer  enterprise-computing   solutions.  Merisel  is
leveraging its North American strategy to increase operating  efficiencies while
uniquely providing seamless, cross-border service to its customers. In addition,
the Company is working with its  manufacturer  partners to improve  efficiencies
and eliminate costs within the computer products supply chain.  Lastly,  because
Merisel views  electronic  business as a key  competitive  area,  the Company is
leveraging its  state-of-the-art  SAP(TM) R/3(R)  operating system to accelerate
development of its eBusiness initiatives.

Products and Suppliers

Merisel has established and developed long-term business relationships with many
of the leading  manufacturers in the computer products  industry.  The Company's
suppliers  number  approximately  500 and include Adobe Systems,  American Power
Conversion,   Apple,  Compaq,   Computer   Associates,   Corel,  Epson  America,
Hewlett-Packard, IBM/Lotus, Intel, Intuit, Iomega, Kingston Technology, Lexmark,
Microsoft,  NEC Technologies,  Network Associates,  Novell,  Okidata,  Sony, Sun
Microsystems, Symantec, 3Com, Toshiba, ViewSonic and Western Digital. Merisel is
one of  only  three  distributors  in  North  America  authorized  to  sell  Sun
Microsystems products.

Merisel enters into written  distribution  agreements with the  manufacturers of
the products it distributes.  As is customary in the industry,  these agreements
usually provide non-exclusive  distribution rights and often contain territorial
restrictions  that  limit  the  countries  in  which  Merisel  is  permitted  to
distribute the products.  The Company's suppliers generally warrant the products
distributed by the Company and allow the Company to return  defective  products,
including those that have been returned to the Company by its customers, as well
as products  discontinued  by the supplier.  The  agreements  generally  provide
Merisel with  stock-balancing  and  price-protection  provisions  that partially
reduce  Merisel's  risk of loss due to  slow-moving  inventory,  supplier  price
reductions,   product  updates  or  obsolescence.   Stock  balancing  provisions
typically  give the  distributor  the right to return for credit or exchange for
other products a portion of the inventory items  purchased,  within a designated
period  of  time,  but  are not  generally  provided  by the  major  PC  systems
manufacturers.  Under  price-protection  provisions,  suppliers  will credit the
distributor for declines in inventory value resulting from the supplier's  price
reductions if the distributor complies with certain conditions.  In the past two
years,  however,  certain  major PC  manufacturers  that are among the Company's
largest  vendors  have  reduced  the   availability  of  price   protection  for
distributors  by  shortening  the time  periods  during which  distributors  may
receive  rebates  or  credit  for  decreases  in  manufacturer  prices on unsold
inventory and have changed other terms and conditions. Through buying procedures
and controls to manage inventory  purchases,  the Company seeks to reduce future
potential adverse impact from these changes while balancing the need to maintain
sufficient levels of inventory.  There is no assurance that such efforts will be
successful in the future in preventing a material adverse effect on the Company.
The Company's  agreements with its suppliers,  which generally have a term of at
least one year,  may contain  minimum  purchase  amounts and  generally  contain
provisions permitting early termination by either party upon written notice.

Current manufacturer programs toward which Merisel is devoting resources include
co-location and configuration.  Co-location involves  establishing  distribution
operations jointly with a systems manufacturer within their facility in order to
take steps,  time and costs out of the  distribution  process.  The  distributor
takes  possession of the  manufacturer's  product on-site at the  manufacturer's
facility and ships it directly to the customer.  Since October 1998, Merisel has
operated a co-location  operation  with IBM in IBM's  Raleigh,  North  Carolina,
facility. Configuration involves the assembly of computer products from multiple
vendors into a single unit or system that  conforms to the specific  needs of an
individual end user. While at one time  configuration was a very minor aspect of
a  wholesale  distributor's  business,  it has  become  a  major  initiative  as
manufacturers  outsource  this segment of production to wholesale  distributors.
Through 1996, Merisel  outsourced its configuration  business to two third-party
providers.  In 1997,  the  Company  took  these  responsibilities  in-house  and
currently  performs system  configuration in its Hayward,  California,  Toronto,
Canada, and Raleigh, North Carolina facilities. For each of these

<PAGE>


facilities,  Merisel has obtained ISO 9002  certification,  which is required by
certain  systems  manufacturers.  The Company will  continue to evaluate  market
trends  and  adapt  its  strategy  to meet the  evolving  needs of its  business
partners.

Although Merisel distributes more than 35,000 products and accessories  supplied
by approximately 500 manufacturers, 75% of net sales in 1999 (as compared to 73%
in 1998 and 69% in 1997) were  derived  from  products  supplied by Merisel's 10
largest vendors. The sale of products manufactured by Sun Microsystems,  Compaq,
Hewlett-Packard  and Microsoft  accounted for  approximately  18%, 15%, 14%, and
10%,  respectively,  of net sales in 1999 (as compared to 13%, 12%, 13% and 13%,
respectively,  in 1998,  and 12%,  10%,  12% and 15%,  respectively,  in  1997).
Because reseller customers often prefer to deal with a single source for many of
their  product  needs,  the loss of the  ability to  distribute  a  particularly
popular  product could result in losses of sales  unrelated to the product.  The
loss of a direct  relationship  between the Company and any of its key suppliers
could have an adverse impact on the Company's business and financial results.

Merisel  provides its  manufacturers  with access to one of the largest bases of
computer  resellers in North America,  as well as the means to reduce inventory,
credit,  marketing and overhead  costs  typically  associated  with  maintaining
direct reseller relationships.  Through its product-marketing group, the Company
develops and  implements  promotional  programs for  specific  manufacturers  to
increase  customer  purchasing depth and breadth.  Promotional  programs include
bundled offers,  growth-goal incentives, and reseller training events as well as
channel   communication   vehicles  such  as  targeted   direct  mail,  fax  and
advertising.

Customers and Customer Services

In 1999,  Merisel sold products and services to  approximately  30,000  computer
resellers  throughout North America.  Merisel's  smaller  customers often do not
have  the   resources  to   establish  a  large  number  of  direct   purchasing
relationships  or stock  significant  product  inventories,  nor can  they  meet
manufacturers'  minimum  purchase  requirements  or  obtain  acceptable  credit.
Consequently,  they tend to purchase a high  percentage  of their  products from
distributors  such as Merisel,  which can meet their inventory needs quickly and
efficiently.   Larger  resellers  often  establish  direct   relationships  with
manufacturers  for their more  popular  products  but utilize  distributors  for
slower-moving  products and for fill-in orders of fast-moving  products that may
not be available on a timely basis from  manufacturers.  The Company has limited
contracts with some of its reseller customers,  which contracts generally have a
short term or are terminable at will and have no minimum purchase  requirements.
No single  customer  accounted  for more than 5% of Merisel's net sales in 1999,
1998 or 1997.

Single-Source  Provider.  Merisel offers computer  resellers a single source for
more than  35,000  competitively  priced  hardware  and  software  products.  By
purchasing  from  Merisel,  resellers  need  only  comply  with a single  set of
ordering, billing and product-return procedures. Resellers may also benefit from
attractive volume pricing and financing programs. In addition,  within specified
time limits and/or specified volume limits,  resellers are generally  allowed to
return products for credit to be applied against future purchases from Merisel.

Customers  and  Sales  Organizations.  The  sales  organization  supporting  the
Company's  North  American  distribution  business  is  structured  to serve the
varying  requirements  of the different  customer  groups in the  industry.  The
Company's North American  distribution  business is organized into three primary
sales  divisions to serve VARs,  national/major  accounts,  and  retail/Internet
customers.  The VAR division offers specialized  services and technical products
to value-added resellers, system integrators and OEMs who offer service, support
and consulting to clients in addition to selling  computer  products.  Other key
elements of  Merisel's  VAR  strategy  include its Value  Added  Services  team,
providing a range of programs and services for resellers' use or sales,  and its
Electronic and Technology  Support  Services  (eTSS) team,  providing  technical
support.   The  national/major   accounts  division  offers   direct-fulfillment
services,  EDI transaction support, and dedicated field and inside sales support
to large-volume national accounts,  while the retail/Internet division primarily
services mass merchants,  computer chain stores and Internet resellers.  Because
of the specialized  nature of servicing the needs of customers who sell products
directly  to the  federal,  state  and  local  governments  and  to  educational
institutions,  the Company has also created a dedicated Government and Education
sales team.


<PAGE>



The  Company's  sales force is  comprised  of  dedicated  field and inside sales
representatives.  Merisel's  account managers in the field determine  resellers'
business needs and execute specific account plans to mutually grow business. The
Company's inside sales and technical  specialists are trained for efficiency and
responsiveness. This efficiency is augmented by Merisel's screen-synchronization
technology,  which  automatically  displays  a  customer  profile  on the  sales
representative's  computer  screen when a customer calls Merisel.  The Company's
systems  allow  its  sales  representatives  to enter  customer  orders,  obtain
descriptive  information regarding products,  check inventory status,  determine
customer  credit   availability,   and  obtain  special  pricing  and  promotion
information. In addition,  customers may access SELline II, Merisel's electronic
business and information  service,  which offers ordering  options and access to
the above information 24 hours a day, seven days a week.

Customers of MOCA are authorized by Sun  Microsystems  to purchase from only one
of  its  three  North  American  distributors,  and  may  generally  change  the
distributor  with whom they deal  only  once per year.  MOCA  provides  customer
support  through  dedicated  sales  account  executives,   business  development
managers,    technical   support   systems    engineers,    financial   services
representatives, and marketing and reseller services teams. This unique coverage
model has created an unparalleled  business  proposition  for resellers  selling
enterprise solutions.  In addition,  MOCA is focused on providing innovative new
service  solutions to serve its business  partners in an evolving  industry.  In
March   2000,   the   Company    announced   an   exclusive    outsourcing   and
product-fulfillment  agreement  between MOCA and Stonebridge  Technologies.  The
two-year  agreement is the first of its kind in the Sun channel and involves the
outsourcing  of a number of services  to MOCA,  including  product  procurement,
configuration,  fulfillment,  logistics and financial services. MOCA will pursue
similar customer opportunities in the future.

Prompt Delivery.  In the United States and Canada,  orders received by 5:00 p.m.
local time are typically shipped the same day,  provided the required  inventory
is in stock.  As part of a  continuing  effort to  improve  accuracy,  Merisel's
Information and Logistics Efficiency System ("MILES") was first installed in the
Company's Atlanta  distribution  center in early 1994. By 1996,  installation of
this custom, computerized  warehouse-management system was completed in all nine
of Merisel's North American distribution  centers.  Merisel has also established
MILES environments as part of its co-location  strategy in IBM's Raleigh,  North
Carolina,  facility. The successful implementation of MILES has resulted in high
rates of inventory and shipping accuracy. The Company believes that its shipping
accuracy rates are the highest in the industry at 99.993%.

Merisel typically delivers products from its regional  distribution  centers via
United  Parcel  Service,  Federal  Express,  Purolator  Courier and other common
carriers in North  America.  Most  customers  receive  orders  within one or two
working days of shipment.  Merisel also  provides  customer-paid  overnight  air
handling upon request.  These  services  allow  resellers to minimize  inventory
investment  and serve their  customers  responsively.  To expedite  delivery and
further  minimize  reseller  inventories,   Merisel  also  provides  fulfillment
services,  through  which  the  Company  ships  orders  directly  to  resellers'
customers.

Financing Programs.  Merisel's credit policy for qualified resellers  eliminates
the need for them to establish multiple credit relationships with a large number
of  manufacturers.  In  addition,  the  Company  arranges  floor-plan  and lease
financing  through  a number of  credit  institutions  and  allows  credit  card
purchases by qualified  customers.  Merisel's  Direct Ship program  provides for
direct  shipment to and billing of the  reseller's  customer.  To allow  certain
resellers to purchase  larger orders in the United States,  the Company can also
arrange  alternative  financing  through its escrow programs as well as selected
bid-financing arrangements.

Information  Services.  Merisel  provides its reseller  customers  with detailed
information on products,  pricing,  promotions and developments in the industry.
Merisel's  corporate Web site and SELline II offer technical product information
on thousands of products  and links to more than 350 of the  industry's  leading
manufacturers. In addition, resellers can obtain current information on programs
and services,  daily product  promotions,  and strategic Merisel  announcements.
They can also download  return-authorization  and system-return forms, and track
product shipments with links to UPS and Federal Express. Merisel's Web site also
offers secure,  24-hour access to SELline II, Merisel's  electronic business and
information  service,  so resellers can place their product  orders  through the
site.   SELline  II  provides   resellers  with  real-time   access  to  pricing
information,  credit information,  technical descriptions,  product availability
and  promotional  information.  Currently  SELline II has  approximately  40,000
enrollees in the

<PAGE>


U.S.  and  Canada.  Merisel  also  utilizes  EDI  systems to allow  large-volume
customers to communicate  with the Company's  computer system directly for order
processing  and account data.  The Company also offers API  business-to-business
connections, which allow resellers and vendors to directly connect their systems
to Merisel's SAP system, enabling supply-chain integration and synchronization.

Training  and  Technical  Support.   Through  Merisel's  Value  Added  Services,
resellers and their  customers can choose from a broad  selection of services to
augment their  offerings to their end-user  customers or directly  benefit their
businesses. The Company's Technical Training Group offers technical and software
training in partnership with leading educational  institutions  throughout North
America. In addition, Services Sales Advocates are available to assist resellers
with services that go beyond those covered under normal warranty  provisions for
IBM,   3Com,   HP,   Compaq   and   Philips   Magnavox    products.    Merisel's
manufacturer-dedicated  product  specialists  also  represent 29 vendors and are
available to assist the  Company's  sales force in closing  sales.  Merisel also
offers installation, data-retrieval and help-desk services.

Merisel's VAR Business Builder program,  launched in October 1998 across Canada,
rewards VARs for sales growth,  and helps them reduce  expenses and maximize new
profit  opportunities  in  cutting-edge  markets.  Through the program,  Merisel
resellers  earn  points  that can be  redeemed  for  business  tools,  marketing
services and promotional items. Participants are also invited to attend Business
Builder  seminars  at no cost.  In 2000,  Merisel is  augmenting  the program by
dedicating  resources to determine new vertical-market  opportunities and assess
needs in these areas.  The information will be used in future seminar topics and
help Merisel sales teams assist resellers with business development.

Merisel provides resellers with direct access to the Company's technical support
engineers  through  a  dedicated  hotline,  offering  specialized  pre-sale  and
post-sale  technical  support for product  lines sold by Merisel.  In  addition,
Merisel's  technical  engineers  provide regular product  training for Merisel's
sales  representatives  to help them increase their product  knowledge and their
ability to answer resellers' questions.


Operations, Distribution and Systems

Locations.  At December 31, 1999, the Company operated nine distribution centers
throughout  North  America:  seven in the United  States and two in Canada.  The
Company  also  operates  a  specialized  distribution  center  as  part  of  its
co-location strategy at IBM's Raleigh, North Carolina, facility.

Systems.  Merisel has made  significant  investments  in advanced  computer  and
warehouse  management systems for its North American operations to support sales
growth  and  improve  service  levels.  All of  Merisel's  nine  North  American
distribution  centers and its  Raleigh,  North  Carolina,  co-location  facility
utilize the MILES computerized  warehouse management system, which uses infrared
bar coding and advanced  computer  hardware  and  software to improve  shipping,
receiving and picking  accuracy rates.  See "Customers and Customer  Services --
Prompt Delivery" above.

In 1993,  the Company  began  designing an SAP R/3  enterprise-wide  information
system that would  integrate all  functional  areas of the  business,  including
sales and distribution, inventory management, financial services, and marketing,
in a real-time  environment.  Merisel  converted its Canadian  operations from a
mainframe  system  to the  new SAP  system  in  August  1995,  and  successfully
completed  the  conversion  of its  North  American  operations  in April  1999.
Providing a common platform for Merisel's North American  distribution  and MOCA
businesses,  the new system is designed to support  business growth by providing
greater transaction  functionality,  increased  flexibility,  enhanced reporting
capabilities, and custom-pricing applications.

Since April 1999, system  performance,  stability and availability have improved
significantly.  SAP performs with  sub-second,  on-line response time and has an
average  systems-availability  rate of 99.999 percent.  Availability  for all of
Merisel's  core systems has averaged 99.9 percent or above since April 1999. SAP
also enforces a high degree of data integrity,  which better supports  Merisel's
reporting needs both through SAP and Merisel's data warehouse system.


<PAGE>


In addition, SAP has provided a solid base for application development, allowing
Merisel to expedite the development cycle for functionality  improvements in the
system. SAP has enabled new systems capabilities benefiting government resellers
and numerous  advancements in Merisel's electronic commerce offering,  including
enhancements  to SELline II, the Company's  electronic  business and information
service.  Since  April  1999,  electronic  order  placement  via  SELline II has
increased by more than 400 percent,  and Web/SELline traffic has increased by 83
percent to 12.7 million "hits" per month. In 1999, over 55 percent of all orders
received by Merisel were processed electronically.

Competition

Competition  in  the  computer  products   distribution   industry  is  intense.
Competitive  factors  include price,  breadth and  availability  of products and
services, credit availability and financing options, shipping accuracy, speed of
delivery,  availability of technical support and product information,  marketing
services and programs, and ability to influence a buyer's decision.

Certain of Merisel's  competitors have substantially greater financial resources
than  Merisel.   Merisel's   principal   competitors   for  its  North  American
distribution  business include large United  States-based  distributors  such as
Ingram  Micro,  Pinacor  and Tech Data,  as well as  regional  distributors  and
franchisers. MOCA's competitors are GE Access, which is owned by GE Capital, and
Ingram Micro.

