SOURCE: MERISEL, INC.

August 14, 2007 10:38 ET

Merisel, Inc. Announces Earnings for Second Quarter 2007

NEW YORK, NY--(Marketwire - August 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 Second Quarter ended June 30, 2007.

Merisel reported Second Quarter 2007 earnings of $.00 per share versus income of $.02 per share for the Second Quarter of 2006. Excluding Discontinued Operations, Merisel reported earnings of $.00 per share in the Second Quarter of 2007 versus a loss of ($.11) per share in the Second 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 $623 or $.08 per share. Also, income tax expense in the current quarter is recorded at an effective tax rate of 42.8% which compares to an 11.5% tax rate in the Second Quarter of 2006. This difference in rates, which equates to $.03 per share, is due to the fact that there was a full valuation allowance recorded on our deferred tax asset at June 30, 2006. The Company released the valuation allowance on its deferred tax asset in the Fourth Quarter of 2006.

For the six months ended June 30, 2007, the Company reported earnings of $.08 per share compared to $.02 per share for the first six months of 2006. Excluding Discontinued Operations, results for the first six months of 2007 were earnings of $.06 per share compared to a loss of ($.11) per share for the first six months of 2006. Income tax expense for the first six months of 2007 is recorded at an effective tax rate of 42.8%. As stated above for the Quarter, this 42.8% rate compares to a 13.3% rate for the first six months of 2006. This difference in rates, which equates to $.10 per share is due to the fact that there was a full valuation allowance recorded on our deferred tax asset at June 30, 2006.

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

The Company reported net loss available to common stockholders of $17 and income of $635, or $0.00 and $0.08 per share for the three and six months ended June 30, 2007, respectively. This compares with net income available to common stockholders of $177 and $179, or $0.02 per share for the three and six months ended June 20, 2006. Net income includes expense of $19, or $0.00 per share and income of $131, or $.02 per share from discontinued operations for the three and six months ended June 30, 2007, respectively. This compares with income of $1,003, or $0.13 per share from discontinued operations for the three and six months ended June 30, 2006.

Three Months Ended June 30, 2007 as Compared to the Three Months Ended June 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 Digital, acquired October 1, 2006 and AdProps, acquired May 10, 2006.

                           2007                          2006
                ----------------------------  ----------------------------
                Existing  Expanded   Total    Existing  Expanded   Total
                 Oper-     Oper-     Oper-     Oper-     Oper-     Oper-
                 ations    ations    ations    ations    ations    ations
                --------  --------- --------  --------  --------- --------
Net sales       $ 18,958  $   3,315 $ 22,273  $ 17,590  $     378 $ 17,968
Gross profit      10,408      2,037   12,445     8,459        162    8,621
Selling,
 general, and
 administrative    9,942      1,488   11,430     8,848        151    8,999
Interest
 expense, net        106          6      112        50          1       51
Income tax
 expense
 (benefit)           153        233      386       (80)         2      (78)
Discontinued
 Operations,
 net of taxes        (19)         -      (19)    1,003          -    1,003
Net Income      $    188  $     310 $    498  $    644  $       8 $    652
                --------  --------- --------  --------  --------- --------

Net Sales -- Net sales were $22,273 for the three months ended June 30, 2007 compared to $17,968 for the three months ended June 30, 2006. The increase of $4,305 or 24.0% was primarily from an increase in net sales from expanded operations of $2,937. Revenues from existing operations increased $1,368 or 7.8% to $18,958. The increase in net sales from existing operations was primarily due to sales volume growth at Color Edge and Crush Creative.


