UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September~~March 3031, ~~2012~~2013

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________.

COMMISSION FILE NUMBER 01-17156

MERISEL, INC.

(Exact name of registrant as specified in its charter)

Delaware	95-4172359
(State or Other Jurisdiction of Incorporation or Organization)	(I. R. S. Employer Identification No.)
127 West 30th Street, 5th Floor New York, NY	10001
132 West 31th Street, 8th Floor New York, NY	10001
(Address of Principal Executive Offices)	(Zip Code)
1 (212) 594-4800
(Registrant's Telephone Number, Including Area Code)

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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that registrant was required to submit and post such files). YES x NO ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

¨ LARGE ACCELERATED FILER, ¨ ACCELERATED FILER ¨ NON-ACCELERATED FILER x SMALLER REPORTING COMPANY

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act. YES ¨ NO x

As of ~~November~~May 2615, ~~2012~~2013 the registrant had 724,~~214~~714,784 shares of Common Stock outstanding.

Reliance on Securities Exchange Commission Exemptive Order

Pursuant to Sections 17A and 36 of the Securities and Exchange

Act of 1934

(SEC Release No. 68224 dated November 14, 2012)

The registrant is relying on Release No. 68224, dated November 14, 2012. The registrant was impacted by the effects brought by Hurricane Sandy. The registrant was not in a position to file this Report on Form 10-Q prior to November 26, 2012.

MERISEL, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

		Reference
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets as of September 30, 2012 (Unaudited) and December 31, 2011	1
	Condensed Consolidated Balance Sheets as of March 31, 2013 (Unaudited) and December 31, 2012	1
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2012 and 2011 (Unaudited)	2
	Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2013 and 2012 (Unaudited)	2
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2012 and 2011 (Unaudited)	3
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2013 and 2012 (Unaudited)	3
	Notes to Condensed Consolidated Financial Statements (Unaudited)	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1713
Item 4.	Controls and Procedures	2520
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	2621
Item 1A.	Risk Factors	2622
Item 6.	Exhibits	30
Item 4.	Mine Safety Disclosures	22
	SIGNATURES	34
Item 5.	Other Information	22
Item 6.	Exhibits	23
	SIGNATURES	27

SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION

Certain statements contained in this Quarterly Report on Form 10-Q, including, without limitation, statements containing the words “believes,” “anticipates,” “expects,” “will,” “estimates,” “plans,” “intends,” and similar expressions constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We intend these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and they are included for purposes of complying with these safe harbor provisions. These forward-looking statements reflect current views about the plans, strategies and prospects of Merisel, Inc. (the “Company”), and are based upon information currently available to the Company and on current assumptions. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.

In evaluating these forward-looking statements, you should consider these risks and uncertainties, together with the other risks described from time to time in the Company’s other reports and documents filed with the Securities and Exchange Commission (“SEC”). You are cautioned not to place undue reliance on these 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.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

MERISEL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

	December 31, 2011			September 30, 2012
	December 31, 2012			March 31, 2013
				(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	~~1,784~~530		$	~~286~~247
Accounts receivable, net of allowance of $288 and $329, respectively		14,765			11,231
Accounts receivable, net of allowance of $339 and $200, respectively		15,429			8,357
Inventories		2,~~136~~419			13,~~948~~198
Prepaid expenses and other current assets		24,~~046~~058			12,~~576~~630
Total current assets		2022,~~731~~436			1514,~~041~~432
Property, plant and equipment, net		57,~~660~~182			57,~~072~~905
Trademarks		6,190			-
Other intangible assets, net		2,142			2,039
Other intangible assets, net		2,555			2,246
Other assets		771			755
Other assets		1,102			987
Total assets	$	32,531		$	25,131
Total assets	$	36,238		$	23,346
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	57,~~464~~719		$	6,~~744~~535
Accrued liabilities		56,~~081~~476			5,~~026~~182
Accrued abandoned lease costs		-			1,620
Deferred revenue		1,379			-
Capital lease obligations, current maturities		~~544~~425			~~548~~761
Revolving credit agreement		24,~~477~~353			~~1,564~~636
Total current liabilities		1320,~~566~~352			1513,~~502~~114
Capital lease obligations, less current maturities		~~897~~497			~~569~~801
Mandatorily redeemable series A preferred stock, $.01 par value, authorized 360,000 shares; 147,030 and 164,946 shares issued and outstanding, respectively		12,673			14,670
Mandatorily redeemable series A preferred stock, $.01 par value, authorized 360,000 shares; 171,436 and 178,103 shares issued and outstanding, respectively		15,393			16,137
Convertible note		-			2,022
Convertible notes		3,590			4,441
Other liabilities		12,~~090~~703			12,~~356~~683
Total liabilities		2842,~~226~~535			3437,~~119~~176
Commitments and Contingencies
Stockholders' equity:
Common stock, $.01 par value, authorized 30,000,000 shares; 8,453,671 issued and 7,214,784 outstanding		84			84
Common stock, $.01 par value, authorized 80,000,000 shares; 8,453,671 issued and 7,214,784 outstanding		84			84
Additional paid-in capital		285,~~202~~317			285,~~312~~323
Accumulated deficit		(~~275~~293,~~330~~461	)		(~~294~~295,~~225~~508	)
Treasury stock, at cost, 1,238,887 shares repurchased		(1,944	)		(1,944	)
Total stockholders' equity (deficit)		8,012			(10,773	)
Total stockholders' equity		(10,004	)		(12,045	)
Total liabilities and stockholders' equity (deficit)	$	36,238		$	23,346
Total liabilities and stockholders' equity	$	32,531		$	25,131