Merisel  also  competes  with  manufacturers  that  sell  directly  to  computer
resellers and end users,  sometimes at prices below those charged by Merisel for
similar products, and larger resellers and E-tailers that sell to resellers. 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  resellers.

See  "Certain  Business  Factors  - Size  of Competitors; - Direct Sales by
Manufacturers" below.

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  to  existing  products;  (iii)
intensity  of  price  competition  among  the  Company  and its  competitors  as
influenced by various  factors;  and (iv) the fact that virtually all sales in a
given  quarter  result from orders  booked in that  quarter.  Due to the factors
noted  above,  as  well  as  the  dynamic  qualities  of the  computer  products
distribution  industry,  the  Company's  revenues and earnings may be subject to
material volatility,  particularly on a quarterly basis, and the results for any
quarterly period may not be indicative of results for a full fiscal year.

Additionally,  in the U.S.  and Canada,  the  Company's  net sales in the fourth
quarter  have  been  historically  higher  than  in its  other  three  quarters.
Management believes that the pattern of higher fourth-quarter sales is partially
explained by customer buying patterns relating to calendar year-end business and
holiday  purchases.  As a result of this pattern,  the Company's working capital
requirements  in the fourth  quarter  have  typically  been  greater  than other
quarters.  Net sales in the Canadian  operations are also historically strong in
the first quarter of the fiscal year,  which is primarily due to buying patterns
of Canadian  government  agencies.  See  "Management's  Discussion  and Analysis
Financial   Condition   and  Results  of  Operations  -  Liquidity  and  Capital
Resources."

Employees

As of January 31,  2000,  Merisel had  approximately  2,400  employees.  Merisel
continually  seeks to enhance  employee morale and strengthen its relations with
employees.

Environmental Compliance

The Company believes that it is in substantial compliance with all environmental
laws applicable to it and its operations.

Certain Business Factors

In addition to the other  information  in this report,  readers are cautioned to
carefully  consider the  following  business  factors that may affect the future
operations and performance of the Company.

Decline in Gross  Margins.  Over the past few years,  the computer  distribution
industry in general and the Company in particular have experienced a significant
decline in gross margins.  Competitive  pricing  pressures  escalated during the
fourth quarter of 1998 and continued in 1999. In addition,  the Company's  gross
margins have been  significantly  affected  over the last several  quarters by a
reduction  in  manufacturer  rebates and changes by  manufacturers  in terms and
conditions,  which have resulted in a shift of costs to distributors.  While the
Company  has  taken  actions  in  recent  years   intended  to  improve   margin
performance,  gross  margins have  continued to decline  primarily  due to these
factors.  In the  fourth  quarter  of 1999 and the first  quarter  of 2000,  the
Company has addressed the gross margin issue by implementing a series of pricing
actions to adjust for these factors.  If the Company's efforts to increase gross
margins  are not  successful  or if an increase  in gross  margins  results in a
significant  decline  in sales  volumes  without  a  corresponding  decrease  in
operating expenses,  the Company may not be able to achieve  satisfactory levels
of profitability.

Vendor Terms and Conditions.  Like other wholesale  distributors,  the Company's
business is subject to the risk that the value of its inventory will be affected
adversely by vendor price reductions or by product  obsolescence  resulting from
technological changes or product updates. It is the policy of most manufacturers
of microcomputer  products to protect  distributors  who purchase  directly from
them from the loss in value of  inventory  due to  product  obsolescence  or the
manufacturer's  price  reductions.  Over the last two  years,  certain  major PC
manufacturers  that are among the  Company's  largest  vendors  have reduced the
availability of price  protection for  distributors  and changed other terms and
conditions.   Through  buying   procedures  and  controls  to  manage  inventory
purchases,  the Company seeks to reduce  potential  future  adverse  impact from
these  changes  while  balancing  the  need to  maintain  sufficient  levels  of
inventory.  Notwithstanding these efforts, the Company's results during the past
few quarters have been adversely  affected by the reduced  availability of price
protection.  There is no assurance  that such efforts will be  successful in the
future in  preventing  a  material  adverse  effect on the  Company.  Unforeseen
changes in  current  price  protection  policies  or other  changes in terms and
conditions of any of the Company's  major vendors could have a material  adverse
effect on the Company.

Dependence on Key Vendors.  In 1999, 75% of the Company's net sales were derived
from products  supplied by the Company's 10 largest vendors,  as compared to 73%
in 1998 and 69% in 1997. The Company's large vendors generally provide incentive
funds for  marketing  that are based on sales  levels of their  products.  These
incentive funds contribute substantially to the Company's  profitability.  As is
customary in the industry,  the Company's  agreements with these vendors provide
non-exclusive  distribution rights and may generally be terminated by the vendor
on short notice.  The termination of the Company's  distribution  agreement with
one of its key vendors,  or a material  change in the terms of the  distribution
agreement,  including  a  decrease  in  incentive  funds,  could have a material
adverse effect on the Company.  In the past two years, many vendors have reduced
the  incentive  funds they pay to  distributors  or increased  the sales volumes
required to receive  various  levels of incentive  funds,  which has  negatively
affected  the  Company's  profitability.  Over  the  last  year,  several  large
manufacturers  have  elected  to reduce  their  number  of  direct  distribution
relationships,  and the Company  expects  that this trend is likely to continue.
Although  the  Company  has not  been  terminated  as a  distributor  for  these
manufacturers,  future  decisions  by  manufacturers  to reduce  their number of
distribution partners could result in the Company's loss of vendors, which could
have a material adverse effect on the Company.

Size of Competitors.  The Company's  competitors  include  distributors that are
substantially larger than the Company, partially as a result of the trend toward
consolidation  in the industry.  Because of their size,  these firms can achieve
greater  economies  of scale than the Company  and may be able to form  stronger
relationships  with  manufacturers.  The Company  does not  believe  that it can
achieve  operating  expense levels as a percentage of sales as low as those that
can be achieved  by its much  larger  competitors.  A  continuation  of industry
consolidation  not involving the Company may exacerbate this  disadvantage.  See
"Competition" above.

Direct Sales by  Manufacturers.  Several  computer  product  manufacturers  have
expanded their direct selling  efforts to resellers and end users.  Although the
Company does not believe that its  business has been  significantly  affected by
these   developments,   continued  efforts  by  manufacturers  to  change  their
businesses to compete with the direct

<PAGE>


sales model may  adversely  the Company.  The Company  believes  that the direct
sales business will grow faster than sales through the distribution  channel and
that  consolidation  of resellers,  who are the customers of  distributors,  may
contribute  to such  differential.  An increase  in sales of  computer  products
outside the traditional  distribution channel may have a material adverse effect
on the Company.

Item 2. Properties.

At December  31,  1999,  the Company  maintained  distribution  centers in seven
locations  throughout  the  United  States  and  in  two  locations  in  Canada.
Additionally,  the Company  maintains  United  States  administrative  and sales
offices in El Segundo, California;  Marlborough,  Massachusetts; and Cary, North
Carolina,  as well as  Canadian  administrative  and sales  offices in  Toronto,
Ontario; Montreal, Quebec; and Vancouver, British Columbia.

The  Company's  headquarters  are located in El Segundo,  California,  where the
Company owns an 112,500 square-foot facility,  leases another 50,700 square-foot
facility and leases 23,000  square feet in a third  building.  In addition,  the
Company owns a 61,000  square-foot  facility and 29 acres of undeveloped land in
Cary,  North  Carolina.  All of the Company's other  facilities are leased.  The
Company  believes that its facilities  provide  sufficient space for its present
needs, and that additional suitable space will be available on reasonable terms,
if needed.

Item 3. Legal Proceedings.

On March 16, 1998, the Company  received a summons and  complaint,  filed in the
Superior  Court of  California,  County of Santa  Clara,  in a matter  captioned
Official  Unsecured  Creditors  Committee  of Media Vision  Technology,  Inc. v.
Merisel,  Inc. 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 filed a motion to
dismiss  the  amended  complaint  on various  grounds and a motion to strike the
punitive  damages prayer.  In its opposition to the Company's  motion to strike,
the plaintiff withdrew its prayer for punitive damages. On January 15, 1999, the
Court issued an Order  staying  prosecution  of the action under the doctrine of
exclusive  concurrent  federal  jurisdiction.  Plaintiff  filed a motion to seek
relief from the stay and in October  1999 such motion was  granted.  The Company
renewed its motion to dismiss and on January 28, 2000 the judge entered an order
granting the Company's  motion to dismiss,  and granting the plaintiff  leave to
amend its complaint with respect only to the unfair  business  practices  claim.
The Company has defended itself vigorously  against this claim and will continue
to do so.

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.



Item 4. Submission of Matters to a Vote of Security Holders.

None.




<PAGE>


                                     PART II


Item 5. Market for the Registrant's Common Equity and Related Stockholder
       Matters.

The Company's  Common Stock is traded on the National  Market tier of the Nasdaq
Stock Market under the symbol MSEL. The following table sets forth the quarterly
high and low sale  prices  for the  Common  Stock as  reported  by the  National
Market.

                                            High              Low
                Fiscal Year 1998
                     First quarter....       4 1/2            2 3/4
                     Second quarter...       3 1/2            2 3/4
                     Third quarter....       3 1/2            2 1/8
                     Fourth quarter...       3 1/4            2
                Fiscal Year 1999
                     First quarter....       2 7/8            1 1/4
                     Second quarter...       3 3/16           1 5/32
                     Third quarter....       2 7/16           1 1/2
                     Fourth quarter...       1 25/32          1 5/32


As of March 28, 2000,  there were 958 record  holders of the Company's  Common
Stock.

Merisel has never declared or paid any dividends to stockholders.  The indenture
relating to the Company's 12-1/2% Senior Notes due 2004 currently  prohibits the
payment of dividends by the Company.  See "Management's  Discussion and Analysis
of  Financial  Condition  and  Results of  Operations  -  Liquidity  and Capital
Resources."


<PAGE>
<TABLE>
<CAPTION>


Item 6. Selected Financial Data.

                                                                       Year Ended December 31,
                                                   -------------------------------------------------------------
                                                    1995          1996         1997          1998          1999
                                                   -------        -----        -----         -----         -----
                                                              (In thousands, except per share amounts)

<S>                                             <C>           <C>          <C>           <C>            <C>
Income Statement Data:(1 & 2)
Net sales.....................................  $ 5,955,765   $ 5,521,475   $ 4,047,621  $ 4,550,977    $5,188,679
Cost of sales.................................    5,633,278     5,233,570     3,807,888    4,298,553     4,947,626
                                                -----------   -----------   -----------   ----------    ----------
Gross profit..................................      322,487       287,905       239,733      252,424       241,053
Selling, general & administrative expenses....      314,523       292,023       188,404      195,468       235,471
Litigation related charge.....................                                                              12,000
Restructuring charge..........................        9,333                                                  3,200
Impairment losses.............................       51,383        42,033        14,100                      3,800
                                                -----------   -----------   -----------   ----------    ----------
Operating (loss) income.......................      (52,752)      (46,151)       37,229       56,956       (13,418)
Interest expense..............................       39,053        39,080        28,608       17,125        17,849
Loss on sale of European, Mexican, and
Latin American operations.....................                     33,455
Debt Restructuring Costs......................                                    5,230
Other expense, net............................       13,885        20,150        14,992       20,904        28,962
                                                -----------   -----------   -----------   ----------    ----------
(Loss) income before income taxes.............     (105,690)     (138,836)      (11,601)      18,927       (60,229)
(Benefit) provision for income taxes..........      (21,779)        1,539           496          417           939
                                                -----------   -----------   -----------   ----------    ----------
Net (loss) income Before Extraordinary Item...      (83,911)     (140,375)      (12,097)      18,510       (61,168)
Extraordinary Loss on Extinguishment of
   Debt.......................................                                    3,744
                                                -----------   -----------   -----------   ----------    ----------
Net (loss) income.............................     $(83,911)    $(140,375)     $(15,841)     $18,510      $(61,168)
                                                ============  ===========   ===========   ==========    ==========
Per Share Data:
Net (loss) income per diluted share...........  $    (2.82)   $    (4.68)   $      (.48) $       .23   $      (.76)
Weighted average number of diluted shares.           29,806        30,001        33,216       80,485        80,279
Balance Sheet Data:
Working capital...............................  $   280,864   $   190,544   $   197,154  $   181,742   $   116,616
Total assets..................................    1,230,334       731,039       747,111      945,320       805,795
Long-term and subordinated debt...............      356,271       294,763       133,429      131,856       130,264
Total debt....................................      382,395       294,950       133,429      135,657       133,170
Stockholders' equity..........................      154,466        14,997       137,508      154,253        95,173

</TABLE>


(1)  Merisel's  fiscal year is the 52- or 53-week  period ending on the Saturday
     nearest to December 31. For clarity of presentation  throughout this Annual
     Report on Form 10-K, Merisel has described fiscal years presented as if the
     year ended on December 31. Except for 1997, all fiscal years presented were
     52 weeks in duration.  The selected financial data set forth above includes
     those balances and activities related to the Company's  Australian business
     until its disposal  effective  January 1, 1996 and the Company's  European,
     Mexican and Latin  American  businesses  until their disposal on October 4,
     1996,  effective as of  September  27, 1996.  It also  includes  results of
     Merisel FAB (as defined  below) from the date such business was acquired on
     January  31,  1994  through  its  disposal  as  of  March  28,  1997.   See
     "Management's Discussion and Analysis of Financial Condition and Results of
     Operations."

(2)  The Company has reclassified certain items in its 1995, 1996, 1997 and 1998
     financial   statements   to  conform  to  the  1999   presentation.   These
     reclassifications   principally   consist  of  costs  associated  with  the
     Company's  flooring  arrangements.  The impact to the 1995,  1996, 1997 and
     1998 financial statements is to reduce general and administrative  expenses
     by $2,672,000,  $2,998,000,  $3,002,000 and  $4,461,000,  respectively,  to
     decrease net sales by $1,202,000,  $1,349,000,  $1,351,000 and  $2,007,000,
     respectively,  and to increase interest expense by $1,470,000,  $1,649,000,
     $1,651,000, and $2,454,000, respectively.



<PAGE>


Item 7. Management's Discussion and Analysis of Financial Condition and Results
        of Operations.


Overview

The Company was founded in 1980 as Softsel Computer  Products,  Inc. and changed
its  name to  Merisel,  Inc.  in 1990 in  connection  with  the  acquisition  of
Microamerica,  Inc.  ("Microamerica").  The Company has experienced rapid growth
through domestic and international  acquisitions,  and internal growth, reaching
nearly $6.0 billion in revenues in 1995.  In 1996,  the Company  divested of its
operations outside of North America. Today Merisel operates in the United States
and Canada and is focused  exclusively on the North American  market through its
North American distribution and MOCA business units.

Asset Dispositions

In two separate  transactions in 1996,  Merisel completed the sale of its wholly
owned  Australian  subsidiary,  Merisel Pty Ltd., and  substantially  all of its
European, Mexican and Latin American businesses.

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"). The
sales price,  computed based upon the February 21, 1997 balance sheet of Merisel
FAB, was $31,992,000.

Debt Restructuring and Equity Investment

On September 19, 1997,  the Company and its main operating  subsidiary,  Merisel
Americas Inc.  ("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 of Common Stock (the "Initial Shares")
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 Conversion  Shares and Initial  Shares would  together  represent
50,000,000  shares of Common Stock at a purchase  price of $3.04 per share,  and
approximately  62.4% of the Common Stock outstanding  immediately  following the
issuance of the  Conversion  Shares.  The  Company  used the  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  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. As of March 30,
2000, Phoenix owned 50,000,000 shares of Common Stock, or approximately 62.3% of
the outstanding Common Stock. See "Notes to Consolidated  Financial Statements -
Note  9 -  Income  Taxes"  regarding  the  impact  of the  restructuring  on the
Company's available net operating loss carryforwards.

Results of Operations

During most of 1997, 1998 and 1999, the Company operated three distinct business
units: United States  distribution,  Canadian  distribution and the Merisel Open
Computing  Alliance  ("MOCA").  Although  the Company  continued  to  experience
positive  sales  growth  in all of  its  business  units  during  1999,  pricing
pressure, changing vendor terms and conditions, and industry turbulence caused a
continued  erosion in gross  margins.  While the Company  believes it has slowed
this erosion with corrective  actions taken throughout the year, the erosion has
exceeded the Company's  ability to reduce operating  expenses as a percentage of
sales, and has negatively  impacted  operating  income as a result.  In December
1999,  the Company  announced  plans to  restructure  and  combine its U.S.  and
Canadian  distribution  business units to form one North  American  distribution
business.  As a result, the Company now operates North American distribution and
MOCA as its only two business units.


<PAGE>


Comparison of Fiscal Years Ended December 31, 1999 and December 31, 1998

The  Company's  net  sales  increased  14.0%  from  $4,550,977,000  in  1998  to
$5,188,679,000 for the year ended December 31, 1999. This increase resulted from
sales  growth  of 56.2% and 7.5% for the MOCA and  North  American  distribution
businesses,  respectively.  MOCA  growth was strong  due to  increased  sales to
existing  customers  and,  to a lesser  extent,  to the  acquisition  by MOCA of
several new Sun Microsystems  reseller  accounts during the latter part of 1998.
MOCA sales growth on a year-over-year  basis ranged from 68% to 75% in the first
three quarters of 1999 and was 19.8% for the fourth  quarter.  The slower growth
in the fourth quarter relates to a general  slowdown in the industry  related in
part to Year 2000 issues and also  reflects a reduced  impact from new accounts.
The Company  expects  MOCA sales  growth for 2000 to decrease  overall from 1999
growth levels. North American  distribution sales growth resulted primarily from
growth in the retail customer and national/major customer groups.

