SOURCE: MERISEL, INC.

November 14, 2007 17:02 ET

Merisel, Inc. Announces Earnings for Third Quarter 2007

NEW YORK, NY--(Marketwire - November 14, 2007) - Merisel, Inc. (PINKSHEETS: MSEL), a leading provider of visual communications and brand imaging solutions to the consumer products, retail, advertising and entertainment industries, today reported financial results for the Third Quarter ended September 30, 2007.

Merisel reported Third Quarter 2007 earnings of $.01 per share versus earnings of $.09 per share for the Third Quarter of 2006. Excluding Discontinued Operations, Merisel reported earnings of $.01 per share in the Third Quarter of 2007 versus earnings of $.09 per share in the Third Quarter of 2006.

There were some additional expenses recorded in SG&A in the current quarter related to severance expenses and the Company's decision to explore strategic alternatives. These expenses amounted to $310 or $.04 per share. Also, income tax expense in the current quarter is recorded at an effective tax rate of 42.5% which compares to a 14% tax rate in the Third Quarter of 2006. This difference in rates, which equates to $.04 per share, is due to the fact that there was a full valuation allowance recorded on our deferred tax asset at September 30, 2006. The Company released a portion of the valuation allowance on its deferred tax asset in the Fourth Quarter of 2006.

For the nine months ended September 30, 2007, the Company reported earnings of $.09 per share compared to $.11 per share for the first nine months of 2006. Excluding Discontinued Operations, results for the first nine months of 2007 were earnings of $.07 per share compared to a loss of ($.02) per share for the first nine months of 2006.

There were some additional expenses recorded in SG&A for the first nine months of 2007 related to severance and the Company's decision to explore strategic alternatives. These expenses amounted to $984 or $.12 per share. Also, income tax expense for the first nine months of 2007 is recorded at an effective tax rate of 42.7%. As stated above for the Quarter, this 42.7% rate compares to a 14% rate for the first nine months of 2006. This difference in rates, which equates to $.14 per share, is due to the fact that there was a full valuation allowance recorded on our deferred tax asset at September 30, 2006.

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

The Company reported net income available to common stockholders of $90 and $725, or $0.01 and $0.09 per share for the three and nine months ended September 30, 2007, respectively. This compares with net income available to common stockholders of $685 and $864, or $0.09 and $0.11 per share for the three and nine months ended September 30, 2006. Net income includes income of $12 and $143, or $0.00 and $0.02 per share from discontinued operations for the three and nine months ended September 30, 2007, respectively. This compares with a loss of $19, or $0.00 per share, and income of $984, or $0.13 from discontinued operations for the three and nine months ended September 30, 2006.


Three Months Ended September 30, 2007 as Compared to the Three Months Ended September 30, 2006.

For the purposes of the following table and discussion, "Existing Operations" refers to the Company's businesses acquired during the fiscal year ended December 31, 2005, and "Expanded Operations" represents businesses that were acquired during the fiscal year ended December 31, 2006, specifically Fuel, acquired October 1, 2006 and AdProps, acquired May 10, 2006.

                       2007                            2006
            ------------------------------ ------------------------------
            Existing   Expanded   Total     Existing   Expanded    Total
          Operations Operations Operations Operations Operations Operations

Net sales    $  19,731 $    3,188 $  22,919 $  19,873  $     804 $  20,677
Gross profit    10,593      1,816    12,409    10,136        431    10,567
Selling,
 general,
 and
 Admini-
 strative-
 Operations      8,213      1,627     9,840     7,746        371     8,117
General and
 Admini-
 strative-
 Corporate       1,448          -     1,448       981          -       981
Interest
 expense,
 net                71          3        74        84          2        86
Income tax
 expense
 (benefit)         369         76       445       186          8       194
Discontinued
 Operations,
 net of
 taxes              12          -        12       (19)         -       (19)
Net Income   $     504 $      110 $     614 $   1,120  $      50 $   1,170
             --------- ---------- --------- ---------  --------- ---------

Net Sales -- Net sales were $22,919 for the three months ended September 30, 2007 compared to $20,677 for the three months ended September 30, 2006. The increase of $2,242 or 10.8% was from an increase in net sales from expanded operations of $2,384.