Gross Profit -- Gross profit was $12,445 for the three months ended June 30, 2007 compared to $8,621 for the three months ended June 30, 2006. The increase in gross profit of $3,824 or 44.4% was evenly split between expanded operations up by $1,875 and existing operations up by $1,949. The increase in gross profit from existing operations of $1,949 or 23.0% was driven by a combination of sale volume increases at Color Edge and Crush Creative, as well as increases in gross profit as a percentage of sales, or gross margin. Gross margin increased to 55.9% for the three months end June 30, 2007 from 48.0% for three months ended June 30, 2006. The increase in gross margin is partly attributable to higher gross margins of 61.4% in the expanded operations. Gross margin from existing operations increased to 54.9% for the three months ended June 30, 2007 as compared to 48.1% for the three months ended June 30, 2006 due to a business mix shift to our higher margin prototype and high art commercial retouching businesses.

Selling, General and Administrative -- Selling, general and administrative expenses increased to $11,430 for the three months ended June 30, 2007 from $8,999 for the three months ended June 30, 2006. The increase in selling, general and administrative expenses of $2,431, or 27.0%, is split between expanded operations which increased $1,337 and existing operations which increased $1,094 from the comparable quarter of 2006. The increase in selling, general and administrative expenses from existing operations of $1,094 or 12.4% is primarily due to additional expenses related to severance expenses and the Company's decision to explore strategic alternatives. Selling, general and administrative expenses as a percentage of sales increased to 51.3% for the three months ended June 30, 2007 compared to 50.1% for the three months ended June 30, 2006.

Interest Expense, Net -- Interest expense increased to $112 in the three months ended June 30, 2007 from $51 in the three months ended June 30, 2006. The increase was due to a decrease in interest income on short-term investments and escrow accounts.

Income Taxes -- The Company recorded an income tax provision of $386 in the three months ended June 30, 2007 compared to a benefit of $78 in the three months ended June 30, 2006. Income tax expense in the current quarter is recorded at an effective tax rate of 42.8% which compares to a 11.5% tax rate in the second 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 June 30, 2006. The Company released the valuation allowance on its deferred tax asset in the Fourth Quarter of 2006.

Discontinued Operations -- Expense from discontinued operations for the three months ended June 30, 2007 was $19. Income from discontinued operations for the three months ended June 30, 2006 was $1,003. This income was the result of the Company selling its right to an unsecured claim for $1,250, net of tax of $163 and other expense of $84.

Net Income -- As a result of the above items, the Company had net income of $498 for the three months ended June 30, 2007 compared to income of $652 for the three months ended June 30, 2006.

Six Months Ended June 30, 2007 as Compared to the Six Months Ended June 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 Digital, acquired October 1, 2006 and AdProps, acquired May 10, 2006.


                                2007                       2006
                      -------------------------- --------------------------
                      Existing Expanded  Total   Existing Expanded  Total
                       Oper-    Oper-    Oper-    Oper-    Oper-    Oper-
                       ations   ations   ations   ations   ations   ations
                      -------- -------- -------- -------- -------- --------
Net sales             $ 38,864 $  7,343 $ 46,207 $ 38,727 $    378 $ 39,105
Gross profit            20,495    4,305   24,800   19,222      162   19,384
Selling, general, and
 administrative         18,741    3,121   21,862   18,148      151   18,299
Restructuring charge         -        -        -      724        -      724
Interest expense, net      273        3      276      225        1      226
Income tax expense         632      507    1,139       16        2       18
Discontinued
 Operations, net of
 taxes                     131        -      131    1,003        -    1,003
Net Income            $    980 $    674 $  1,654 $  1,112 $      8 $  1,120
                      -------- -------- -------- -------- -------- --------
Net Sales -- Net sales were $46,207 for the six months ended June 30, 2007 compared to $39,105 for the six months ended June 30, 2006. The increase of $7,102 or 18.2% was primarily due to an increase in net sales from expanded operations of $6,965. Revenues from existing operations were consistent with prior year.