On a consolidated basis, hardware and accessories accounted for 80% of net sales
and software accounted for 20% of net sales for the year ended December 31, 1999
as compared to 78% and 22%, respectively, for such categories for the year ended
December 31, 1998.

Gross profit  decreased 4.5% from  $252,424,000 in 1998 to $241,053,000 in 1999.
Gross profit as a percentage of sales, or gross margin,  decreased from 5.55% in
1998 to 4.65% in 1999. The decline in margins was primarily  related to the U.S.
portion of the North American  distribution  business,  which was  significantly
negatively  affected by (i) changing  vendor terms and  conditions,  including a
reduction in vendor rebates and an increase in price protection  exposure,  (ii)
competitive  pricing  pressures,  and (iii) sales of comparatively  lower margin
systems  product  increasing at a greater rate than higher  margin  product as a
result of a significant increase in sales of Compaq product following the launch
of Compaq's  Distributor Alliance Program under which the Company is one of four
distributors  and resellers able to source product  directly from Compaq.  Gross
profit for 1999 was further negatively  affected by an $8.1 million charge taken
in  the   fourth   quarter   of   1999   reflecting   higher   than   historical
inventory-related  provisions.  That charge is in  addition to the  obsolescence
reserves that are accrued in the normal course of business  throughout the year,
and was taken to address the increased  exposure related to inventory on hand at
December 31, 1999 due in part to the factors noted above.
Excluding this charge, gross margins would have been 4.80%.

Over the past year,  the Company has taken various  actions to address the issue
of declining margins,  including  accelerating  customer  recruitment efforts to
expand the company's account base, focusing attention on more profitable product
lines,  enhancing customer support by assigning  dedicated sales teams according
to customer  specific business models and geographic  locations,  and increasing
the  extent to which  sales  compensation  is tied to margin  goal  achievement.
During the first  quarter of 2000,  the  Company  took more  direct  measures to
improve margins by implementing  price increases across a broad range of product
offerings.  There is no assurance that the Company's efforts to increase margins
will be  successful  or  that an  increase  in  margins  will  not  result  in a
significant decline in sales volume, offsetting any potential improvement to net
income.  While the Company has seen some positive margin trends through the last
half of the first  quarter of 2000,  for the first 12 weeks of fiscal year 2000,
North American  distribution sales were approximately 13% below sales levels for
the same period in fiscal year 1999.  MOCA sales were up 28% over the same prior
year period, resulting in consolidated sales being down 7% over the same period.
The Company  believes that,  during the first half of the quarter,  this decline
resulted  primarily  from the focus on  restructuring  activities and that sales
have been negatively  impacted by price increases  during the second half of the
quarter.

Selling,  general and administrative  expenses increased by $40,003,000 or 20.5%
from  $195,468,000  for the year ended December 31, 1998 to $235,471,000 for the
year ended December 31, 1999. Selling,  general and administrative expenses as a
percentage  of sales  increased  from 4.3% of sales in 1998 to 4.5% for the same
period in 1999.  Contributing  to the  increase  for the year were  depreciation
expenses   related  to  the  SAP  R/3  operating   system  and  other  strategic
initiatives,  which were part of an overall increase in depreciation  expense of
$11,368,000,  or an increase from  $10,201,000 in 1998 to $21,569,000  for 1999.
Additionally,  the  Company  incurred  $1,821,000  in post  "go-live"  costs for
expenses associated with the SAP implementation; and payroll and payroll-related
costs of

<PAGE>


employees directly  associated with the SAP project,  which had been capitalized
in periods prior to  implementation.  Costs associated with Year 2000 compliance
of  approximately  $2,179,000  were also  incurred  during 1999.  The  remaining
increase in selling,  general and  administrative  expenses relates primarily to
increased variable costs in support of sales growth.

Results  for the year also  reflected  the  $21,000,000  charge  recorded by the
Company  in  the  first  quarter  of  1999  relating  to the  settlement  of the
litigation  pending in Delaware  Chancery  Court between the Company and certain
holders and former  holders of the Company's  12-1/2% Senior Notes due 2004 (the
"12.5% Notes"),  offset in part by the $9,000,000 insurance recovery recorded by
the Company in the second quarter.

In connection with the Company's announced plan to combine its U.S. and Canadian
distribution businesses,  the Company evaluated the fixed asset investments that
were made to  support  the former  business  units.  As a result,  in the fourth
quarter of 1999 the Company  recorded a  $3,800,000  non-cash  asset  impairment
charge related to redundant assets resulting from the combination.

In the fourth quarter of 1999, the Company  announced  that, in connection  with
the  combination  of its U.S. and  Canadian  distribution  businesses,  it would
reduce its  workforce by  approximately  400  full-time  positions.  The planned
reduction,  which was effective in January 2000,  was  accomplished  through the
elimination  of  duplicative  positions  in  marketing,  product  and  inventory
management,  and sales  under  the  newly  formed  North  American  distribution
business unit, and by the realignment of finance and  administrative  functions.
This workforce  reduction included the elimination of approximately 85 full-time
positions  through the sale of the Company's  Marlborough call center during the
first  quarter of 2000 and the  anticipated  reduction of another 125  positions
through not filling  attrition-related  vacancies.  As a result, the Company has
recorded a restructuring charge of $3,200,000 in the fourth quarter of 1999 that
primarily  consists  of  termination   benefits  including   severance  pay  and
outplacement services that are being provided to the approximately 190 employees
that were  involuntarily  affected by the  reduction in  workforce.  The Company
believes  that these  actions  have enabled the Company to simplify its business
and reduce  projected  operating  expenses by  approximately  $25,000,000  on an
annualized basis.

As a result of the above items, the Company had an operating loss of $13,418,000
for the year ended December 31, 1999 compared to operating income of $56,956,000
for the year  ended  December  31,  1998.  Excluding  the  restructuring-related
charge,  the asset impairment charge and the  litigation-related  charge, net of
related recovery,  taken in 1999, the Company would have had operating income of
$5,582,000 in 1999.

Interest Expense; Other Expense; Income Tax Provision

Interest  expense for the Company  increased 4.2% from  $17,125,000 for the year
ended  December 31, 1998 to  $17,849,000  for the year ended  December 31, 1999.
This  increase was  primarily  attributable  to increases in average  borrowings
outstanding under the Company's  revolving line of credit.  The Company uses the
revolver  to fund  short-term  working  capital  needs and to finance  strategic
inventory  purchases.  At the end of 1998 and 1999,  there  were no  outstanding
borrowings under this facility.

Other  expense for the Company  increased  from  $20,904,000  for the year ended
December 31, 1998 to  $28,962,000  for the year ended  December  31,  1999.  The
increase is attributable to a $9,217,000  increase in asset  securitization fees
offset by a decrease  in foreign  currency  loss of  $1,621,000.  The  increased
securitization  fees are primarily due to increased sales of accounts receivable
and an increase in the underlying rate associated with the fees that the Company
pays on the sale of receivables. The average proceeds resulting from the sale of
accounts receivable under the Company's securitization facilities increased from
$282,336,000 for the year ended December 31, 1998 to $414,902,000 for 1999.

The income tax provision increased from $417,000 for the year ended December 31,
1998 to $939,000 for 1999. In both years the income tax  provision  provides for
only the minimum  statutory tax requirements in the various states and provinces
in which the  Company  conducts  business,  as the Company  had  sufficient  net
operating  losses from prior  years to offset U.S.  federal  income  taxes.  The
Company has not recognized a tax provision  benefit in either year, having fully
utilized its ability to carryback  those losses and obtain refunds of taxes paid
in prior years. The provision for 1999 also includes  approximately  $400,000 in
reserves against tax exposures related to outstanding tax issues under review by
tax agencies.  See "Notes to Consolidated  Financial  Statements - Note 9 Income
Taxes".


<PAGE>


Consolidated Net Income

The Company  reported net income of  $18,510,000,  or $.23 per diluted share, in
1998 compared to a net loss of $61,168,000, or $0.76 per share, in 1999.

Comparison of Fiscal Years Ended December 31, 1998 and December 31, 1997

Results for the year ended  December 31, 1997 include the results of  operations
of Merisel FAB until the disposition of the Merisel FAB business as of March 28,
1997 as described  above. The Company's  consolidated  results of operations for
1997  include  results of  operations  of  Merisel  FAB  consisting  of sales of
$202,177,000,   gross   profit  of   $7,678,000,   and   selling,   general  and
administrative expenses of $6,200,000. Excluding the results of Merisel FAB, the
Company's 1997 results would have included sales of $3,845,444,000, gross profit
of  $232,055,000,   and  selling,   general  and   administrative   expenses  of
$182,204,000.  The following  discussion refers to the Company's 1997 results of
operations excluding the results of Merisel FAB, except for the discussion below
under "Interest Expense; Other Expense;  Income Tax Provision" and "Consolidated
Net Income."

The  Company's  net  sales  increased  18.3%  from  $3,845,444,000  in  1997  to
$4,550,977,000 for the year ended December 31, 1998. This increase resulted from
increased sales of 12.2% in Canada and 19.9% in the United States. For the year,
while MOCA and retail sales continued to show substantial growth at 36% and 55%,
respectively, neither VAR nor commercial performance was as robust, resulting in
U.S. growth slowing  considerably,  particularly  in the fourth quarter.  During
1998, VAR sales grew 9% and commercial  sales  increased 19%. The growth rate in
Canada in terms of Canadian  dollars was 20.3%,  but the decline in the value of
the  Canadian  dollar  hampered  the  growth  rate in  terms  of  U.S.  dollars,
particularly in the second half of the year.

Hardware and accessories  accounted for 78% of net sales and software  accounted
for 22% of net sales for the year ended December 31, 1998 as compared to 77% and
23%, respectively, for such categories for the year ended December 31, 1997.

Gross profit  increased 8.8% from  $232,055,000 in 1997 to $252,424,000 in 1998.
Gross profit as a percentage of sales,  or gross margin,  decreased from 6.0% in
1997 to 5.5% in 1998.  Gross  margins in the United States and Canada were 5.43%
and 6.07%,  respectively,  for 1998, compared to 5.97% and 6.31%,  respectively,
for 1997. The decrease in margins as a percentage of sales has resulted in large
part from intense  competitive  pricing pressures,  as well as changes in vendor
terms and  conditions.  The  margin  decrease  is also  partially  the result of
changes in customer concentration and mix and product mix.

Selling,  general and  administrative  expenses increased by $13,264,000 or 7.3%
from  $182,204,000  for the year ended December 31, 1997 to $195,468,000 for the
year ended December 31, 1998.  Selling,  general and administrative  expenses in
1997 included compensation charges of $1,950,000 incurred pursuant to employment
contracts of certain  executive  officers of the Company and related to the debt
restructuring completed during 1997. Excluding this charge, selling, general and
administrative expenses increased $15,214,000,  but decreased as a percentage of
sales from 4.7% in 1997 to 4.3% in 1998. This decrease is primarily attributable
to efforts to control  operating  expenses while the Company  experienced  sales
growth of 18.4% for the year. Selling,  general and administrative costs include
depreciation  and  amortization   expense  totaling   $10,980,000  in  1998  and
$11,073,000 in 1997.

In the fourth quarter of 1997, the Company  recorded a non-cash asset impairment
charge of $14,100,000  against  capitalized costs associated with the previously
scheduled  implementation  of the SAP information  system in the U.S., which was
delayed in 1996.  Through  implementation  planning  that  resumed in the fourth
quarter of 1997 and an  evaluation  of SAP in its  upgraded  form,  the  Company
identified costs that would not provide future value, and it is these costs that
are the basis of the impairment  charge.  See "Notes to  Consolidated  Financial
Statements - Note 4 - Impairment Losses."

As a result of the above items,  the Company had operating income of $56,956,000
for the year ended December 31, 1998 compared to operating income of $35,751,000
for the year ended  December  31,  1997.  Excluding  the  restructuring  related
compensation costs incurred and the impairment charge taken in 1997, the Company
would have had operating income of $51,801,000 in 1997.


<PAGE>



Interest Expense; Other Expense; Income Tax Provision

Interest  expense  decreased 40.1% from  $28,608,000 for the year ended December
31, 1997 to $17,125,000  for the year ended December 31, 1998. This decrease was
primarily  attributable  to  the  debt  restructuring,  which  resulted  in  the
elimination of substantially  all of the Operating Company Debt on September 19,
1997 using proceeds from the issuance of the Initial Shares and the  Convertible
Note.

Other expense increased from $14,992,000 for the year ended December 31, 1997 to
$20,904,000  for the year ended December 31, 1998. This 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 1997,  which reduced other expenses.  The increase is
also  attributable  to a $1,534,000  increase in foreign  currency  losses and a
$1,534,000 increase in asset securitization  fees. The increased  securitization
fees are due to increased  sales of accounts  receivables in order to fund sales
growth,  daily  operations  and,  in the  fourth  quarter,  increased  levels of
inventory in anticipation of higher sales volumes that did not materialize.

Also during 1997,  the Company  incurred  $5,230,000 in expenses  related to the
Company's  efforts  to  effect  a  restructuring  of its  debt.  These  expenses
represent  professional  fees and other  costs  associated  with the  terminated
Limited Waiver and Voting  Agreement (the "Limited  Waiver  Agreement")  entered
into with certain holders of the Company's 12.5 % Notes, and costs incurred as a
result of the change in control that  occurred as a result of the  conversion of
the Convertible Note.

The income tax provision decreased from $496,000 for the year ended December 31,
1997 to $417,000 for 1998. In both years the income tax provision  reflects only
the minimum  statutory tax  requirements  in the various states and provinces in
which the Company conducts business, as the Company had sufficient net operating
losses from prior years. The Company has not recognized a tax provision  benefit
in either year,  having fully utilized its ability to carryback those losses and
obtain  refunds  of taxes  paid in  prior  years.  See  "Notes  to  Consolidated
Financial Statements - Note 9 - Income Taxes".

Consolidated Net Income

The Company,  reported net income of $18,510,000,  or $.23 per diluted share, in
1998 compared to a net loss of $15,841,000, or $0.48 per diluted share, in 1997.
Included in the 1997 net loss is an extraordinary  loss on the extinguishment of
debt of $3,744,000,  or $0.12 per diluted share, related to the repayment of the
Operating Company Debt.

Year 2000 Issues

As of the date of this report,  the Company is not aware of any adverse  effects
of Year 2000 issues on the Company,  including its systems and  operations.  The
Company's  Year  2000  project  focused  on its  core IT  systems,  off-line  IT
subsystems,   technical   infrastructure,    vendor/customer   interfaces,   and
facilities. The Company's efforts included conducting an inventory of items with
Year 2000 implications, assessing Year 2000 compliance, remediating or replacing
material items that were determined not to be Year 2000  compliant,  testing and
certifying  Year  2000  compliancy.   The  Company  also   communicated  with  a
significant  portion of its  third-party  suppliers,  vendors and  customers  to
determine  the extent to which the  Company  may have been  vulnerable  to those
third parties' failure to remediate their own Year 2000 issues.  This process of
addressing Year 2000 issues was essentially  completed by mid-November 1999. The
Company  incurred  aggregate costs of  approximately  $2.6 million in connection
with its Year 2000 project. The aggregate costs exclude 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.  The Year 2000  project  costs  were  expensed  by the
Company as incurred.

The Company  believes that its procedures  were effective to identify and manage
the  risks  associated  with  Year  2000  compliance,  however,  there can be no
assurance that its remediation process has been fully effective.  The failure of
the Company to identify and remediate  the  Company's systems, or the failure of
key third parties who do business

<PAGE>


with the  Company to  remediate  their  systems,  could have a material  adverse
effect on the Company's results of operations and financial condition.  Although
the Company is not aware of any Year 2000 readiness  issues affecting it at this
time,  there can be no  assurances  that issues not yet  apparent to it will not
arise during 2000 and beyond.

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  to  existing  products;  (iii)
intensity  of  price  competition  among  the  Company  and its  competitors  as
influenced by various  factors;  and (iv) the fact that virtually all sales in a
given  quarter  result from orders  booked in that  quarter.  Due to the factors
noted  above,  as  well  as  the  dynamic  qualities  of the  computer  products
distribution  industry,  the  Company's  revenues and earnings may be subject to
material volatility,  particularly on a quarterly basis, and the results for any
quarterly period may not be indicative of results for a full fiscal year.

Additionally,  in the U.S.  and Canada,  the  Company's  net sales in the fourth
quarter  have  been  historically  higher  than  in its  other  three  quarters.
Management believes that the pattern of higher fourth-quarter sales is partially
explained by customer buying patterns relating to calendar year-end business and
holiday  purchases.  As a result of this pattern,  the Company's working capital
requirements  in the fourth  quarter  have  typically  been  greater  than other
quarters.  Net sales in the Canadian  operations are also historically strong in
the first quarter of the fiscal year,  which is primarily due to buying patterns
of Canadian  government  agencies.  See  "Management's  Discussion  and Analysis
Financial   Condition   and  Results  of  Operations  -  Liquidity  and  Capital
Resources."