See accompanying notes to unaudited condensed consolidated financial statements.

MERISEL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	Three Months Ended March 31,
	2011			2012			2011			2012
	2012			2013
Net sales	$	1613,~~550~~566		$	1312,~~180~~837		$	~~49,190~~		$	~~41,456~~
Cost of sales		109,~~757~~489			97,~~153~~587			~~29,931~~			~~28,480~~
Gross profit		54,~~793~~077			45,~~027~~250			~~19,259~~			~~12,976~~
Selling, general & administrative expenses		76,~~036~~278			6,~~237~~367			~~20,805~~			~~18,438~~
Intangible impairment		-			6,190			-			6,190
Lease abandonment charge		3,977			-
Lease abandonment charge		-			-			-			3,977
Operating loss		(6,178	)		(1,117	)
Restructuring charge		-			809			-			809
Interest expense, net		872			930
Operating loss		(1,243	)		(9,209	)		(1,546	)		(16,438	)
Net loss		(7,050	)		(2,047	)
Interest expense, net		588			804			1,578			2,457
Loss per share (basic and diluted)	$	(0.98	)	$	(0.28	)
Loss before benefit for income tax		(1,831	)		(10,013	)		(3,124	)		(18,895	)
Weighted average number of shares
Income tax benefit		-			-			(31	)		-
Basic		7,215			7,215
Net Loss		(1,831	)		(10,013	)		(3,093	)		(18,895	)
Diluted		7,215			7,215
Loss per share (basic and diluted)	$	(0.25	)	$	(1.39	)	$	(0.43	)	$	(2.62	)
Weighted average number of shares
Basic		7,215			7,215			7,215			7,215
Diluted		7,215			7,215			7,215			7,215

See accompanying notes to unaudited condensed consolidated financial statements.