Gross Profit -- Gross profit was $24,800 for the six months ended June 30, 2007 compared to $19,384 for the six months ended June 30, 2006. The increase in gross profit of $5,416 or 27.9% was primarily driven by an increase in gross profit from expanded operations of $4,143. The increase in gross profit from existing operations of $1,273 or 6.6% was driven by higher gross margin percentages at Color Edge and Crush Creative. Gross profit as a percentage of sales, or gross margin, increased to 53.7% for the six months ended June 30, 2007 from 49.6% for six months ended June 30, 2006. The increase in gross margin is partly attributable to higher gross margins of 58.6% in the expanded operations. Gross margin from existing operations increased to 52.7% for the six months ended June 30, 2007 as compared to 49.6% for the six months ended June 30, 2006 due to the benefit of increased sales on lower production labor at Color Edge.

Selling, General and Administrative -- Selling, general and administrative expenses increased to $21,862 for the six months ended June 30, 2007 from $18,299 for the six months ended June 30, 2006. The increase in selling, general and administrative expenses of $3,563, or 19.5%, is primarily due to an increase in expenses of $2,970 related to expanded operations. The increase in selling, general and administrative expenses from existing operations of $593 or 3.3% is due to additional expenses incurred during the second quarter related to severance expenses and the Company's decision to explore strategic alternatives. Selling, general and administrative expenses as a percentage of sales increased to 47.3% for the six months ended June 30, 2007 compared to 46.8% for the six months ended June 30, 2006.

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

Interest Expense, Net -- Interest expense increased to $276 in the six months ended June 30, 2007 from $226 in the six months ended June 30, 2006. The increase was due to a decrease in interest income on short-term investments and escrow accounts.

Income Taxes -- The Company recorded an income tax provision of $1,139 in the six months ended June 30, 2007 compared to $18 in the six months ended June 30, 2006. Income tax expense in the current period is recorded at an effective tax rate of 42.8% which compares to a 13.3% tax rate in the six months ended June 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 June 30, 2006.

Discontinued Operations -- Income from discontinued operations for the six months ended June 30, 2007 was $131 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 $147. Income from discontinued operations for the six months ended June 30, 2006 was $1,003. This income is the result of the Company selling its right to an unsecured claim for $1,250, net of tax of $163 and other expense of $84.

Net Income -- As a result of the above items, the Company had net income of $1,654 for the six months ended June 30, 2007 compared to income of $1,120 for the six months ended June 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   Six Months Ended
                                         June 30,            June 30,
                                    ------------------  -------------------
                                      2007      2006      2007      2006
                                    --------  --------  --------- --------
Net sales                           $ 22,273  $ 17,968  $  46,207 $ 39,105

Cost of sales                          9,828     9,347     21,407   19,721

                                    --------  --------  --------- --------
Gross profit                          12,445     8,621     24,800   19,384

Selling, general & administrative
 expenses                             11,430     8,999     21,862   18,299
Restructuring charge                       -         -          -      724

                                    --------  --------  --------- --------
Operating income (loss)                1,015      (378)     2,938      361

Interest expense, net                    112        51        276      226

                                    --------  --------  --------- --------
Income (loss) from continuing
 operations  before provision for
 income tax                              903      (429)     2,662      135

Income tax provision (benefit)           386       (78)     1,139       18

                                    --------  --------  --------- --------
Income (loss)  from continuing
 operations                              517      (351)     1,523      117

(Loss) income from discontinued
 operations, net of taxes                (19)    1,003        131    1,003
                                    --------  --------  --------- --------
Net income                               498       652      1,654    1,120
Preferred stock dividends                515       475      1,019      941
                                    --------  --------  --------- --------
Net (loss) income available to
 common stockholders                $    (17) $    177  $     635 $    179
                                    ========  ========  ========= ========

Net income (loss) per share (basic
 and diluted):
Net income (loss) from continuing
 operations available to common
 stockholders                       $   0.00  $  (0.11) $    0.06 $  (0.11)
Income from discontinued
 operations, net of taxes               0.00      0.13       0.02     0.13
                                    --------  --------  --------- --------
Net income available common
 stockholders                       $   0.00  $   0.02  $    0.08 $   0.02
                                    ========  ========  ========= ========
Weighted average number of shares
  Basic                                7,774     7,774      7,768    7,774
  Diluted                              8,018     7,805      8,014    7,805

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