Liquidity and Capital Resources


Cash Flows Activity For The Year Ended December 31, 1999

Net cash  provided by operating  activities  during the year ended  December 31,
1999 was  $52,764,000.  The  primary  sources  of cash  include  a  decrease  in
inventory of $147,609,000, a decrease in accounts receivable of $7,100,000 and a
decrease in other  prepaid and tax assets.  The inventory  decrease  resulted in
part from stricter  enforcement  of payment  terms by some of the Company's
larger vendors,  which impacted  credit lines.  The Company also took actions to
reduce  inventory in order to counter  inventory risk  associated  with changing
vendor terms and conditions,  particularly related to price protection policies.
The decrease in  receivables  is related  primarily to decreased  marketing  and
cooperative  advertising and other vendor receivables  resulting from changes in
vendor  programs and a decreased  volume of pass-through  programs.  The primary
uses of cash were a $91,141,000  reduction in accounts  payable and the net loss
for the year,  excluding the non-cash  charges for  depreciation and bad debt
provisions.  Accounts  payable  have  declined  due to the decrease in inventory
noted above and to the stricter  enforcement of terms by major  manufacturers to
more closely match payables with inventory levels.

Net cash used in investing  activities in 1999 consisted of capital expenditures
of $29,255,000. The expenditures were primarily related to costs associated with
information  systems,  including systems for enhancing  electronic  services and
growing  the  Company's  infrastructure,  developing  and  implementing  the SAP
operating  system,   developing  the  Company's  configuration  and  co-location
capabilities, and upgrading warehouse systems and other Company facilities.

Net cash used by  financing in 1999 was  $3,145,000  and was  comprised
primarily of scheduled  repayments  against  promissory  notes
outstanding.


Cash Flows Activity For The Year Ended December 31, 1998

Net cash  provided by operating  activities  during the year ended  December 31,
1998 was  $53,068,000.  The  primary  sources  of cash  include an  increase  in
accounts payable of $186,462,000. The primary uses of cash were an increase

<PAGE>


in  accounts   receivable  of  $51,406,000  and  an  increase  in  inventory  of
$124,565,000.  The increase in accounts  receivable  is primarily  the result of
increased  sales during 1998.  The increase in inventory  can be  attributed  to
large  purchases near the end of the fourth quarter made with the expectation of
a higher sales volume that did not materialize. The increase in inventories also
contributed to the increase in accounts payable.

Net cash used in investing  activities in 1998 consisted of capital expenditures
of $50,067,000. The expenditures were primarily related to costs associated with
development of SAP and with other information systems as well as the purchase by
the Company of its call center facility in Cary, North Carolina.

Net cash used by financing  in 1998 was $891,000 and was  comprised of scheduled
debt payments of  $1,572,000,  offset by proceeds  received from the issuance of
common stock.


Cash Flows Activity for the Year Ended December 31, 1997

Net cash  provided by operating  activities  during the year ended  December 31,
1997 was  $16,772,000.  The primary sources of cash were an increase in accounts
payable of $76,203,000  and $15,563,000 of cash generated from  operations.  The
primary uses of cash were an increase in accounts  receivable of $8,379,000  and
an increase in inventory of $70,196,000.  The increase in accounts receivable is
primarily  the  result of  increased  sales in the fourth  quarter of 1997.  The
increase in  inventory  relates  partially to  investments  required to meet the
demands of increased  sales volume and to strategic  volume  purchases  that the
Company took  advantage of late in the fourth  quarter of 1997.  The increase in
inventories also contributed to the increase in accounts payable.

Net cash used in  investing  activities  in 1997 was  $2,270,000  consisting  of
capital expenditures of $7,290,000,  which was partially offset by proceeds from
the sale of land held in North Carolina  totaling  $5,020,000.  The expenditures
were primarily for the maintenance and improvement of existing facilities.

Net cash used by financing in 1997 was  $21,433,000.  Uses of cash for financing
activities include scheduled debt payments of $13,634,000 and the extinguishment
of  Operating  Company  Debt of  $147,700,000.  The primary  source of cash from
financing  activities  was  $139,901,000  in net  proceeds  from the issuance of
Initial Shares and the Convertible Note (which consists of $152,000,000 in gross
proceeds less  $12,099,000 in investment  banking,  legal,  accounting and other
direct costs).


Debt Obligations, Financing Sources and Capital Expenditures

At December  31, 1999,  Merisel,  Inc. had  outstanding  $125,000,000  principal
amount of 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 imposes  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 December 31,  1999,  the Company had  promissory  notes  outstanding  with an
aggregate balance of $5,011,000.  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 is party to a Loan and Security  Agreement dated as of June 30,
1998 (the "Loan and  Security  Agreement")  with Bank of America  NT&SA  ("BA"),
acting as agent, that provides for borrowings on a revolving basis. 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.  The amount  available  for  borrowing  under the Loan and Security
Agreement at

<PAGE>


any time may be further reduced under the indenture relating to the 12.5% Notes.
As a result of the availability requirements and indenture limitations, based on
current  trends there is no assurance  that there will be amounts  available for
future borrowings under the Loan and Security  Agreement.  The Loan and Security
Agreement also contains certain  financial  covenants that require,  among other
things,  minimum levels of cash flow and interest coverage.  With respect to the
quarter  ended  December 31, 1999,  the Company was required to obtain,  and did
obtain,  amendments and waivers with respect to certain covenants under the Loan
and Security  Agreement.  Borrowings  under the Loan and Security  Agreement are
secured by a pledge of a majority  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, the agent's prime rate. An annual fee of 0.375% is payable
with  respect to the unused  portion of the  commitment.  The Loan and  Security
Agreement has a termination date of June 30, 2003.

A portion of the Company's  funds are generated  through the sale of receivables
by 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  and,  upon the
commencement  of  MOCA's  operations  as a  separate  subsidiary,  Merisel  Open
Computing Alliance,  Inc. Pursuant to an agreement with a securitization company
(the "Receivables Purchase and Servicing  Agreement"),  Merisel Capital Funding,
in turn, sells these receivables  to the  securitization  company on an ongoing
basis, which yields proceeds of up to $500,000,000 at any point in time. Merisel
Capital Funding is a separate  corporate entity with separate  creditors who, in
the event of  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.  This  agreement  expires  in  October  2003.  The
Receivables   Purcahse  and  Servicing   Agreement  contains  certain  financial
covenants that require, among other things, minimum levels of net worth and cash
flow.  With respect to the quarter  ended  December  31,  1999,  the Company was
required to obtain,  and did obtain,  amendments  and  waivers  with  respect to
certain covenants under the Receivables Purchase and Servicing Agreement.

Effective  December 15, 1995,  Merisel Canada,  Inc.  ("Merisel Canada") entered
into a receivables  purchase agreement with a securitization  company to provide
funding for Merisel Canada.  In accordance  with this agreement,  Merisel Canada
sells receivables to the securitization  company, which yields proceeds of up to
$150,000,000  Canadian  dollars  at any  point in time.  The  agreement  expires
December 12, 2000, but is extendible by notice from the securitization  company,
subject to the Company's approval.

Under the securitization agreements, the receivables are sold at face value with
payment of a portion of the purchase  price being  deferred.  As of December 31,
1999, the total amount outstanding under these agreements was $419,929,000. Fees
incurred  in  connection  with  the  sale of  accounts  receivable  under  these
agreements for the years ended December 31, 1999, December 31, 1998 and December
31, 1997 were $26,781,000,  $17,564,000, and $16,030,000,  respectively, and are
recorded as other expense.

In addition to its requirements for working capital for operations,  the Company
presently   anticipates  that  its  capital   expenditures  will  be  less  than
$25,000,000 for 2000. Capital  expenditures are expected to primarily consist of
costs associated with information systems, including investments made to enhance
and  expand  the  Company's  electronic  commerce  capabilities  and to grow and
enhance the Company's  infrastructure  and upgrade  warehouse  systems and other
Company  facilities.  The  Company  intends  to fund  its  capital  expenditures
primarily through internally generated cash and lease financing.

Certain  actions taken by the Company's  vendors and by the Company could have a
negative  impact on the  Company's  working  capital  and cash  position.  These
include  significant  changes in  payment  terms  that have been  introduced  by
several of the Company's  major  vendors that have  resulted in shorter  payment
terms and/or  reduced vendor  financing.  Additionally,  if the pricing  actions
taken by the Company in the first  quarter of 2000  further  reduce sales volume
significantly,  the Company's cash flow may be negatively affected, particularly
if the Company's  receivables  decline faster than inventory levels. The Company
is responding to these factors by reducing investments in inventory,  increasing
the use of flooring  programs for both  customers  and vendors,  and  shortening
credit terms of its customers.

In the opinion of management, anticipated cash from operations in 2000, together
with proceeds from the sale of  receivables  under the Company's  securitization
agreements,  trade  credit from  vendors,  and  borrowings  under the  Company's
revolving credit facility will be sufficient to meet the Company's  requirements
for the next 12 months, without the need for additional financing. This assumes,
however,   that  there  are  not  material  adverse  changes  in  the  Company's
relationships with its vendors,  customers or lenders. In addition, if in future
periods  the  Company  were to incur  losses of a  magnitude  that  resulted  in
violations of covenants under the Company's financing  agreements,  there can be
no assurance that the Company would be able to renegotiate such agreements.  Any
unforeseen event that adversely  impacts the industry or the Company's  position
in the industry,  or future losses that result in convenant violations under the
Company's  financing  agreements,  could have a direct and material  unfavorable
effect on the liquidity of the Company.



<PAGE>


Inflation

Due  to the  short-term  nature  of  Merisel's  contracts  and  agreements  with
customers  and  vendors,  the Company  does not  believe  that  inflation  had a
material impact on its operations.

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, special term large-volume purchases, and the addition
of new  manufacturers  and products.  The distribution  agreements  entered into
between   the  Company  and  its  vendors   generally   provide   Merisel   with
stock-balancing and price-protection  provisions that partially reduce Merisel's
risk of loss due to slow-moving  inventory,  supplier price reductions,  product
updates  or  obsolescence.   Stock  balancing   provisions  typically  give  the
distributor  the right to return for  credit or  exchange  for other  products a
portion of the inventory items  purchased,  within a designated  period of time,
but are not  generally  provided  by the major PC systems  manufacturers.  Under
price-protection provisions,  suppliers will credit the distributor for declines
in  inventory  value  resulting  from the  supplier's  price  reductions  if the
distributor  complies with certain conditions.  In the past two years,  however,
certain major PC manufacturers that are among the Company's largest vendors have
reduced the  availability of price protection for distributors by shortening the
time  periods  during  which  distributors  may  receive  rebates  or credit for
decreases in manufacturer prices on unsold inventory and changed other terms and
conditions.  These changes have  increased  the Company's  exposure to inventory
valuation risks and have adversely  affected the Company's gross margins for the
last  several  quarters.  Through  buying  procedures  and  controls  to  manage
inventory purchases, the Company seeks to reduce future potential adverse impact
from these changes while  balancing  the need to maintain  sufficient  levels of
inventory.  There is no assurance  that such efforts will be  successful  in the
future in preventing a material adverse effect on the Company.

The Company purchases exchange contracts to reduce foreign exchange  transaction
gains and losses.  The Company  intends to continue the  practice of  purchasing
foreign exchange contracts,  however,  the risk of foreign exchange  transaction
losses cannot be completely eliminated.

The Company  offers  credit terms to  qualifying  customers  and also sells on a
prepay,  early pay, credit card and  cash-on-delivery  basis.  In addition,  the
Company has  developed a number of customer  financing  alternatives,  including
escrow  programs  and  selected  bid  financing  arrangements.  The Company also
arranges  a wide  variety  of  programs  through  which  third  parties  provide
financing  to  certain  of its  customers.  These  programs  include  floor plan
financing and hardware and software  leasing.  With respect to credit sales, the
Company  attempts to control  its bad debt  exposure  by  monitoring  customers'
creditworthiness  and,  where  practicable,   through  participation  in  credit
associations  that  provide  customer  credit  rating  information  for  certain
accounts.  In  addition,  the Company  purchases  credit  insurance  as it deems
appropriate.  Historically,  the  Company  has  not  experienced  credit  losses
materially  in excess of  established  credit  loss  reserves.  However,  if the
Company's   receivables   experience  a  substantial   deterioration   in  their
collectibility  or if the Company  cannot obtain credit  insurance at reasonable
rates,  the  Company's  financial  condition  and results of  operations  may be
adversely impacted.



<PAGE>


Item 7A. Quantitative and Qualitative Market Risk Disclosure

Investments

At December  31, 1999,  the Company had no  investments,  with the  exception of
$44,809,000  held  in  overnight,  interest-bearing  accounts  invested  through
high-quality credit financial institutions.

Foreign Currency Risk

The Company purchases  forward dollar contracts to hedge short-term  advances to
its Canadian  subsidiary and to hedge commitments to acquire inventory for sale.
The Company does not use the contracts for speculative or trading  purposes.  At
December 31, 1999, the Company had 26 short-term Canadian forward contracts with
a face value of approximately $65,380,000 outstanding. The size of the contracts
ranged from $474,000 to $24,104,000  with a weighted  average  contract value of
approximately  $3,600,000.  Forward rates on the contracts  ranged from 1.451 to
1.479 with the weighted average forward rate approximating 1.4710. The contracts
matured at various dates in January and February 2000.

Long-term Debt

Since the  Company  has a  significant  amount of debt,  it is  subject  to risk
related to  fluctuations  in market  interest  rates.  The table below  provides
information  concerning  fixed rate long-term  debt  outstanding at December 31,
1999,  including principal amounts maturing each year, average interest rate and
fair value.

<TABLE>
<CAPTION>
                                                                                                          Total
                               2000        2001        2002        2003         2004          Total       Fair Value
                               ----        ----        ----        ----         ----          -----       ----------
<S>                              <C>        <C>         <C>         <C>     <C>            <C>            <C>
12.5% Senior Notes               0          0           0           0       $125,000,000   $125,000,000  $77,500,000
Average Interest Rate          12.5%      12.5%       12.5%       12.5%         12.5%

Fixed rate promissory notes $1,111,000  $3,900,000      0           0             0         $5,011,000    $5,011,000
Average Interest Rate          7.70%      7.71%

</TABLE>

Asset Securitization

Fees incurred in connection with the sale of trade accounts receivable under the
Company's asset  securitization  agreements  typically are based upon commercial
paper rates. As of December 31, 1999, the total amount  outstanding  under these
agreements  was  $419,929,000  and  the  average  cost  of  securitization   was
approximately  7.17%.  During  1999,  the total amount  outstanding  under these
agreements   averaged   $414,902,000,   and  the   weighted   average   cost  of
securitization was 6.45%.





<PAGE>


Item 8. Financial Statements and Supplementary Data.


                          INDEPENDENT AUDITORS' REPORT



Merisel, Inc.:

We have audited the accompanying  consolidated  balance sheets of Merisel,  Inc.
and subsidiaries as of December 31, 1998 and 1999, and the related  consolidated
statements of operations,  changes in stockholders'  equity,  and cash flows for
each of the three years in the period ended  December 31, 1999.  Our audits also
included the financial  statement  schedule  listed at Item 14. These  financial
statements and the financial  statement  schedule are the  responsibility of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial statements and the financial statement schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion,  such consolidated  financial  statements present fairly, in all
material respects,  the financial position of Merisel,  Inc. and subsidiaries at
December 31, 1998 and 1999,  and the results of their  operations and their cash
flows for each of the three  years in the  period  ended  December  31,  1999 in
conformity with accounting principles generally accepted in the United States of
America.


DELOITTE & TOUCHE LLP

Los Angeles, California
March 16, 2000



<PAGE>
<TABLE>
<CAPTION>


                         MERISEL, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                        (In thousands, except share data)

                                                                                               December 31,
                                                                                            1998         1999
                                                                                            -----        -----
                                        ASSETS



<S>                                                                                    <C>          <C>
CURRENT ASSETS:
     Cash and cash equivalents.......................................................   $    36,341  $    57,557
     Accounts receivable (net of allowances of $20,476 and $15,186 at December
        31, 1998 and 1999, respectively).............................................       202,128      182,352
     Inventories....................................................................        587,317      445,663
     Prepaid expenses and other current assets.......................................        14,193       10,488
     Deferred income taxes...........................................................           865          914
                                                                                        -----------   ----------
          Total current assets.......................................................       840,844      696,974
PROPERTY AND EQUIPMENT, NET..........................................................        79,719       84,609
COST IN EXCESS OF NET ASSETS ACQUIRED, NET...........................................        24,309       23,755

OTHER ASSETS                                                                                    448          457
                                                                                        -----------   ----------
     TOTAL ASSETS....................................................................   $   945,320  $   805,795
                                                                                        ===========  ===========

                         LIABILITIES AND STOCKHOLDERS' EQUITY



CURRENT LIABILITIES:
     Accounts payable................................................................   $   623,673  $   540,843
     Accrued liabilities.............................................................        31,737       36,609
     Long-term debt and capitalized lease obligations--current........................        3,692        2,906
                                                                                         -----------   ----------
          Total current liabilities..................................................       659,102      580,358
LONG-TERM DEBT.......................................................................       129,360      128,900
CAPITALIZED LEASE OBLIGATIONS........................................................         2,605        1,364

COMMITMENTS AND CONTINGENCIES

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;  outstanding
        80,272,683 and 80,278,808 shares at December 31, 1998 and 1999,
        respectively.................................................................           803          803
     Additional paid-in capital......................................................       282,380      282,492
     Accumulated deficit.............................................................      (118,495)    (179,663)
     Accumulated other comprehensive loss............................................       (10,435)      (8,459)
                                                                                         -----------   ----------
          Total stockholders' equity.................................................       154,253       95,173
                                                                                         -----------   ----------
     TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY......................................   $   945,320  $   805,795
                                                                                        ============   ==========

See  accompanying   notes  to  consolidated financial statements.