Gross Profit -- Total gross profit was $12,409 for the three months ended September 30, 2007 compared to $10,567 for the three months ended September 30, 2006. The increase in total gross profit of $1,842 or 17.4% was split between expanded operations up by $1,385 and existing operations up by $457. The increase in gross profit from existing operations of $457 or 4.5% was driven by reductions in production labor cost at Color Edge and Crush Creative. Total gross margin increased to 54.1% for the three months ended September 30, 2007 from 51.1% for the three months ended September 30, 2006. The increase in gross margin is partly attributable to higher gross margins of 57.0% in the expanded operations, and specifically related to Fuel's gross margins of 59.7%. Gross margin from existing operations increased to 53.4% for the three months ended September 30, 2007 as compared to 51.0% for the three months ended September 30, 2006 due to labor reduction savings at Color Edge and Crush Creative.

Selling, General and Administrative -- Total Selling, General and Administrative expenses increased to $11,288 for the three months ended September 30, 2007 from $9,098 for the three months ended September 30, 2006. Total Selling, General and Administrative expenses as a percentage of sales increased to 49.3% for the three months ended September 30, 2007 compared to 44.0% for the three months ended September 30, 2006.

Selling, General and Administrative expenses from Operations increased to $9,840 from $8,117 for the three months ended September 30, 2007 and 2006, respectively. This increase of $1,723 or 21.2% is split between an increase in expanded operations of $1,256 and an increase in existing operations of $467. The increase of $467 or 6.0% in existing operations is primarily due to increases in commission rates on sales at Color Edge, as well as increases in depreciation and amortization expense due to a larger fixed asset base during 2007.

Selling, General and Administrative expenses from Corporate increased to $1,448 from $981 for the three months ended September 30, 2007 and 2006, respectively. This increase of $467 or 47.6% is due to an increase of $190 in legal and accounting fees, an increase of $132 in insurance costs, and an increase of $310 due to additional expenses related to severance expenses and the Company's decision to explore strategic alternatives.

Interest Expense, Net -- Interest expense decreased to $74 in the three months ended September 30, 2007 from $86 in the three months ended September 30, 2006. The decrease was due to a decrease in interest expense due to decreases in installment note balances.

Income Taxes -- The Company recorded an income tax provision of $445 in the three months ended September 30, 2007 compared to $194 in the three months ended September 30, 2006. Income tax expense in the current quarter is recorded at an effective tax rate of 42.5% which compares to a 14.0% tax rate in the third quarter of 2006. This difference in rates is due to the fact that there was a full valuation allowance recorded on our deferred tax asset at September 30, 2006. The company released the valuation allowance on its deferred tax asset in the fourth quarter of 2006.

Discontinued Operations -- Income from discontinued operations for the three months ended September 30, 2007 was $12 related to a refund of professional fees previously expensed. Expense from discontinued operations for the three months ended September 30, 2006 was $19 due to other expenses related to discontinued operations.

Net Income -- As a result of the above items, the Company had net income of $614 for the three months ended September 30, 2007 compared to income of $1,170 for the three months ended September 30, 2006.

Nine Months Ended September 30, 2007 as Compared to the Nine Months Ended September 30, 2006.

For the purposes of the following table and discussion, "Existing Operations" refers to the Company's businesses acquired during the fiscal year ended December 31, 2005, and "Expanded Operations" represents businesses that were acquired during the fiscal year ended December 31, 2006, specifically Fuel, acquired October 1, 2006 and AdProps, acquired May 10, 2006.