MERISEL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Nine Months Ended September 30,
	Three Months Ended March 31,
		2011			2012
	2012			2013
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(37,~~093~~050	)	$	(182,~~895~~047	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense		-93			~~110~~6
Deferred occupancy costs		(4251	)		~~266~~(22	)
Bad debt provision		3958			~~480~~(146	)
Amortization of discount on preferred stock		~~155~~66			~~205~~77
Depreciation and amortization		2,138			1,851
Amortization of deferred financing costs		-			85
Non-cash interest expense					2,029
Non cash interest expense		-			101
Intangible impairment		-			6,190
Depreciation and amortization		631			640
Loss on abandoned leasehold improvements		-402			~~402~~-
Changes in operating assets and liabilities:
Accounts receivable		~~140~~1,178			37,~~054~~219
Inventories		~~(707~~249	)		~~188~~(778	)
Prepaid expenses and other assets		(~~1,811~~110	)		~~692~~1,359
Accounts payable		~~748~~431			(1,~~280~~183	)
Accrued abandoned leases costs		-			1,620
Accrued abandoned lease costs		3,268			-
Accrued liabilities		~~(831~~151	)		(~~270~~1,221	)
Net cash used in operating activities		(3,226	)		(798	)
Net cash (used in) provided by operating activities		(884	)		4,090
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(~~1,123~~614	)		(1,~~265~~181	)
Net cash used in investing activities		(~~1,123~~614	)		(1,~~265~~181	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of convertible note		-			2,000
Capital lease payments		(132	)		(226	)
Capital lease payments		(211	)		(415	)
Revolving credit agreement (repayments) borrowings		264			(3,716	)
Revolving credit agreement repayments, net		(2,841	)		(913	)
Issuance of convertible note		-			750
Redemption of preferred stock		(3,500	)		-
Net cash provided by (used in) financing activities		132			(3,192	)
Deferred financing costs		-			(107	)
NET DECREASE IN CASH AND CASH EQUIVALENTS		(1,366	)		(283	)
Net cash (used in) provided by financing activities		(6,552	)		565
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		1,784			530
NET DECREASE IN CASH AND CASH EQUIVALENTS		(10,901	)		(1,498	)
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	418		$	247
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		12,390			1,784
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	1,489		$	286
Cash paid during the period for:
Interest expense	$	~~907~~89		$	~~248~~58
Non-cash investing and financing activities:
Extinguishment of convertible preferred stock		19,366			-
Issuance of preferred stock in lieu of dividends	$	-		$	667
Capital lease to finance equipment		-			91
Equipment purchases financed through capital leases	$	-		$	80
Issuance of preferred stock in lieu of dividends		-			1,792

See accompanying notes to unaudited condensed consolidated financial statements.

MERISEL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

(UNAUDITED)

1. Description of Business

Merisel, Inc. and Subsidiaries (the “Company” or “Merisel”) operate in a single reporting segment, the visual communications services business. It entered that business beginning March 2005, through a series of acquisitions, which continued through 2006. These acquisitions include Color Edge, Inc. and Color Edge Visual, Inc. (together “Color Edge”); Comp 24, LLC (“Comp 24”); Crush Creative, Inc. (“Crush”); Dennis Curtin Studios, Inc. (“DCS”); Advertising Props, Inc. (“AdProps”); and Fuel Digital, Inc. (“Fuel”). The acquisitions of the Company’s seven operating entities are referred to below as “Acquisitions.”

2. Basis of Presentation

The accompanying condensed consolidated financial statements as of ~~September~~March 3031, ~~2012~~2013, and for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2012~~2013 and ~~2011~~2012 are unaudited. In the opinion of management, the unaudited condensed consolidated financial statements have been prepared on the same basis as the annual financial statements and reflect all adjustments consisting of normal recurring adjustments necessary to present fairly the consolidated financial position of Merisel as of ~~September~~March 3031, ~~2012~~2013, and the consolidated results of operations and cash flows for the interim periods ended ~~September~~March 3031, ~~2012~~2013 and ~~2011~~2012. The financial data and other information disclosed in these notes to the condensed consolidated financial statements related to these periods are unaudited. The results of operations for any interim period are not necessarily indicative of the results of operations for any other future interim period or for a full fiscal year.

Certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to SEC rules and regulations. These unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the year ended December 31, ~~2011~~2012, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 3029, ~~2012~~2013. The ~~condensed~~ consolidated balance sheet at December 31, ~~2011~~2012, has been derived from audited consolidated financial statements at that date.

3. ~~Going Concern~~ Inventories

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.

As reflected in the accompanying consolidated financial statements, the Company had a cash balance of $286 at September 30, 2012 and experienced reduced revenues for the three and nine months ended September 30, 2012 compared to the same periods in 2011, resulting in a net loss and net cash used in operating activities for the interim periods then ended. Additionally, during October 29th and 30th the Company’s Carlstadt, New Jersey facility experienced significant damage due to Hurricane Sandy. The Company will incur additional expenses for the replacement/repair of damaged equipment and to continue to service its client base until the facility is fully operational. It is anticipated that the additional costs incurred will exceed the insurance proceeds; the extent to which is uncertain. These factors raise substantial doubt about the Company’s ability to continue as a going concern. While the Company is attempting to generate sufficient revenues, the Company’s cash position may not be sufficient enough to support the Company’s daily operations. The Company will require additional capital during November and December to continue as a going concern. The Company is in active discussions with its primary lender, largest stockholder and other potential funding sources concerning possible ways of addressing its liquidity and working capital needs, including a possible bridge loan facility and other forms of debt or equity financing. The Company believes it will need to raise additional equity or debt financing (whether from its primary lender, largest stockholder or other sources) to meet its liquidity needs for the next twelve months. The Company’s largest stockholder has purchased $1,500 in principal amount of the Company’s 10% Convertible Note on November 21, 2012 and has committed in principle to an additional $2,500 in funding if necessary,. If the additional commitment is funded management believes the Company’s current cash needs will be satisfied, but there can be no assurances that it will be funded as definitive agreements still need to be executed with respect to the additional funding. Management believes that the actions presently being taken to further implement its business plan and generate sufficient revenues provide the opportunity for the Company to continue as a going concern. While the Company believes in the viability of its strategy to generate sufficient revenues and in its ability to raise additional funds, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to meet its financing arrangements and to further implement its strategy and generate sufficient revenues.

The consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

4. Inventories

Inventories consist of the following:

	December 31, 2011			September 30, 2012
	December 31, 2012			March 31, 2013
Raw materials	$	1,~~339~~050		$	1,~~106~~208
Work-in-progress		~~800~~1,372			~~845~~1,993
Reserve for obsolescence		(3	)		(3	)
Inventory, net	$	2,~~136~~419		$	13,~~948~~198

~~5. Intangibles~~4

~~Intangible assets, net of accumulated amortization, resulting primarily from the Acquisitions accounted for under the purchase method of accounting, consist of the following:~~4. Intangibles

	December 31, 2011		September 30, 2012		Amortization Period (years)
Customer relationships	$	2,191	$	2,007	15	to	20
Trade know-how		364		239		8
Total	$	2,555	$	2,246

Intangible assets, net of accumulated amortization, resulting primarily from acquisitions consist of the following:

Amortization expense relating to intangible assets was $103 for the three months ended September 30, 2012 and 2011, and $309 and $324 for the nine months ended September 30, 2012 and 2011, respectively.

	December 31, 2012		March 31, 2013		Amortization Period (years)
Customer relationships	$	1,945	$	1,884	15	to	20
Trade know-how		197		155		8
Total	$	2,142	$	2,039

AtAmortization ~~December~~expense ~~31,~~relating ~~2011,~~to ~~the~~intangible ~~Company~~assets ~~had~~was ~~indefinite-lived trademarks of~~ $~~6,190. In~~103 ~~accordance with FASB ASC 350, the Company tests~~ for ~~impairment of indefinite-lived trademarks at least annually. As of September 30, 2012,~~ the ~~Company~~three ~~reviewed~~months ~~the~~ended ~~indefinite–lived~~March ~~trademarks for impairment due to ongoing reduced revenues~~31, ~~over~~2013 ~~capacity in the industry, the need to raise capital during the period~~ and the overall reduction in the Company’s market valuation. Reflective primarily of the reduction of the royalty rate, reduced revenues and other factors, the review resulted in a full impairment of the asset and the Company recorded an impairment charge of $6,190 during the period. As of September 30, 2012~~, the carrying value of indefinite-lived trademarks is $0~~.

5. Fair Value Measurements

6. Fair Value Measurements

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considers counterparty credit risk in its assessment of fair value.

The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy under FASB ASC 820 are described as follows:

Level 1- Unadjusted quoted prices in active markets for identical assets or liabilities that are accessible at the measurement date.

Level 2- Other inputs that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 3- Inputs that are unobservable for the asset or liability.

On a nonrecurring basis, the Company uses fair value measures when analyzing asset impairment. Long-lived tangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If it is determined such indicators are present and the review indicates that the assets will not be fully recoverable, based on undiscounted estimated cash flows over the remaining amortization periods, their carrying values are reduced to estimated fair value. The Company uses an income approach and inputs that constitute level 3. During the fourth quarter of each year and earlier if necessary, the Company evaluates indefinite-lived intangibles for impairment at the asset level. During the current quarter the Company determined it was necessary to evaluate its indefinite-lived intangibles for impairment due to ongoing reduced revenues, over capacity in the industry, the need to raise capital during the period and the overall reduction in the Company’s market valuation. Reflective primarily of the reduction of the royalty rate, reduced revenues and other factors, the review resulted in a full impairment of the asset and the Company recorded an impairment charge of $6,190 during the period. There was no impairment, and therefore, no write-down of any of the Company’s long lived assets during the prior year quarter.