</TABLE>


<PAGE>
<TABLE>
<CAPTION>


                         MERISEL, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    (In thousands, except per share amounts)

                                                                          For the Years Ended December 31,
                                                                          1997           1998          1999
                                                                     ------------   ------------    -----------
<S>                                                                  <C>            <C>             <C>
NET SALES..........................................................  $  4,047,621   $  4,550,977    $ 5,188,679
COST OF SALES......................................................     3,807,888      4,298,553      4,947,626
                                                                     ------------   ------------    -----------
GROSS PROFIT.......................................................       239,733        252,424        241,053
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.......................       188,404        195,468        235,471
LITIGATION-RELATED CHARGE..........................................                                      12,000
RESTRUCTURING CHARGE...............................................                                       3,200
IMPAIRMENT LOSSES..................................................        14,100                         3,800
                                                                     ------------   ------------    -----------
OPERATING INCOME (LOSS)............................................        37,229         56,956        (13,418)
INTEREST EXPENSE...................................................        28,608         17,125         17,849
DEBT RESTRUCTURING COSTS...........................................         5,230
OTHER EXPENSE, NET.................................................        14,992         20,904         28,962
                                                                     ------------   ------------    -----------
(LOSS) INCOME BEFORE INCOME TAXES..................................       (11,601)        18,927        (60,229)
PROVISION FOR INCOME TAXES.........................................           496            417            939
                                                                     ------------   ------------    -----------
(LOSS) INCOME BEFORE EXTRAORDINARY ITEM............................       (12,097)        18,510        (61,168)
EXTRAORDINARY  LOSS ON EXTINGUISHMENT OF DEBT                               3,744
                                                                     ------------   ------------    -----------
NET (LOSS) INCOME..................................................  $    (15,841)  $     18,510   $    (61,168)
                                                                     =============  ============   =============

NET (LOSS) INCOME PER SHARE (BASIC AND DILUTED):
NET (LOSS) INCOME BEFORE EXTRAORDINARY ITEM........................  $      (.36)   $       .23    $      (.76)
EXTRAORDINARY LOSS.................................................         (.12)
                                                                     ------------   ------------    -----------
NET (LOSS) INCOME..................................................  $      (.48)   $       .23    $      (.76)
                                                                     ============   ============   ============
WEIGHTED AVERAGE NUMBER OF SHARES:
   BASIC...........................................................       33,216         80,210         80,279
   DILUTED.........................................................       33,216         80,485         80,279



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




<PAGE>
<TABLE>
<CAPTION>
                         MERISEL, INC. AND SUBSIDIARIES

           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                        (In thousands, except share data)



                                                                              Accumulated
                                                    Additional                  other
                                                     Paid-in    Accumulated  Comprehensive                 Comprehensive
                                   Common Stock      Capital      Deficit       Loss            Total        Income
                                 Shares    Amount
                                -------   -------   ---------   ------------  ------------     -------     -------------
<S>                            <C>        <C>       <C>         <C>           <C>             <C>            <C>
Balance at December 31, 1996.. 30,078,500   $301     $142,300   $(121,164)     $(6,440)        $14,997
   Sale of  common stock......  4,901,316     49       14,851                                   14,900
   Conversion of Note into
     Common Stock............. 45,098,684    451      124,550                                  125,001
   Comprehensive Income:
     Translation adjustment...                                                  (1,549)         (1,549)    $ (1,549)
     Net loss.................                                    (15,841)                     (15,841)     (15,841)
                                                                                                            --------
Total Comprehensive Loss......                                                                             $(17,390)
                                                                                                            ========
                               ----------    -----     ------    ----------     --------       -------
Balance at December 31, 1997.. 80,078,500    801      281,701    (137,005)      (7,989)        137,508
   Exercise of stock options
   and other..................    194,183      2          679                                      681
    Comprehensive Income:
    Translation adjustment....                                                  (2,446)         (2,446)    $ (2,446)
     Net income...............                                     18,510                       18,510       18,510
                                                                                                             ------
Total Comprehensive Income....                                                                             $ 16,064
                                                                                                             ======
                               ----------    -----     ------    ----------     --------       -------
Balance at December 31, 1998.. 80,272,683    803      282,380    (118,495)     (10,435)        154,253
   Exercise of stock options
   and other..................      6,125                 112                                      112
     Comprehensive Income:
     Translation adjustment...                                                   1,976           1,976     $  1,976
     Net loss.................                                    (61,168)                     (61,168)     (61,168)
                                                                                                            --------
Total Comprehensive Loss......                                                                             $(59,192)
                                                                                                            ========
                               ----------    -----   -------    ---------      -------        -------
Balance at December 31, 1999.. 80,278,808   $803     $282,492   $(179,663)     $(8,459)        $95,173
                               ==========    =====   ========   ==========     ========       =======



          See  accompanying   notes  to  consolidated financial statements.

</TABLE>

<PAGE>
<TABLE>
<CAPTION>


                         MERISEL, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)

                                                                                   For the Years Ended December 31,
                                                                                      1997        1998       1999
                                                                                     ------       -----      -----
<S>                                                                               <C>            <C>        <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net (loss) income..........................................................   $  (15,841) $   18,510 $  (61,168)
    Adjustments to reconcile net (loss) income to net cash provided by
operating
      activities:
        Depreciation and amortization...........................................      11,311      10,980     22,349
        Provision for doubtful accounts.........................................       7,361      12,553     15,774
        Impairment losses.......................................................      14,100                  3,800
        Deferred income taxes...................................................         162        (221)         2
        Gain on sale of property and equipment..................................      (1,530)                   (65)
        Restricted stock units compensation expense.............................                                100
        Changes in assets and liabilities
            Accounts receivable.................................................      (8,379)    (51,406)     7,100
            Inventories.........................................................     (70,196)   (124,565)   147,609
            Prepaid expenses and other current assets...........................         654       6,786      3,744
            Income taxes payable................................................       2,021                  1,095
            Accounts payable....................................................      76,203     186,462    (91,141)
            Accrued liabilities.................................................         906      (6,031)     3,565
                                                                                     -------    ---------   -------
                Net cash provided by operating activities.......................      16,772      53,068     52,764
                                                                                     -------    ---------   -------
CASH FLOWS FROM INVESTING ACTIVITIES:

    Purchase of property and equipment..........................................      (7,290)    (50,067)   (29,255)
    Proceeds from sale of property and equipment................................       5,020
                                                                                      -------    ---------   -------
               Net cash used for investing activities...........................      (2,270)    (50,067)   (29,255)
                                                                                      -------    ---------   -------
CASH FLOWS FROM FINANCING ACTIVITIES:
    Borrowings under revolving line of credit...................................     726,308      75,401    464,701
    Repayments under revolving line of credit...................................    (811,516)    (75,401)  (464,701)
    Repayments under senior notes...............................................     (56,805)
    Repayments under subordinated debt agreement................................     (17,600)
    Repayments under other financing arrangements...............................      (1,721)     (1,572)    (3,157)
    Net proceeds from the issuance of convertible notes.........................     125,001
    Proceeds from issuance of common stock......................................      14,900         681         12
                                                                                      -------    ---------   -------
               Net cash used for financing activities..........................      (21,433)       (891)    (3,145)
                                                                                      -------    ---------   -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH.........................................      (1,300)     (2,216)       852
                                                                                      -------    ---------   -------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS............................      (8,231)       (106)    21,216
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR....................................      44,678      36,447     36,341
                                                                                      -------    ---------   -------
CASH AND CASH EQUIVALENTS, END OF PERIOD YEAR...................................  $   36,447  $   36,341 $   57,557
                                                                                      =======     =======    ======

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
    Cash paid(received) during the year for:
    Interest    ................................................................  $   33,385  $   14,698 $   18,571
    Income taxes  ..............................................................     ( 3,362)        655        309
    Noncash activities:
    Capital lease obligations entered into......................................                   4,480        670

             See  accompanying   notes  to  consolidatedfinancial statements.

</TABLE>


<PAGE>


                         MERISEL, INC. AND SUBSIDIARIES

               CONSOLIDATED STATEMENTS OF CASH FLOWS --(Continued)





SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES

Effective  March 28, 1997, the Company sold  substantially  all of the assets of
its wholly owned subsidiary Merisel FAB, Inc. ("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 (see Note 6 "Dispositions").

On  October  10,  1997,  Phoenix  Acquisition  Company  II,  L.L.C.  ("Phoenix")
exercised  its option to convert,  without any  additional  payment,  $3,296,286
principal amount of a convertible note into 1,084,305 shares of common stock. On
December 19, 1997,  following  receipt of  stockholder  approval,  approximately
$133.8  million  outstanding  principal  amount  of  the  convertible  note  was
converted,  without any additional  payment,  into  44,014,379  shares of common
stock.  The proceeds  from the issuance of the  convertible  note were offset by
professional  fees and other direct costs of  approximately  $12,099,000,  which
were  recorded  as a  reduction  to  additional  paid-in  capital at the time of
conversion.

     See  accompanying   notes  to  consolidated financial statements.



<PAGE>



                         MERISEL, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 1997, 1998 and 1999


1. Summary of Significant Accounting Policies

General--Merisel,  Inc., a Delaware  corporation and a holding company (together
with its subsidiaries,  "Merisel" or the "Company"), is a leading distributor of
computer  hardware and software  products.  From March 1997 through 1999 through
its main operating  subsidiary Merisel Americas,  Inc. ("Merisel  Americas") and
its  subsidiaries,  the Company operated three distinct  business units:  United
States  distribution,  Canadian  distribution  and the  Merisel  Open  Computing
Alliance  (MOCA(TM)).  In December 1999,  Merisel announced plans to restructure
and  combine  its  U.S.  and  Canadian  distribution  businesses.   The  Company
accomplished this  reorganization in early 2000 and began operating two distinct
North American  business units:  North American  distribution  ("North  American
Distribution") and MOCA. Merisel's North American Distribution business offers a
full line of products  and  services  to a broad  range of  reseller  customers,
including  value-added  resellers  ("VARs"),   commercial  resellers,   Internet
resellers  and  retailers.  MOCA  provides  enterprise-class  solutions  for Sun
Microsystems    servers    and   the   Solaris    operating    system   to   Sun
Microsystems-authorized resellers and consultants.  Effective April 3, 2000, the
operations of MOCA will be conducted by Merisel Open Computing Alliance, Inc. as
a wholly owned subsidiary of Merisel, Inc.

Liquidity--In  1999, the Company incurred a net loss of $61,168,000,  increasing
its  accumulated  deficit to  $179,663,000  at December 31, 1999.  This loss was
primarily the result of a continued decline in gross margins, the recognition of
a litigation-related charge of $12,000,000, an impairment loss of $3,800,000 and
a restructuring charge of $3,200,000. In its efforts to return to profitability,
effective December 1999, the Company announced a restructuring plan, which would
combine its United States and Canadian distribution  businesses and would reduce
its planned  workforce by approximately 400 full-time  positions.  The Company's
plan, if achieved, would reduce operating expenses by approximately  $25,000,000
annually.  In  connection  with the  restructuring,  the Company has developed a
business plan, which, if successfully implemented,  will provide sufficient cash
flow to  support  its  operations  throughout  2000  and  ultimately  return  to
profitability.  The  business  plan  focuses upon  improving  gross  margins and
working capital management, and significantly reducing operating expenses.

Risks and Uncertainties--The  Company believes that the diversity and breadth of
its products,  services and customers,  along with the general  stability of the
economies in the markets in which it operates,  significantly  mitigate the risk
that a  material  adverse  impact  will  occur in the near  term as a result  of
changes in its  customer  base,  competition,  or  composition  of its  markets.
However,  continued pricing  pressures,  or the loss of a major vendor, or other
unanticipated  occurrences  could result in a materially  adverse  impact to the
business. Although Merisel regularly stocks products and accessories supplied by
more  than 500  manufacturers,  75% of the  Company's  net  sales  for its North
American  Distribution  and MOCA  businesses in 1999 (as compared to 73% in 1998
and 69% in 1997) were derived from  products  supplied by Merisel's  ten largest
vendors.

The preparation of financial  statements in conformity  with generally  accepted
accounting   principles  requires  management  to  make  certain  estimates  and
assumptions  that  affect the  reported  amounts of assets and  liabilities  and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting period. Actual results could differ from those estimates.  Significant
estimates include  collectibility of accounts  receivable,  inventory,  deferred
income taxes,  accounts payable,  sales returns and  recoverability of long-term
assets.

New Accounting  Pronouncements--In June 1998, the Financial Accounting Standards
Board ("FASB") issued Statement of Financial  Accounting  Standards ("SFAS") No.
133, "Accounting for Derivative  Instruments and Hedging Activities." As amended
by SFAS No. 137, SFAS 133 is effective for financial  statements  issued for all
fiscal  quarters of all fiscal years  beginning after June 15, 2000. The Company
will  adopt  SFAS  133 as  required  in  January  2001.  SFAS 133  requires  all
derivatives to be recorded on the balance sheet at fair value. The Company is in
the process of  evaluating  the effect that this new  standard  will have on its
financial statements.


<PAGE>



                         MERISEL, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


Revenue  Recognition,  Returns  and  Sales  Incentives--The  Company  recognizes
revenue from hardware and software  sales as products are shipped.  The Company,
subject to certain  limitations,  permits its customers to exchange  products or
receive  credits  against  future  purchases.  The Company  offers its customers
several  sales  incentive  programs  that,  among other  things,  include  funds
available for  cooperative  promotion of product  sales.  Customers  earn credit
under  such  programs  based  upon the  volume of  purchases.  The cost of these
programs  is  partially  subsidized  by  marketing  allowances  provided  by the
Company's manufacturers.  The allowances for sales returns and costs of customer
incentive programs are accrued concurrently with the recognition of revenue.

Cash and Cash  Equivalents--The  Company considers all highly liquid investments
purchased  with  initial   maturities  of  three  months  or  less  to  be  cash
equivalents.

Inventories--Inventories  are  valued  at the lower of cost or  market;  cost is
determined using the average cost method.

Property  and  Depreciation--Property  and  equipment  are  stated  at cost less
accumulated  depreciation.  Depreciation  is  computed  using the  straight-line
method over the  estimated  useful lives of the assets,  generally  three to ten
years.  Leasehold improvements are amortized over the shorter of the life of the
lease or the improvement.

The  Company  capitalizes  all direct  costs  incurred  in the  construction  of
facilities and the  development  and  installation of new computer and warehouse
management systems. Such amounts include the costs of materials and other direct
construction   costs,   purchased   computer  hardware  and  software,   outside
programming and consulting fees, direct employee salaries and interest.

Cost in Excess of Net Assets  Acquired--Cost  in excess of net  assets  acquired
resulted  from  the  acquisition  in  1990  of  Microamerica,  Inc.  Accumulated
amortization  was  $8,477,000  and  $9,494,000 as of December 31, 1998 and 1999,
respectively.  The cost in excess of net assets acquired is being amortized over
a period of 40 years using the straight-line  method.

Impairment of  Long-Lived  Assets--The  Company  reviews the  recoverability  of
intangible  assets,  including cost in excess of net assets acquired,  and other
long-lived assets to determine if there has been any impairment. This assessment
is  performed  based  on the  estimated  undiscounted  future  cash  flows  from
operating  activities  compared with the carrying value of the related asset. If
the  undiscounted  future  cash  flows  are less  than the  carrying  value,  an
impairment loss is recognized,  measured by the difference  between the carrying
value and the  estimated  fair  value of the  assets  (see Note 4 -  "Impairment
Losses").

Income  Taxes--Deferred  income taxes represent the amounts that will be paid or
received  in future  periods  based on the tax rates that are  expected to be in
effect when the temporary differences are scheduled to reverse.

Concentration of Credit Risk--Financial  instruments that subject the Company to
credit risk consist  primarily of cash equivalents,  trade accounts  receivable,
and forward foreign currency exchange contracts.  The Company invests its excess
cash with high-quality credit financial  institutions.  Credit risk with respect
to trade  accounts  receivable  is generally not  concentrated  due to the large
number of entities  comprising the Company's  customer base and their geographic
dispersion.  The Company performs  ongoing credit  evaluations of its customers,
maintains  an  allowance  for  potential  credit  losses  and  maintains  credit
insurance.  The Company actively evaluates the creditworthiness of the financial
institutions with which it conducts business.


<PAGE>



                         MERISEL, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


Fair Values of Financial  Instruments--The fair values of financial instruments,
other than long-term debt,  closely  approximate their carrying value because of
their  short-term  nature.  The estimated fair value of long-term debt including
current  maturities,  based on reference to quoted market prices,  was less than
its  carrying  value by  approximately  $47,500,000  as of December 31, 1999 and
greater than its carrying value by  approximately  $3,750,000 as of December 31,
1998.

Foreign Currency  Translation--Assets  and liabilities of the Company's Canadian
subsidiary  are  translated  into United States  dollars at the exchange rate in
effect at the close of the period.  Revenues and expenses are  translated at the
average exchange rate during the period. The aggregate effect of translating the
financial  statements at the above rates is included in a separate  component of
stockholders' equity entitled Accumulated Other Comprehensive Loss. In addition,
the Company  advances  funds to its Canadian  subsidiary in the normal course of
business  that  are  not  expected  to be  repaid  in  the  foreseeable  future.
Translation  adjustments  resulting  from these  advances  are also  included in
Accumulated Other Comprehensive Loss.