                       2007                            2006
            ------------------------------ ------------------------------
            Existing   Expanded   Total     Existing   Expanded    Total
          Operations Operations Operations Operations Operations Operations

Net sales    $  58,595 $   10,531 $  69,126 $   58,600 $   1,182 $   59,782
Gross profit    31,088      6,121    37,209     29,358       593     29,951
Selling,
 general,
 and
 Admini-
 strative-
 Operations     23,499      4,748    28,247     23,573       522     24,095
General and
 Admini-
 strative-
 Corporate       4,903          -     4,903      3,302         -      3,302
Restructuring
 charge              -          -         -        724         -        724
Interest
 expense,
 net               344          6       350        309         3        312
Income tax
 expense         1,001        583     1,584        202        10        212
Discontinued
 Operations,
 net of
 taxes             143          -       143        984         -        984
Net Income   $   1,484 $      784 $   2,268 $    2,232 $      58 $    2,290
             --------- ---------- --------- ---------- --------- ----------

Net Sales -- Net sales were $69,126 for the nine months ended September 30, 2007 compared to $59,782 for the nine months ended September 30, 2006. The increase of $9,344 or 15.6% was primarily due to an increase in net sales from expanded operations of $9,349. Revenues from existing operations were consistent with prior year.

Gross Profit -- Gross profit was $37,209 for the nine months ended September 30, 2007 compared to $29,951 for the nine months ended September 30, 2006. The increase in gross profit of $7,258 or 24.2% was primarily driven by an increase in gross profit from expanded operations of $5,528. The increase in gross profit from existing operations of $1,730 or 5.9% was driven by reductions of production salaries at ColorEdge and Crush Creative. Gross profit as a percentage of sales, or gross margin, increased to 53.8% for the nine months ended September 30, 2007 from 50.1% for the nine months ended September 30, 2006. The increase in gross margin is partly attributable to higher gross margins of 58.1% in the expanded operations and specifically related to Fuel's gross margins of 58.4%. Gross margin from existing operations increased to 53.1% for the nine months ended September 30, 2007 as compared to 50.1% for the nine months ended September 30, 2006 due to the benefit of reductions in production labor at Color Edge and Crush Creative.

Selling, General and Administrative -- Total Selling, General and Administrative expenses increased to $33,150 for the nine months ended September 30, 2007 from $27,397 for the nine months ended September 30, 2006. Total Selling, General and Administrative expenses as a percentage of sales increased to 48.0% for the nine months ended September 30, 2007 compared to 45.8% for the nine months ended September 30, 2006.

Selling, General and Administrative expenses from Operations increased to $28,247 from $24,095 for the nine months ended September 30, 2007 and 2006, respectively. This increase of $4,152 or 17.2% is due to an increase in expanded operations of $4,226.

Selling, General and Administrative expenses from Corporate increased to $4,903 from $3,302 for the nine months ended September 30, 2007 and 2006, respectively. This increase of $1,601 or 48.5% is due to an increase of $340 in legal and accounting fees, an increase of $550 in insurance costs, and an increase of $984 due to additional expenses related to severance expenses and the Company's decision to explore strategic alternatives. These increases were partially offset by a reduction in corporate salaries and travel and entertainment.

Restructuring Costs -- For the nine months ended September 30, 2006, the Company recorded a restructuring charge of $724 related to the restructuring of the wet film processing business.

Interest Expense, Net -- Interest expense increased to $350 in the nine months ended September 30, 2007 from $312 in the nine months ended September 30, 2006. The increase was due to a decrease in interest income on short-term investments and escrow accounts of $126, partially offset by a decrease in interest expense of $88 due to decreases in installment note balances.

Income Taxes -- The Company recorded an income tax provision of $1,584 in the nine months ended September 30, 2007 compared to $212 in the nine months ended September 30, 2006. Income tax expense in the current period is recorded at an effective tax rate of 42.7% which compares to a 14.0% tax rate in the nine months ended September 30, 2006. This difference in rates is due to the fact that there was a full valuation allowance recorded on our deferred tax asset at September 30, 2006. The Company released the valuation allowance on its deferred tax asset in the fourth quarter of 2006.

