SOURCE: MERISEL, INC.

May 15, 2007 08:45 ET

Merisel, Inc. Announces Earnings for First Quarter 2007

NEW YORK, NY -- (MARKET WIRE) -- May 15, 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 First Quarter ended March 31, 2007.

Merisel reported First Quarter 2007 earnings of $.08 per share versus income of $.00 per share for the First Quarter of 2006. Excluding Discontinued Operations, Merisel reported earnings of $.06 per share in the First Quarter of 2007 versus income of $.00 per share in the First Quarter of 2006. Income tax expense in the current quarter is recorded at an effective tax rate of 43% due to the release of a valuation allowance on our deferred tax asset that was booked in the fourth quarter of 2006. This 43% rate compares to a 17% tax rate in the first quarter of 2006. This difference in rates, which equates to $.07 per share, is due to the fact that there was a full valuation allowance recorded on our deferred tax asset at March 31, 2006.

"We're pleased with our results for the quarter," stated Donald. R. Uzzi, Chairman and CEO. "Revenues increased by 13% fueled by growth in our core business segments and by acquisitions completed in the later half of 2006. Importantly, we achieved a concurrent expansion in overall profit margin... which increased 70 basis points (51.6% versus 50.9%) over the same quarter of 2006." Mr. Uzzi further stated, "That just two years after entering the graphics space, Merisel is the leading solutions provider in the Visual Communications and Brand Imaging space. Our team remains focused on expanding our position and market share."

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

The Company reported net income available to common stockholders of $652, or $0.08 per share for the three months ended March 31, 2007. This compares with net income available to common stockholders of $2, or $0.00 per share for the comparable 2006 period. Net income for the three months ended March 31, 2007 includes income of $150, or $.02 per share from discontinued operations. There was no income from discontinued operations for the three months ended March 31, 2006.

Three Months Ended March 31, 2007 as Compared to the Three Months Ended March 31, 2006.

For the purposes of the following table and the following 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 Digital and AdProps.

                            2007                          2006
                ----------------------------- -----------------------------
                Existing  Expanded    Total   Existing  Expanded    Total
                 Oper-     Oper-      Oper-    Oper-     Oper-      Oper-
                 ations    ations     ations   ations    ations     ations
                --------- --------  --------- --------- --------- ---------
Net sales       $  19,906 $  4,028  $  23,934 $  21,137 $       - $  21,137
Gross profit       10,087    2,268     12,355    10,763         -    10,763
Selling,
 general, and
 administrative     8,799    1,633     10,432     9,300         -     9,300
Restructuring
 charge                 -        -          -       724         -       724
Interest
 expense, net         167       (3)       164       175         -       175
Income taxes          480      273        753        96         -        96
Discontinued
 Operations           150        -        150         -         -         -
Net Income      $     791 $    365  $   1,156 $     468 $       - $     468
                --------- --------  --------- --------- --------- ---------

Net Sales - Net sales were $23,934 for the three months ended March 31, 2007 compared to $21,137 for the three months ended March 31, 2006. The increase of $2,797 or 13.2% was from net sales from expanded operations of $4,028. Revenues from existing operations decreased $1,231 or 5.8% to $19,906 for the three months ended March 31, 2007 from $21,137 for the three months ended March 31, 2006. The decrease in net sales from existing operations was primarily due to exiting the conventional wet film processing business at the end of 2006.

Gross Profit - Gross profit was $12,355 for the three months ended March 31, 2007 compared to $10,763 for the three months ended March 31, 2006. The increase of $1,592 or 14.8% was from gross profit from expanded operations of $2,268. Gross profit from existing operations decreased $676 or 6.3%. The majority of this decrease was due to the elimination of revenues and associated gross profit from the wet film processing business. Gross profit as a percentage of sales, or gross margin, increased to 51.6% for the three months end March 31, 2007 from 50.9% for three months ended March 31, 2006. The increase in gross margin is attributable to higher gross margins (56.3%) in the expanded (acquired) operations. Gross margin from existing operations remained consistent at 50.6% for the three months ended March 31, 2007 as compared to 50.9% for the three months ended March 31, 2006.

Selling, General and Administrative - Selling, general and administrative expenses increased to $10,432 for the three months ended March 31, 2007 from $9,300 for the three months ended March 31, 2006. The increase in selling, general and administrative expenses of $1,132, or 12.2%, is due to selling, general and administrative expenses from expanded operations of $1,633. Selling, general and administrative expenses from existing operations decreased $501 or 5.4% due to decreased personnel costs. Selling, general and administrative expenses as a percentage of sales improved modestly at 43.6% for the three months ended March 31, 2007 compared to 44.0% for the three months ended March 31, 2006.

Interest Expense, Net - Interest expense decreased to $164 in the three months ended March 31, 2007 from $175 in the three months ended March 31, 2006. The decrease was due primarily to a reduction in the balance of term notes partially offset by a decrease in interest income on short-term investments and escrow accounts.

Income Taxes - The Company recorded an income tax provision of $753 in the three months ended March 31, 2007 compared to a provision of $96 in the three months ended March 31, 2006. Income tax expense in the current quarter is recorded at an effective tax rate of 43% due to the release of a valuation allowance on our deferred tax asset that was booked in the fourth quarter of 2006. This 43% rate compares to a 17% tax rate in the first 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 March 31, 2006.

Discontinued Operations - Income from discontinued operations for the three months ended March 31, 2007 was $150 related to the sale of property for a purchase price of $1,192 net of cost basis of $914 and taxes and other expenses of $128. There was no income from discontinued operations for the three months ended March 31, 2006.

Net Income Available to Common Shareholders - As a result of the above items, the Company had net income of $652 for the three months ended March 31, 2007 compared to income of $2 for the three months ended March 31, 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)


                                                      Three Months Ended
                                                          March 31,
                                                       2007        2006
                                                    ----------- -----------
                                                    (Unaudited) (Unaudited)
                                                    ----------- -----------
Net sales                                           $    23,934 $    21,137

Cost of sales                                            11,579      10,374

                                                    ----------- -----------
Gross profit                                             12,355      10,763

Selling, general & administrative expenses               10,432       9,300
Restructuring charge                                          -         724

                                                    ----------- -----------
Operating income                                          1,923         739

Interest expense, net                                       164         175

                                                    ----------- -----------
Income from continuing operations before provision
 for income tax                                           1,759       1,782

Income tax provision                                        753          96

                                                    ----------- -----------
Income from continuing operations                         1,006         468

Income from discontinued operations, net of taxes           150           -
                                                    ----------- -----------
Net income                                                1,156         468
Preferred stock dividends                                   504         466
                                                    ----------- -----------
Net income available to common stockholders         $       652 $         2
                                                    =========== ===========

Net income per share (basic and diluted):
Net income from continuing operations available to
 common stockholders                                $      0.06 $      0.00
Income from discontinued operations, net of taxes          0.02        0.00
                                                    ----------- -----------
Net income available to common stockholders         $      0.08 $      0.00
                                                    =========== ===========
Weighted average number of shares
  Basic                                                   7,762       7,774
  Diluted                                                 8,014       7,805


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