Foreign Exchange Instruments--The Company's use of derivatives is limited to the
purchase of spot and forward  foreign  currency  exchange  contracts in order to
minimize foreign exchange  transaction  gains and losses.  The Company purchases
forward dollar contracts to hedge short-term advances to its Canadian subsidiary
and to hedge  commitments  to  acquire  inventory  for sale and does not use the
contracts for trading  purposes.  The Company's  foreign exchange rate contracts
reduce the Company's  exposure to exchange  rate movement  risk, as any gains or
losses on these  contracts  are offset by gains and  losses on the  transactions
being hedged. As of December 31, 1998, there were  approximately  $80,268,000 in
outstanding  foreign  exchange  contracts  and  $65,380,000  outstanding  as  of
December 31, 1999. In 1997,  1998,  and 1999,  the Company  recorded net foreign
currency transaction losses of $351,000, $1,885,000 and $264,000,  respectively.
These amounts are included in other expense.

Reclassifications--Certain  reclassifications were made to prior year statements
to conform to the current year presentation.

Fiscal Periods--The Company's fiscal year is the 52- or 53-week period ending on
the  Saturday  nearest to  December  31 and its fiscal  quarters  are the 13- or
14-week periods ending on the Saturday  nearest to March 31, June 30,  September
30 and  December  31. For clarity of  presentation,  the  Company has  described
fiscal years  presented as if the years ended on December 31 and fiscal quarters
presented  as if the  quarters  ended on March  31,  June 30,  September  30 and
December 31. The 1998 and 1999 fiscal years were 52 weeks in duration.  The 1997
fiscal year was 53 weeks in duration.  All quarters presented for 1998, 1999 and
the first three  quarters of 1997 were 13 weeks in duration.  The fourth quarter
of 1997 was 14 weeks in duration.

2. Litigation Related Charge

During  fiscal  year 1999,  a  $21,000,000  charge was  recorded  by the Company
relating to the settlement of the litigation  pending in Delaware Chancery Court
between  the Company and  certain  holders and former  holders of the  Company's
12-1/2%  Senior Notes due 2004 (the "12.5% Notes") which was offset in part by a
$9,000,000 insurance recovery received by the Company.

3. Restructuring Charge

During the fourth  quarter of 1999,  the Company  announced  that, in connection
with the combination of its U.S. and Canadian distribution businesses,  it would
reduce its  workforce by  approximately  400  full-time  positions.  The planned
reduction,  which was effective in January 2000,  was  accomplished  through the
elimination  of  duplicative  positions  in  marketing,  product  and  inventory
management, and sales under the newly formed North American

<PAGE>



                         MERISEL, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


distribution business unit, and by the realignment of finance and administrative
functions.  As a result,  the Company  has  recorded a  restructuring  charge of
$3,200,000 in the fourth quarter of 1999 that primarily  consists of termination
benefits  including  severance pay and  outplacement  services to be provided to
those employees that were involuntarily  affected by the reduction in workforce.
These  benefits had not been paid as of December 31, 1999, and the entire amount
remains in accrued liabilities.

4. Impairment Losses

In 1993,  the Company  undertook  the process of converting  its North  American
Operations  to the SAP  information  system  ("SAP").  Although this process was
completed  in Canada in 1995,  the  Company  delayed the  implementation  in the
United States and recorded an impairment  charge of $19,500,000  during 1996. In
the fourth quarter of 1997, the Company renewed its implementation  efforts.  As
part of this process,  the Company  reviewed  previously  capitalized  costs and
determined that a portion of these costs no longer provided value to the Company
primarily  due to changes in the SAP  implementation  strategy  and the  planned
implementation  of a  different  version  of SAP.  As a  result,  a  $14,100,000
impairment  charge was  recorded.  In the fourth  quarter of 1999,  the  Company
announced  a  restructuring  plan  that  would  combine  the U.S.  and  Canadian
distribution  business  units into one business  unit. In  conjunction  with the
restructuring,  the Company has evaluated the fixed asset  investments that have
been made to  support  the former  business  units.  As a result,  in the fourth
quarter of 1999 a  $3,800,000  impairment  charge  related to  redundant  assets
determined to have no value to the Company was recorded.

5. Debt Restructuring and Equity Investment

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 of Common
Stock (the  "Initial  Shares")  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   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.
In connection with these repayments,  the Company recorded an extraordinary loss
on the  extinguishment  of debt of $3,744,000.  This amount consisted of a "make
whole" premium of $960,000 required to be paid with respect to the prepayment of
the   subordinated   notes,   unamortized   prepaid   financing   fees  totaling
approximately  $2,546,000 and other costs totaling $238,000.  Additionally,  the
Company  incurred  $5,230,000 in other expenses in 1997 related to the Company's
efforts to effect a restructuring of its debt. These costs include $4,380,000 of
professional  fees and other costs  associated with the termination of a Limited
Waiver  Agreement with the holders of its 12.5% Notes and $850,000 in costs that
were  incurred  as a result of the  change in  control  that  occurred  upon the
conversion  of  the  Convertible  Note.   Additionally,   selling,  general  and
administrative  expenses  in 1997  include  compensation  charges of  $1,950,000
incurred pursuant to employment  contracts of certain executive  officers of the
Company related to the debt restructuring.

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

<PAGE>



                         MERISEL, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


stockholder  approval,  the  remaining  portion  of  the  Convertible  Note  was
converted into Common Stock.  The  $152,000,000 in proceeds from the 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 December 31, 1999,  Phoenix owned 50,000,000 shares of Common
Stock, or approximately 62.3% of the outstanding Common Stock.

6.  Dispositions

As of March 28, 1997, the Company completed the sale of substantially all of the
assets  of  Merisel  FAB to a wholly  owned  subsidiary  of  SYNNEX  Information
Technologies,  Inc. ("Synnex"). The sale price, computed based upon the February
21, 1997 balance sheet of Merisel FAB, was  $31,992,000  consisting of the buyer
assuming $11,992,000 of trade payables and accrued liabilities and a $20,000,000
extended payable due to Vanstar  Corporation.  In connection with this sale, the
Company  recorded  an  impairment  charge  in the  fourth  quarter  of 1996  for
$2,033,000 to adjust  Merisel  FAB's assets to their fair value.  If the Company
had sold Merisel FAB as of January 1, 1997 for the year ended December 31, 1997,
revenues  and  gross  profit  would  have  been  reduced  by  $202,000,000   and
$8,000,000,  respectively,  and net loss and loss per share would have increased
$2,000,000 and $.06, respectively.

7. Sale of Accounts Receivable

The Company's wholly owned subsidiary, Merisel Americas, sells trade receivables
on an ongoing basis to its wholly owned subsidiary Merisel Capital Funding, Inc.
("Merisel  Capital  Funding").  Pursuant to an agreement  with a  securitization
company (the "Receivables  Purchase and Servicing  Agreement"),  Merisel Capital
Funding,  in turn,  sells such receivables to the  securitization  company on an
ongoing basis, which yields proceeds of up to $500,000,000 at any point in time.
Merisel  Capital  Funding's  sole business is the purchase of trade  receivables
from Merisel  Americas  and,  upon the  commencement  of MOCA's  operations as a
separate  subsidiary,  Merisel Open Computing  Alliance,  Inc.  Merisel  Capital
Funding is a separate corporate entity with its own separate creditors, which in
the event of its  liquidation  will be entitled to be  satisfied  out of Merisel
Capital  Funding's assets prior to any value in Merisel Capital Funding becoming
available to Merisel Capital Funding's equity holders.  This facility expires in
October 2003. The Receivables  Purchase and Servicing Agreement contains certain
financial  covenants  that require,  among other things,  minimum  levels of net
worth and cash flow.  With respect to the quarter ended  December 31, 1999,  the
Company was  required to obtain,  and did obtain,  amendments  and waivers  with
respect  to certain  covenants  under the  Receivables  Purchase  and  Servicing
Agreement.

Effective  December 15, 1995,  Merisel Canada  Inc.  ("Merisel Canada") entered
into a receivables  purchase agreement with a securitization  company to provide
funding for Merisel Canada.  In accordance  with this agreement,  Merisel Canada
sells receivables to the securitization  company, which yields proceeds of up to
$150,000,000  Canadian  dollars  at any  point in  time.  The  facility  expires
December 12, 2000, but is extendible by notice from the securitization  company,
subject to the Company's approval.

Under these  securitization  facilities,  the receivables are sold at face value
with payment of a portion of the purchase price being  deferred.  As of December
31, 1999, the total amount  outstanding under these facilities was $419,929,000.
Fees incurred in connection  with the sale of accounts  receivable for the years
ended  December  31,  1997,  1998 and 1999  were  $16,030,000,  $17,564,000  and
$26,781,000, respectively, and are recorded as other expense.


<PAGE>
<TABLE>
<CAPTION>



                         MERISEL, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


8. Property and Equipment

Property and equipment consisted of the following (in thousands):

                                                          Estimated
                                                            Useful
                                                             Life            December 31,
                                                          (in Years)
                                                                      ----------------------------
                                                                         1998            1999
                                                                      ------------   -------------
<S>                                                                   <C>            <C>
     Land...............................................              $   3,324      $   3,324
     Building...........................................      20          8,883          9,011
     Equipment and computer hardware and software.......    3 to 7       71,225        129,709
     Furniture and fixtures.............................    3 to 5        9,177          9,500
     Leasehold improvements.............................    3 to 20       8,941         11,078
     Construction in progress...........................                 45,811          2,953
                                                                      ------------   -------------
     Total..............................................                147,361        165,575
     Less accumulated depreciation and amortization.....                (67,642)       (80,966)
                                                                      ------------   -------------
     Property and equipment, net........................              $  79,719      $  84,609
                                                                      ============   =============
</TABLE>

During 1999, the Company capitalized approximately $1,300,000 of interest costs
as property and equipment.

9. Income Taxes

The  components of (loss) income before income taxes  consisted of the following
(in thousands):
<TABLE>
<CAPTION>

                                                        For the Years Ended December 31,
                                                       1997          1998           1999
                                                    ------------   ----------   ------------
<S>                                                <C>           <C>           <C>
     Domestic...............................       $    (14,202) $     19,661  $    (61,085)
     Foreign................................              2,601          (734)          856
                                                    ------------   ----------   ------------
     Total..................................       $    (11,601) $     18,927  $    (60,229)
                                                    ============   ==========   ============
</TABLE>

The  (benefit)  provision  for  income  taxes  consisted  of the  following  (in
thousands):
<TABLE>
<CAPTION>

                                                        For the Years Ended December 31,
                                                         1997          1998           1999
                                                      -------------   ----------   -----------
     <S>                                              <C>              <C>         <C>
     Current:
          State..................................    $       312   $       360  $       457
          Foreign................................            346           278          531
                                                      -------------   ----------   -----------
          Total Current..........................            658           638          988
                                                      -------------   ----------   -----------
     Deferred:
          Foreign................................           (162)         (221)         (49)
                                                      -------------   ----------   -----------
          Total deferred.........................           (162)         (221)         (49)
                                                      -------------   ----------   -----------
          Total provision........................    $       496   $       417  $       939
                                                       ============   ==========   ===========

</TABLE>



<PAGE>
<TABLE>
<CAPTION>



                         MERISEL, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


Deferred  income tax  liabilities and assets were comprised of the following (in
thousands):

                                                                        December 31,
                                                                     1998          1999
                                                                 ------------   -----------
<S>                                                              <C>           <C>
          Net operating loss..........................           $    48,400   $    72,614
          Expense accruals............................                17,184        14,552
          State taxes.................................                   (27)           43
          Property and goodwill.......................               (11,665)      (13,283)
                                                                     --------     ---------
                                                                      53,892        73,926
          Valuation allowances........................               (53,027)      (73,012)
                                                                     --------     ---------
               Total..................................           $       865   $       914
                                                                     ========     =========
     Net deferred tax asset...........................           $       865   $       914
                                                                     ========     =========

</TABLE>

The major elements  contributing to the difference between the federal statutory
tax rate and the effective tax rate are as follows:
<TABLE>
<CAPTION>

                                                                              For the Years Ended
                                                                                  December 31,
                                                                  ---------------------------------------------
                                                                      1997             1998            1999
<S>                                                                   <C>              <C>             <C>
     Statutory rate..............................................     (35.0)%          35.0%           (35.0)%
     Change in valuation allowance...............................      32.7           (36.7)            35.8
     State income taxes, less effect of federal deduction........       1.3             1.2               .4
     Goodwill amortization.......................................       1.5              .6               .4
     Foreign losses with benefits at less than statutory rate....                       1.4               .1
     Utilization of net operating losses of foreign subsidiary...       1.2              .3              (.6)
     Other.......................................................       1.5              .4               .5
                                                                   ------------    -------------    -----------
     Effective tax rate..........................................       3.2%            2.2%             1.6%
                                                                   ============    =============    ===========
</TABLE>

Upon the issuance of the Conversion Shares, the Company experienced an ownership
change for Federal income tax purposes, resulting in an annual limitation on the
Company's  ability to utilize its net  operating  loss  carryforwards  to offset
future taxable income.  The annual  limitation was determined by multiplying the
value of the Company's equity before the change by the long-term tax exempt rate
as defined by the  Internal  Revenue  Service.  The  Company  has  adjusted  its
deferred tax asset to reflect the estimated limitation. At December 31, 1998 and
1999, the Company had available U.S. Federal net operating loss carryforwards of
$126,892,000  and  $181,795,000,  after adjusting for the estimated  limitation,
which expire at various  dates  beginning  December 31, 2010. As of December 31,
1999,  $112,138,000 of the net operating loss  carryforwards  is restricted as a
result of the  ownership  change and  $69,657,000  is not.  The  restricted  net
operating loss is limited to $7,476,000 per year.

10. Debt

At December  31, 1999,  Merisel,  Inc. had  outstanding  $125,000,000  principal
amount of the 12.5% Notes.  The 12.5% Notes,  which mature on December 31, 2004,
provide for an interest rate of 12.5% payable semi-annually. The 12.5% Notes are
redeemable,  in whole or in part, at the option of the Company at any time on or
after  December  31,  1999,  initially  at  106.25% of  principal  amount and at
redemption  prices  declining to 100% of principal  amount for redemptions on or
after December 31, 2002. By virtue of being an obligation of Merisel, Inc.,

<PAGE>



                         MERISEL, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


the 12.5% Notes are effectively subordinated to all liabilities of the Company's
subsidiaries,  including  trade  payables,  and are not guaranteed by any of the
Company's  subsidiaries.  The  indenture  relating to the 12.5%  Notes  contains
certain  covenants  that,  among  other  things,  limit  the type and  amount of
additional  indebtedness  that  may be  incurred  by the  Company  or any of its
subsidiaries and impose limitations on investments,  loans,  advances,  sales or
transfers of assets, the making of dividends and other payments, the creation of
liens, sale-leaseback transactions with affiliates and certain mergers.

At December 31,  1999,  the Company had  promissory  notes  outstanding  with an
aggregate  balance of  $5,011,000.  Such notes provide for interest at a 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. Payments
due under these notes are  $1,111,000 in 2000, and $3,900,000 in 2001. The notes
are collateralized by certain of the Company's real property and equipment.

Merisel Americas is party to a Loan and Security  Agreement dated as of June 30,
1998 (the "Loan and  Security  Agreement")  with Bank of America  NT&SA  ("BA"),
acting as agent, that provides for borrowings on a revolving basis. 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.  The amount  available  for  borrowing  under the Loan and Security
Agreement at any time may be further limited by restrictions under the indenture
relating to the 12.5%  Notes.  The Loan and  Security  Agreement  also  contains
certain financial covenants that require,  among other things, minimum levels of
cash flow and interest coverage.  With respect to the quarter ended December 31,
1999, the Company was required to obtain, and did obtain, amendments and waivers
with  respect  to  certain  covenants  under  the Loan and  Security  Agreement.
Borrowings  under the Loan and  Security  Agreement  are  secured by a pledge of
substantially all of the inventories held by Merisel  Americas.  Borrowings bear
interest at LIBOR plus a specified  margin,  or, at the  Company's  option,  the
agent's  prime  rate.  An annual  fee of 0.375% is payable  with  respect to the
unused  portion  of the  commitment.  The  Loan  and  Security  Agreement  has a
termination  date of June 30, 2003. No amounts were  outstanding  under the Loan
and Security Agreement as of December 31, 1999.

11. Commitments and Contingencies

The Company leases certain of its facilities and equipment  under  noncancelable
operating leases.  Future minimum rental payments under leases that have initial
or remaining  noncancelable  lease terms in excess of one year are $5,317,000 in
2001,  $3,725,000 in 2002,  $2,357,000 in 2003, $1,362,000 in 2004, and $392,000
thereafter.  Certain of the leases  contain  inflation  escalation  clauses  and
requirements  for the  payment of property  taxes,  insurance,  and  maintenance
expenses.  Rent expense for 1997, 1998 and 1999 was  $8,726,000,  $9,131,000 and
$10,177,000 respectively.

The Company also leases certain computer  equipment under capitalized leases and
has the option to purchase the equipment  for a nominal cost at the  termination
of the lease.