Discontinued Operations -- Income from discontinued operations for the nine months ended September 30, 2007 was $143 related to the sale of real property for a sale price of $1,192 net of cost basis of $914 and taxes and other expenses of $135. Income from discontinued operations for the nine months ended September 30, 2006 was $984. This income is the result of the Company selling its right to an unsecured claim for $1,250, net of tax of $160 and other expense of $106.

Net Income -- As a result of the above items, the Company had net income of $2,268 for the nine months ended September 30, 2007 compared to income of $2,290 for the nine months ended September 30, 2006.

About Merisel

Merisel headquartered in New York, N.Y. is a leading visual communications and brand imaging solutions provider to its clients. Merisel provides a broad portfolio of digital and graphic services to clients in the retail, manufacturing, beverage, cosmetic, advertising, entertainment and consumer packaged goods industries. These solutions are delivered to clients through its portfolio companies: ColorEdge, Crush Creative, Comp 24, It's in the Works, Dennis Curtin Studios, AdProps, and Fuel Digital. Merisel has sales offices in New York City, Atlanta, Chicago, Los Angeles, Orlando, and Portland, Oregon and, production facilities in New York, New Jersey, Atlanta and Los Angeles to ensure the highest quality solutions and services to our clients. Learn more at www.merisel.com.

Cautionary Statement

This release contains statements concerning Merisel's expectations for future performance, and are forward-looking statements as that term is used in the Private Securities Litigation Reform Act of 1995. Any such forward-looking statements are inherently speculative and are based on currently available information, operating plans and projections about future events and trends. As such, they are subject to numerous risks and uncertainties. Actual results and performance may be significantly different from expectations. The Company undertakes no obligation to update any such forward-looking statements. Please see the Company's filing with the Securities and Exchange Commission, including the Company's Annual Report on Form 10-K, for a discussion of specific risks that may affect performance.

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


                                    Three Months Ended  Nine Months Ended
                                       September 30,       September 30,
                                      2007      2006      2007      2006
                                    --------- --------  --------- --------
Net sales                           $  22,919 $ 20,677  $  69,126 $ 59,782

Cost of sales                          10,510   10,110     31,917   29,831

                                    --------- --------  --------- --------
Gross profit                           12,409   10,567     37,209   29,951

Selling, general & administrative
 expenses                              11,288    9,098     33,150   27,397
Restructuring charge                        -        -          -      724

                                    --------- --------  --------- --------
Operating income                        1,121    1,469      4,059    1,830

Interest expense, net                      74       86        350      312

                                    --------- --------  --------- --------
Income from continuing operations
 before provision for income tax        1,047    1,383      3,709    1,518

Income tax provision                      445      194      1,584      212

                                    --------- --------  --------- --------
Income from continuing operations         602    1,189      2,125    1,306

Income (loss) from discontinued
 operations, net of taxes                  12      (19)       143      984
                                    --------- --------  --------- --------
Net income                                614    1,170      2,268    2,290
Preferred stock dividends                 524      485      1,543    1,426
                                    --------- --------  --------- --------
Net income available to common
 stockholders                       $      90 $    685  $     725 $    864
                                    ========= ========  ========= ========

Income (loss) per share (basic and
 diluted):
Income (loss) from continuing
 operations available to common
 stockholders                       $    0.01 $   0.09  $    0.07 $  (0.02)
Income from discontinued
 operations, net of taxes                0.00     0.00       0.02     0.13
                                    --------- --------  --------- --------
Net income available to common
 stockholders                       $    0.01 $   0.09  $    0.09 $   0.11
                                    ========= ========  ========= ========
Weighted average number of shares
  Basic                                 7,791    7,698      7,776    7,699
  Diluted                               8,030    7,703      8,019    7,737

Contact Information