         Property and equipment  includes the following  amounts for leases that
have been capitalized:
<TABLE>
<CAPTION>

                                                                             December 31,        December 31,
                                                                                 1998                1999
                                                                              -----------        ------------
<S>                                                                           <C>                 <C>
         Computer equipment............................................       $4,489,000          $5,445,000
         Less accumulated depreciation.................................          567,000           2,370,000
                                                                       ================== ===================
           Total.......................................................       $3,922,000          $3,075,000
                                                                       ================== ===================


</TABLE>


<PAGE>
<TABLE>
<CAPTION>



                         MERISEL, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


         Future  minimum  payments  for  capitalized  leases  were as follows at
December 31, 1999.


<S>                                                                              <C>
         2000..........................................................           $1,983,000
         2001..........................................................            1,396,000
         2002..........................................................               22,000
                                                                             --------------------
         Total minimum lease payments..................................            3,401,000
         Less amount representing interest.............................              242,000
                                                                             --------------------
         Present value of net minimum lease payments...................            3,159,000
         Less current maturities.......................................            1,795,000
                                                                             --------------------
             Long-term obligation......................................           $1,364,000
                                                                             ====================
</TABLE>


The Company  has  arrangements  with  certain  finance  companies  that  provide
inventory and accounts  receivable  financing  facilities for its customers.  In
conjunction  with these  arrangements,  the  Company  has  inventory  repurchase
agreements  with the  finance  companies  that would  require  it to  repurchase
certain  inventory if repossessed  from the customers by the finance  companies.
Such repurchases have been insignificant in the past.

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 filed a motion to
dismiss  the  amended  complaint  on various  grounds and a motion to strike the
punitive  damages prayer.  In its opposition to the Company's  motion to strike,
the plaintiff withdrew its prayer for punitive damages. On January 15, 1999, the
Court issued an Order  staying  prosecution  of the action under the doctrine of
exclusive  concurrent  federal  jurisdiction.  Plaintiff  filed a motion to seek
relief from the stay and in October  1999 such motion was  granted.  The Company
renewed its motion to dismiss and on January 28, 2000 the judge entered an order
granting the Company's  motion to dismiss,  and granting the plaintiff  leave to
amend its complaint with respect only to the unfair  business  practices  claim.
The Company has defended itself vigorously  against this claim and will continue
to do so.

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.


12. Employee Stock Options and Benefit Plans

On December 19, 1997, the Company's  stockholders approved the Merisel Inc. 1997
Stock Award and Incentive Plan (the "Stock Award and Incentive Plan"). Under the
Stock Award and Incentive Plan, incentive stock options
<PAGE>



                         MERISEL, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


and  nonqualified  stock  options  as well as other  stock-based  awards  may be
granted to  employees,  directors,  and  consultants.  The plan  authorized  the
issuance of an aggregate of 8,000,000  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 Stock Award and  Incentive  Plan or  forfeited.  At December 31, 1999,
2,430,583  shares were  available  for grant under the Stock Award and Incentive
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.  On December  22,  1997,  the
Company granted options under the Stock Award and Incentive Plan in exchange for
previously  granted  employee stock options that were then  outstanding and that
had an exercise  price  greater than the then market price of the Common  Stock,
subject to the agreement of each optionee to cancel the outstanding  options. As
of December 31, 1999,  634,756  options remain  outstanding  under the Company's
other employee stock option plans,  however,  no new options may be issued under
these  plans.  In  addition  to the shares  issuable  under the Stock  Award and
Incentive Plan, 50,000 shares are reserved for issuance under the Company's 1992
Stock Option Plan for  Non-Employee  Directors.  During August 1999, the Company
issued 515,000 restricted stock units to certain employees under the Stock Award
and Incentive Plan.  Each restricted  stock unit represents the right to receive
one  share  of  common  stock of the  Company  at no cost to the  employee.  The
restricted  stock  units  cliff  vest after  three  years  with  provisions  for
accelerated vesting in the event certain operating  performance targets are met.
Compensation  expense,  measured  by the  fair  value at the  grant  date of the
Company's common stock issuable in respect of the units, totaled $869,000 and is
being amortized over the related three-year vesting period.  Upon the attainment
of the performance  criteria specified,  the remaining  compensation expense for
the units will be  recognized by the Company in full.  During 1999,  the Company
recorded   approximately   $100,000  of  compensation  expense  related  to  the
restricted  stock units  outstanding.  The  following  summarizes  the aggregate
activity in all of the  Company's  plans for the three years ended  December 31,
1999:
<TABLE>
<CAPTION>

                                       1997                             1998                             1999
                            ----------------------------     ---------------------------     -----------------------------
                                             Weighted                          Weighted                           Weighted
                                             Average                           Average                             Average
                               Shares       Exer. Price      Shares           Exer. Price      Shares            Exer. Price
                             -----------   ------------      ---------       ------------     -------------   ---------------
<S>                         <C>             <C>             <C>               <C>              <C>                <C>
Outstanding at
   Beginning of year        1,368,345              7.48      6,673,525              4.10     5,947,150               3.79
Granted                     6,146,323              3.86        583,400              3.29       691,250                .52
Exercised                                                      (77,750)             2.16        (6,150)              2.01
Canceled                     (841,143)             6.41     (1,232,025)             5.32    (1,138,150)              3.50
                            -------------                   -----------                      -----------
Outstanding at end
 of year                    6,673,525              4.10      5,947,150              3.79     5,494,100               3.44
                            -------------                   -----------                      -----------
Option price range for
   Exercised shares                               $0.00                      $1.63-$2.63                      $2.00-$2.31
                                                  -----                       -----------                      -----------
Weighted average fair
   value  at date of grant
   of options  granted
   during the year
                                $2.55                            $2.13                           $1.61
                              -------------                   ------------                    -------------

</TABLE>

<PAGE>
<TABLE>
<CAPTION>



                         MERISEL, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


The following table summarizes  information  about stock options  outstanding at
December 31, 1999:

                                        Options Outstanding                        Options Exercisable

                            --------------------------------------------   ------------------------------------

                                               Weighted
                                               Average       Weighted                             Weighted
                                Number        Remaining      Average             Number           Average
         Range of             Outstanding        Life        Exercise         Exercisable         Exercise
      Exercise Prices         at 12/31/99      In Years       Price           at 12/31/99          Price
     ------------------       -----------     ----------    ----------       ------------         ----------
<S>                          <C>               <C>            <C>             <C>                 <C>


         $3.0000 to $3.0000          32,156       2             $3.0000                32,156          $3.0000
        $0.0000 to $11.3750         517,000       3             $0.0440                 2,000         $11.3750
       $11.7500 to $11.7500           2,000       4            $11.7500                 2,000         $11.7500
       $15.0000 to $15.0000           2,000       5            $15.0000                 2,000         $15.0000
         $5.8750 to $6.3125          26,500       6             $6.2795                24,050          $6.2761
         $1.8750 to $2.6250         162,500       7             $2.3598               122,375          $2.3578
         $1.6250 to $4.3100       4,241,444       8             $3.9166             2,817,857          $3.7909
         $2.6875 to $4.0600         394,250       9             $3.3681               129,319          $3.3274
         $2.0000 to $2.1875         116,250       10            $2.0565                     0               $0
                                  -----------                                     ------------
        $0.0000 to $15.0000       5,494,100                                         3,131,757
                                  ===========                                     ============

</TABLE>


The  Company  has  adopted  the  disclosure-only  provisions  of SFAS  No.  123,
"Accounting for Stock-Based Compensation." Accordingly, no compensation cost has
been  recognized  for the stock  option  plans.  Had  compensation  cost for the
Company's  stock option plans been  determined  based on their fair value at the
grant  date for  options  granted  in 1997,  1998 and 1999  consistent  with the
provisions  of SFAS No. 123, the  Company's  net (loss) income and (loss) income
per share would have been adjusted to the pro forma amounts indicated below:
<TABLE>
<CAPTION>


                                                            (In thousands, except per share amounts)
                                                              1997              1998              1999
                                                            ----------     -------------       ----------
<S>                                                          <C>                  <C>           <C>
   Net (Loss) Income - As Reported                           $(15,841)            $18,510       $(61,168)
   Net (Loss) Income - Pro Forma                             $(16,914)            $17,348       $(62,412)

   Net (Loss) Income Per Share (Basic & Diluted)
   As Reported                                                $ ( .48)             $ 0.23          $(.76)
   Pro Forma                                                  $ ( .51)             $ 0.22          $(.78)


</TABLE>


<PAGE>
<TABLE>
<CAPTION>



                         MERISEL, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


The fair value of each option granted during 1997, 1998 and 1999 is estimated on
the  date of  grant  using  the  Black-Scholes  option  pricing  model  with the
following weighted average assumptions:

                                                             1997              1998             1999
                                                            -----             -----            -----
<S>                                                          <C>              <C>               <C>
  Expected life                                              5.0              5.0               5.0
  Expected volatility                                       73.84%           76.97%            76.78%
  Risk-free interest rate                                    5.76%            5.35%             5.81%
  Dividend Yield                                             0.00%            0.00%             0.00%



</TABLE>

The Company  offers a 401(k)  savings plan under which all  employees who are 21
years of age with at least 30 days of service are eligible to  participate.  The
plan permits eligible employees to make contributions up to certain limitations,
with  the  Company  matching  certain  of  those  contributions.  The  Company's
contributions vest 25% per year. The Company contributed $506,000,  $892,000 and
$1,250,000 to the plan during the years ended December 31, 1997,  1998 and 1999,
respectively.  The  contributions  to the 401(k)  plan were in the form of newly
issued shares of the Company's common stock for 1997 and cash, which was used to
purchase shares of the Company's  common stock on the open market,  for 1998 and
1999.

13. Segment Information

As of January 1, 1998, the Company  implemented SFAS No. 131,  "Disclosure about
Segments  of an  Enterprise  and Related  Information"  ("SFAS  131").  SFAS 131
requires disclosure of certain information about operating segments,  geographic
areas in which the Company operates, major customers, and products and services.
In accordance  with SFAS 131, the Company had determined it had three  operating
segments:  the United States  distribution  segment,  the Canadian  distribution
segment,  and  MOCA.  Prior  to  December  1999,  each of these  segments  had a
dedicated  management  team and was  managed  separately  primarily  because  of
geography  (United  States and Canada) and  differences  in product  categories,
marketing  strategies  and customer base (MOCA).  In December  1999, the Company
announced  a  restructuring  plan  that  would  combine  the U.S.  and  Canadian
distribution   segments  into  one  operating   segment,   the  North   American
distribution segment.

Historically,  the Company has not  maintained  separate  stand-alone  financial
statements prepared in accordance with generally accepted accounting  principles
for each of its operating  segments.  During 1999, the Company began to evaluate
the MOCA segment as a combination  of United States and Canadian  MOCA. The 1997
and  1998  segment  disclosures  have  been  restated  to  conform  to the  1999
presentation.  The impact of these restatements on the 1997 and 1998 disclosures
is to increase  net sales of the MOCA  segment by  $12,431,000  and  $9,698,000,
respectively.  Additionally,  during  1999,  the  Company  developed  methods to
allocate  corporate  overhead,  depreciation and amortization,  shared operating
expenses,  and  shared  assets,  including  asset  securitizations,  to the MOCA
operating  segment.  The  impact  of  these  restatements  on the  1997 and 1998
disclosures is to increase MOCA  depreciation  and  amortization  by $155,000 in
each  year,  to  reduce  MOCA  segment   operating  profit  by  $10,869,000  and
$10,992,000,  respectively,  to increase MOCA long-lived  assets by $325,000 and
$170,000,  respectively, and to decrease total segment assets by $58,494,000 and
$80,814,000, respectively.

In accordance with SFAS 131, the Company has prepared the following tables which
present  information  related to each  operating  segment  included  in internal
management  reports.  The United States and Canadian segments have been combined
to show how they would look as the North American distribution segment, which is
how internal management reports will be presented on a go-forward basis.


<PAGE>

<TABLE>
<CAPTION>



                         MERISEL, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)



                                                                           1999
                                                                      (in thousands)
                              ------------------------------------------------------------------------------------------------
                                  US         Canada      Eliminations       NAM          MOCA         Other         Total
                                  --         ------      ------------       ---          ----         -----         -----
<S>                            <C>           <C>          <C>               <C>            <C>      <C>               <C>
Net sales to external
customers                      3,305,026     926,370                     4,231,396      957,283                  5,188,679
Depreciation and
amortization                      20,497       1,751                        22,248          101                     22,349
Operating (loss)profit (A)       (34,180)      9,099                       (25,081)      23,663       (12,000)     (13,418)
Long-lived assets                 80,120       3,988                        84,108          501                     84,609
Total segment assets           1,066,330     185,956      (554,933)        697,353      108,442                    805,795
Capital expenditures              27,720       1,103                        28,823          432                     29,255

</TABLE>
<TABLE>
<CAPTION>



                                                                           1998
                                                                      (in thousands)
                              ------------------------------------------------------------------------------------------------

                                  US         Canada      Eliminations       NAM          MOCA         Other         Total
                                  --         ------      ------------       ---          ----         -----         -----

<S>                            <C>           <C>         <C>                <C>            <C>         <C>             <C>
Net sales to external
customers                      3,098,261     839,668                     3,937,929      613,048                  4,550,977
Depreciation and
amortization                       8,915       1,910                        10,825          155                     10,980
Operating profit                  34,098       8,007                        42,105       14,851                     56,956
Long-lived assets                 74,378       5,171                        79,549          170                     79,719
Total segment assets           1,268,199     180,234      (657,242)        791,191      154,129                    945,320
Capital expenditures              44,505       5,562                        50,067                                  50,067

</TABLE>
<TABLE>
<CAPTION>



                                                                           1997
                                                                      (in thousands)
                              ------------------------------------------------------------------------------------------------

                                  US         Canada      Eliminations       NAM          MOCA         Other         Total
                                  --         ------      ------------       ---          ----         -----         -----

<S>                            <C>           <C>          <C>               <C>            <C>           <C>        <C>
Net sales to external
customers(B)                   2,637,979     750,900                     3,388,879      456,565       202,177    4,047,621
Depreciation and
amortization(B)                    8,807       2,111                        10,918          155           278       11,351
Operating profit (B)              12,147       7,563                        19,710       16,041         1,478       37,229
Long-lived assets                 35,545       4,272                        39,817          325                     40,142
Total segment assets           1,091,683     151,662      (567,919)        675,426       71,685                    747,111
Capital expenditures               5,864       1,426                         7,290                                   7,290


Note A: Other amount represents a $12,000,000  litigation-related charge, net of
recovery, which was not allocated to any segment.

Note B: Other amount represents the results of FAB operations which had been
included in the U.S. segment in 1997.

</TABLE>


<PAGE>

<TABLE>
<CAPTION>



                         MERISEL, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)




Geographical Area Net Sales:
                                               1997              1998             1999
                                         ------------------ --------------- -----------------
<S>                                             <C>             <C>               <C>
United States                                   $3,286,890      $3,697,660        $4,239,285
Canada                                             760,731         853,317           949,394
                                         ------------------ --------------- -----------------
Total Net Sales                                 $4,047,621      $4,550,977        $5,188,679
                                         ================== =============== =================
</TABLE>


14.  Earnings Per Share

The Company  calculates  earnings per share ("EPS") in accordance  with SFAS 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.

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)
                                                                    For the Years Ended
                                                                       December 31,
Weighted average shares outstanding                          1997           1998           1999
-----------------------------------                          ----           ----           ----

<S>                                                          <C>            <C>            <C>
Basic                                                        33,216         80,210         80,279
Assumed exercises of stock options                                             275
                                                             ------         ------         ------
Diluted                                                      33,216         80,485         80,279
                                                             ======         ======         ======

</TABLE>



<PAGE>




                         MERISEL, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


15. Quarterly Financial Data (Unaudited)

Selected financial  information for the quarterly periods for the fiscal years
1998 and 1999 is presented below (in thousands,
except per share amounts):
<TABLE>
<CAPTION>

                                                               1998
                                      -------------------------------------------------------
                                        March 31       June 30    September 30  December 31
                                      ------------     --------  -------------- -------------
<S>                                     <C>           <C>          <C>           <C>
     Net sales......................    $1,101,235    $1,095,936   $1,143,848    $1,209,958
     Gross profit...................        61,316        61,200       66,806        63,102
     Net income.....................         3,636         5,108        7,604         2,162
     Net income per
        Basic and diluted share.....           .05           .06          .09           .03

</TABLE>
<TABLE>
<CAPTION>


                                                               1999
                                      -------------------------------------------------------
                                        March 31       June 30    September 30  December 31
                                      ------------     --------  -------------- -------------
<S>                                     <C>           <C>          <C>           <C>
     Net sales......................    $1,254,717    $1,266,164   $1,357,826    $1,309,972
     Gross profit...................        64,648        59,962       61,754        54,689
     Net income.....................       (20,509)       (2,984)     (11,716)      (25,959)
     Net income per
        Basic and diluted share.....          (.26)         (.04)        (.15)         (.32)

</TABLE>


In the first quarter of 1999, a  $21,000,000  charge was recorded by the Company
relating to the settlement of the litigation  pending in Delaware Chancery Court
between the Company and certain  holders and former  holders of the 12.5% Notes.
In the second quarter of 1999, the Company recorded an $9,000,000  offset to the
litigation  charge due to the negotiation and receipt of an insurance  recovery.
In the  fourth  quarter  of 1999 the value of certain  investments  in  software
development  and facilities  were  determined to be of diminished or no value in
connection  with  the   combination  of  the  U.S.  and  Canadian   distribution
businesses.  As a result,  the  Company  recorded a  $3,800,000  non-cash  asset
impairment  charge.  The Company  also  recorded a  restructuring  charge in the
fourth quarter of 1999 for  $3,200,000  relating to severance  costs  associated
with such combination.



<PAGE>
<TABLE>
<CAPTION>



                                   SCHEDULE II

                         MERISEL, INC. AND SUBSIDIARIES

                        VALUATION AND QUALIFYING ACCOUNTS

                        DECEMBER 31, 1997, 1998 AND 1999

                                               Balance at        Charged to                     Balance at
                                               December 31,      Costs and                      December 31,
                                                  1996            Expenses        Deductions        1997
                                             --------------    -------------  -------------- ---------------
<S>                                             <C>              <C>           <C>             <C>
Accounts receivable--Doubtful accounts.....     $19,762,000      $7,361,000    $10,521,000     $16,602,000
Accounts receivable--Other (1).............       3,922,000      16,232,000     18,207,000       1,947,000



                                               Balance at        Charged to                     Balance at
                                               December 31,      Costs and                      December 31,
                                                  1997            Expenses        Deductions        1998
                                             --------------    -------------  -------------- ---------------
Accounts receivable--Doubtful accounts.....     $16,602,000     $12,553,000    $10,358,000     $18,797,000
Accounts receivable--Other (1).............       1,947,000      13,104,000     13,372,000       1,679,000



                                               Balance at        Charged to                     Balance at
                                               December 31,      Costs and                      December 31,
                                                  1998            Expenses        Deductions        1999
                                             --------------    -------------  -------------- ---------------
Accounts receivable--Doubtful accounts.....     $18,797,000     $15,271,000    $23,526,000     $10,542,000
Accounts receivable--Other (1).............       1,679,000      15,492,000     12,527,000       4,644,000

</TABLE>



(1)  Accounts  receivable--Other  includes  allowances  for net  sales  returns,
     uncollectible cooperative advertising credits and notes receivable.


Item 9. Changes In and Disagreements with Accountants on Accounting and
        Financial Disclosure

               None.



<PAGE>


                                    PART III


Item 10.  Directors and Executive Officers of the Registrant.

The  information  required by this item is  incorporated  herein by reference to
information  contained in the Company's  definitive proxy statement for its 2000
annual meeting of stockholders  (the "2000 Proxy  Statement") under the captions
"Election  of  Directors   Information  Regarding  Nominees  and  the  Board  of
Directors,"  "Election  of  Directors - Executive  Officers"  and  "Election  of
Directors Section 16(a) Beneficial Ownership Reporting Compliance."

Item 11.  Executive Compensation.

The information required by this item is incorporated herein by reference to the
information  contained in the 2000 Proxy Statement under the captions  "Election
of Directors - Executive Compensation - Summary Compensation Table; - Options in
1999; - Compensation Committee Interlocks and Insider Participation,"  "Election
of Directors - Employment and  Change-in-Control  Arrangements" and "Election of
Directors - Director Compensation."

Item 12.  Security Ownership of Certain Beneficial Owners and Management.

The information required by this item is incorporated herein by reference to the
information contained in the 2000 Proxy Statement under the caption "Election of
Directors - Ownership of Common Stock."

Item 13.  Certain Relationships and Related Transactions.

The information required by this item is incorporated herein by reference to the
information contained in the 2000 Proxy Statement under the caption "Election of
Directors - Certain Relationships and Related Transactions."


                                     PART IV

Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

  (a) List of documents filed as part of this Report:

         (1) Financial Statements included in Item 8:

              Independent Auditors' Report.

              Consolidated Balance Sheets at December 31, 1998 and 1999.

              Consolidated  Statements of Operations for each of the three years
              in the period ended December 31, 1999.

              Consolidated  Statements  of Changes in  Stockholders'  Equity for
              each of the three years in the period ended December 31, 1999.

              Consolidated  Statements of Cash Flows for each of the three years
              in the period ended December 31, 1999.

              Notes to Consolidated Financial Statements.

         (2) Financial Statement Schedules included in Item 8:

              Schedule II - Valuation and Qualifying Accounts.


<PAGE>



              Schedules  other than that  referred  to above  have been  omitted
              because  they are not  applicable  or are not  required  under the
              instructions   contained   in   Regulation   S-X  or  because  the
              information is included  elsewhere in the  Consolidated  Financial
              Statements or the Notes thereto.

     (3) Exhibits:

         The exhibits listed on the accompanying  Index of Exhibits are filed as
part of this Annual Report.

  (b) The  Following  Reports on Form 8-K were filed  during the  quarter  ended
December 31, 1999:

         None.


<PAGE>


                                   SIGNATURES


Pursuant to the  requirements  of Section 13 or 15(d) of the  Securities  Act of
1934,  the  Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.

Date: March 29, 2000

MERISEL, INC.

                                         By:/s/Timothy N. Jenson
                                            Timothy N. Jenson
                                            Chief Financial Officer and
                                            Executive Vice President
                                    (Principal Financial and Accounting Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>

             Signature                                          Title                                   Date
            ------------                                    --------------                            ----------
<S>                                   <C>                                                         <C>

/s/Dwight A. Steffensen                Chairman of the Board of Directors and Chief Executive      March 29, 2000
------------------------------------            Officer (Principal Executive Officer)
Dwight A. Steffensen


/s/Timothy N. Jenson                    Chief Financial Officer and Executive Vice President       March 29, 2000
------------------------------------      (Principal Financial and Accounting Officer)
Timothy N. Jenson

/s/Albert J. Fitzgibbons III                                  Director                             March 29, 2000
------------------------------------
Albert J. Fitzgibbons III


/s/Bradley J. Hoecker                                         Director                             March 29, 2000
------------------------------------
Bradley J. Hoecker


/s/Dr. Arnold Miller                                          Director                             March 29, 2000
------------------------------------
   Dr. Arnold Miller


/s/Thomas P. Mullaney                                         Director                             March 29, 2000
------------------------------------
Thomas P. Mullaney


/s/Lawrence J. Schoenberg                                     Director                            March 29, 2000
------------------------------------
Lawrence J. Schoenberg
</TABLE>



<PAGE>


                                  EXHIBIT INDEX

3.1      Restated  Certificate  of  Incorporation  of Merisel,  Inc.,  filed as
         an exhibit to the Form S-1  Registration  Statement  of
         Softsel Computer Products, Inc., No. 33-23700.**

3.2      Amendment to  Certificate  of  Incorporation  of Merisel,  Inc.  dated
         August 22, 1990,  filed as exhibit 3.2 to the Company's Quarterly
         Report on Form 10-Q for the quarter ended September 30, 1990.**

3.3      Amendment to  Certificate  of  Incorporation  of Merisel,  Inc.  dated
         December 19, 1997,  filed as Annex I to the  Company's Schedule 14A
         dated October 6, 1997.**

3.4      Bylaws,  as amended,  of Merisel,  Inc,  filed as exhibit 3.1 to the
         Company's  Quarterly  Report on Form 10-Q for the quarter ended
         June 30, 1991.**

4.1      Indenture dated October 15, 1994 between Merisel,  Inc. and NationsBank
         of Texas,  N.A.,  as Trustee,  relating to the  Company's  12.5% Senior
         Notes Due 2004,  including  the form of such Senior  Notes  attached as
         Exhibit A thereto,  filed as  exhibit  4.1 to the  Company's  Quarterly
         Report on Form 10-Q for the quarter ended September 30, 1994.**

*10.1    1983 Employee Stock Option Plan of Softsel Computer Products,  Inc., as
         amended,  together  with Form of Incentive  Stock Option  Agreement and
         Form of Nonqualified  Stock Option  Agreement under 1983 Employee Stock
         Option Plan,  filed as exhibits 4.4, 4.5 and 4.6,  respectively  to the
         Form S-8 Registration Statement of Softsel Computer Products, Inc., No.
         33-35648, filed with the Securities and Exchange Commission on June 29,
         1990.**

*10.2    1991 Employee Stock Option Plan of Merisel,  Inc. together with Form of
         Incentive Stock Option Agreement and Form of Nonqualified  Stock Option
         Agreement  under the 1991 Employee Stock Option Plan,  filed as exhibit
         10.1 to the  Company's  Quarterly  Report on Form 10-Q for the  quarter
         ended June 30, 1991.**

*10.3    Amendment to the 1991  Employee  Stock Option Plan of Merisel,  Inc.
         dated  January 16, 1997,  filed as exhibit  10.67 to the Company's
         Annual Report on Form 10-K for the year ended December 31, 1996.**

*10.4    Merisel,  Inc. 1992 Stock Option Plan for Nonemployee  Directors,
         filed as exhibit 10.1 to the Company's  Quarterly Report on
         Form 10-Q for the quarter ended June 30, 1992.**

*10.5    Softsel Computer Products,  Inc.  Executive Deferred Compensation Plan,
         filed as exhibit 10.35 to the Company's Annual Report
         on Form 10-K for the year ended December 31, 1991.**

*10.6    Merisel, Inc. 1997 Stock Award and Incentive Plan, filed as Annex II to
         the Company's Schedule 14A dated October 6, 1997.**

*10.7    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.**

*10.8    Form of Restricted Stock Unit Agreement under the Merisel, Inc. 1997
         Stock Award and Incentive Plan.

10.9     Amended  and  Restated  Receivables  Transfer  Agreement  dated  as  of
         September 27, 1996 by and between  Merisel  Americas,  Inc. and Merisel
         Capital Funding,  Inc., filed as exhibit 10.53 to the Company's Current
         Report on Form 8-K, dated April 17, 1996.**

10.10    Amended and Restated Receivables Purchase and Servicing Agreement dated
         as of September 27, 1996, by and between Merisel Capital Funding, Inc.,
         Redwood  Receivables  Corporation,  Merisel Americas,  Inc. and General
         Electric Capital  Corporation,  filed as exhibit 10.54 to the Company's
         Current Report on Form 8-K, dated April 17, 1996.**


<PAGE>



10.11    Annex X to Receivables  Transfer Agreement and Receivables Purchase and
         Servicing  Agreement dated as of October 2, 1995, filed as exhibit 10.3
         to the  Company's  Quarterly  Report on Form 10-Q for the quarter ended
         September 30, 1995.**

10.12    Amendment No. 1 and Waiver to Amended and Restated Receivables Purchase
         and  Servicing  Agreement  dated as of November  7, 1996 among  Merisel
         Capital  Funding,  Inc.,  Redwood  Receivables   Corporation,   Merisel
         Americas,  Inc.  and General  Electric  Capital  Corporation,  filed as
         exhibit 2.5 to the  Company's  Annual  Report on Form 10-K for the year
         ended December 31, 1996.**

10.13    Amendment No. 1 and Waiver to Amended and Restated Receivables Transfer
         Agreement dated as of November 7, 1996 by and between Merisel Americas,
         Inc. and Merisel  Capital  Funding,  Inc.,  filed as exhibit 2.6 to the
         Company's  Annual  Report on Form 10-K for the year ended  December 31,
         1996.**

10.14    Amendments to Securitization Agreements, dated as of December 19, 1997,
         among Merisel Americas,  Inc.,  Merisel Capital Funding,  Inc., Redwood
         Receivables Corporation and General Electric Capital Corporation, filed
         as exhibit 10.19 to the  Company's  Annual Report on Form 10-K for year
         ended December 31, 1997.**

10.15    Amendments  to  Securitization  Agreements,  dated as of July 31, 1998,
         among Merisel Americas,  Inc.,  Merisel Capital Funding,  Inc., Redwood
         Receivables Corporation and General Electric Capital Corporation, filed
         as exhibit 10.5 to the Company's  Quarterly Report on Form 10-Q for the
         quarter ended June 30, 1998.**

10.16    Amendment No. 4 and Waiver to Purchase Agreement,  dated of as February
         22, 1999, among Merisel Americas,  Inc., Merisel Capital Funding, Inc.,
         Redwood   Receivables   Corporation   and  General   Electric   Capital
         Corporation,  filed as exhibit 10.15 to the Company's  Annual Report on
         Form 10-K for the year ended December 31, 1998.**

10.17    Amendment  No. 5 to Purchase  Agreement  and Waiver dated as of May 12,
         1999 among Merisel  Americas,  Inc.,  Merisel  Capital  Funding,  Inc.,
         Redwood   Receivables   Corporation   and  General   Electric   Capital
         Corporation, filed as exhibit 10.2 to the Company's Quarterly Report on
         Form 10-Q for the quarter ended June 30, 1999.**

10.18    Amendment No. 6 to Purchase Agreement and Waiver dated as of August 13,
         1999 among Merisel  Americas,  Inc.,  Merisel  Capital  Funding,  Inc.,
         Redwood   Receivables   Corporation   and  General   Electric   Capital
         Corporation, filed as exhibit 10.1 to the Company's Quarterly Report on
         Form 10-Q for the quarter ended September 3, 1999.**

10.19    Amendments to  Securitization  Agreements  and Waiver dated as of March
         10, 2000, among Merisel Americas,  Inc., Merisel Capital Funding, Inc.,
         Redwood Receivables Corporation and General Electric Corporation.

10.20    Receivables  Transfer Agreement dated as of March 10, 2000,  between
         Merisel Capital Funding,  Inc. and Merisel Open Computing Alliance,Inc.

10.21    Loan and  Security  Agreement,  dated as of June 30,  1998,  among  the
         financial   institutions   listed  on  the  signature   pages  thereof,
         BankAmerica Business Credit, Inc. and Merisel Americas,  Inc., filed as
         exhibit 10.6 to Amendment  No. 1 to the Company's  Quarterly  Report on
         Form 10-Q for the quarter ended June 30, 1998.**

10.22    Amendment No. 1 to Loan and Security Agreement dated as of May 11, 1999
         by and among Merisel Americas, Inc., Bank of America National Trust and
         Savings  Association,  as Agent and a Lender,  filed as exhibit 10.1 to
         the Company's  Quarterly Report on Form 10-Q for the quarter ended June
         30, 1999.**


<PAGE>



10.23    Amendment No. 2 to Loan Agreement dated as of September 30, 1999, among
         Merisel Americas,  Inc., the financial institutions listed on signature
         pages  thereto and Bank of America,  N.A.  filed as exhibit 10.4 to the
         Company's Quarterly Report on Form 10-Q for the quarter ended September
         30, 1999.**

10.24    Amendment No. 3 to Loan and Security  Agreement  dated as of March 10,
         2000,  among Merisel  Americas,  Inc., Bank of America National
         Association and Congress Financial Corporation.

10.25    Form of Security  Agreement  between Merisel  Properties,  Inc. and
         Heller  Financial,  Inc. dated December 29, 1995, filed as
         exhibit 10.36 to the Company's Annual Report on Form 10-K for the year
         ended December 31, 1995.**

10.26    Deed of Trust,  Security  Agreement,  Assignment of Leases and Rents
         and Fixture Filing between Merisel  Properties,  Inc. and Heller
         Financial,  Inc. dated December 29, 1995,  filed as exhibit 10.37 to
         the Company's Annual Report and Form 10-K for the year ended December
         31, 1995.**

10.27    Severance  Agreement  dated as of March 3, 1999  between  Merisel, Inc.
         and James E.  Illson,  filed as exhibit  10.3 to the Company's
         Quarterly Report on Form 10-Q for the quarter ended March 30, 1999.**

*10.28   Severance  Agreement  dated as of March 3, 1999 between  Merisel,  Inc.
         and Timothy N.  Jenson,  filed as exhibit 10.4 to the Company's
         Quarterly Report on Form 10-Q for the period ended March 30, 1999.**

*10.29   Promissory  Note dated  March 17,  1999  between  Timothy N. Jenson and
         Merisel,  Inc., filed as exhibit 10.5 to the Company's Quarterly Report
         on Form 10-Q for the period ended March 30, 1999.**

*10.30   Change of Control  Agreement  dated as of August 18, 1999 between
         Merisel,  Inc.,  Merisel  Americas,  Inc. and William Page, filed as
         exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the
         quarter ended September 30, 1999.**

*10.31   Change of Control Agreement dated as of August 18, 1999 between
         Merisel,  Inc.,  Merisel Americas,  Inc. and Karen A. Tallman, filed
         as exhibit 10.3 to the Company's Quarterly Report on Form 10-Q
         for the quarter ended September 30, 1999.**

*10.32   Change of Control Agreement dated as of May 11, 1998 between Kristin M.
         Rogers  and  Merisel  Americas,  Inc.,  filed  as  exhibit  10.2 to the
         Company's  Quarterly Report on Form 10-Q for the quarter ended June 30,
         1998.**

*10.33   Promissory  Note  dated June 17,  1999  between  Kristin M.  Rogers and
         Merisel  Americas,  Inc.,  filed  as  exhibit  10.6  to  the  Company's
         Quarterly Report on Form 10-Q for the period ended June 30, 1999.**

*10.34   Offer of Employment  Letter to Ronald S. Smith dated June 2, 1998,
         filed as exhibit 10.3 to the Company's  Quarterly Report on Form 10-Q
         for the quarter ended June 30, 1998.**

10.35    Registration  Rights Agreement,  dated September 19, 1997, by and among
         Merisel,  Inc., Merisel Americas,  Inc. and Phoenix Acquisition Company
         II,  L.L.C,  filed as exhibit 99.4 to the Company's  Current  Report on
         Form 8-K, dated September 19, 1997.**

21       Subsidiaries of the Registrant.

23       Consent of Deloitte & Touche LLP, Independent Accountants.

27       Financial Data Schedule for the year ended December 31, 1999.
--------
*Management contract or executive compensation plan or arrangement.
**Incorporated by reference.