The carrying values of cash and cash equivalents, accounts receivable, security deposits, and accounts payable approximate their estimated fair ~~value~~ because of their short-term nature. The revolving credit agreement carrying value approximates fair value due to the variable nature of the interest rate. The convertible notes approximate fair value using level 2 inputs, as there have been several different issuances of these notes at the same rates.

~~7. Accrued Liabilities~~5

6. Accrued Liabilities

Accrued liabilities consist of the following:

	December 31, 2011		September 30, 2012
	December 31, 2012		March 31, 2013
Accrued liabilities:
Compensation and other benefit accruals	$	21,~~066~~938	$	2,~~778~~301
Accrued interest on Series A Preferred Stock		~~434~~668		~~649~~692
Other accruals		23,~~581~~870		12,~~599~~189
Total accrued liabilities	$	56,~~081~~476	$	5,~~026~~182

7. Abandoned Lease Costs

During the month of January, 2012 the Company vacated most of the 1st through 4th floors in its New York City facility and relocated and consolidated its manufacturing and production operations at its new 77,000 square feet facility in Carlstadt, New Jersey. On March 28, 2012, the Company entered into an agreement with its NYC landlord to terminate its current leases for the 1st through 4th floors (“Termination Agreement”). Under the terms of the Termination Agreement, the Company agreed to (i) continue to pay rent at its current annual rate, as well as certain related charges under the current leases through December 31, 2012, (ii) pay a one-time settlement payment of $125 to satisfy its restoration obligations and other disputed charges under the current leases upon execution of the agreement of which $110 was accrued and expensed in 2011, and (iii), make an additional single payment termination fee of $850 on December 31, 2012. In the first quarter of 2012, the Company recorded an abandonment charge of $3,977 consisting of $3,832 for estimated payments related to rent, termination payments, taxes and utilities and $402 for the write-off of remaining leasehold improvements partially offset by $257 for the reversal of the deferred occupancy liability related to the abandoned space. As of March 31, 2013 and December 31, 2012, the remaining abandonment liability is $0.

The Company did not vacate the retained premises as defined in the Termination Agreement on or before November 30, 2012 as required under the agreement. In accordance with the Termination Agreement, the Company has incurred a charge of $3 per day since December 1, 2012 and continuing until the actual vacate date in March 2013. The Company is in discussions with its landlord regarding certain additional amounts the landlord believes are due relating to the period between December 2012 and March 2013 for portions of the premises which have since been vacated. It is not possible at this time to quantify the exact amounts that may ultimately need to be paid to the landlord in connection with this matter. The Company is hopeful that it can resolve the matter favorably but if it cannot, the additional amounts payable may have an adverse effect on the Company’s liquidity and capital resources.

8. Income Taxes

At December 31, 2012, after weighing both the positive and negative evidence of realizing the deferred tax asset, management determined that, based on the weight of all available evidence, it was more likely than not that the Company would not realize its deferred tax assets. The most influential weighted negative evidence considered was three consecutive years of current taxable losses and uncertainty as to when taxable profit can be predicated in the future due to current economic environment. As such, the Company kept a full valuation allowance on its net deferred tax assets as of March 31, 2013 and December 31, 2012.

8. Accrued Abandoned Lease Costs

During the month of January, 2012 the Company vacated most of the 1st through 4th floors in its New York City facility and relocated and consolidated its manufacturing and production operations at its new 77,000 square feet facility in Carlstadt, New Jersey. On March 28, 2012, the Company entered into an agreement with its NYC landlord to terminate its current leases for the 1st through 4th floors (“Termination Agreement”). Under the terms of the Termination Agreement, the Company agreed to (i) continue to pay rent at its current annual rate, as well as certain related charges under the current leases through December 31, 2012, (ii) pay a one-time settlement payment of $125 to satisfy its restoration obligations and other disputed charges under the current leases upon execution of the agreement of which $110 was accrued and expensed in 2011, and (iii), make an additional single payment termination fee of $850 on December 31, 2012. In the first quarter of 2012, the Company recorded an abandonment charge of $3,977 consisting of $3,832 for estimated payments related to rent, termination payments, taxes and utilities and $402 for the write-off of remaining leasehold improvements partially offset by $257 for the reversal of the deferred occupancy liability related to the abandoned space. During the three and nine month periods ended September 30, 2012, the Company made payment of $795 and $2,197 in rent, taxes and utilities and $0 and $125 in termination fees, respectively. As of September 30, 2012, the remaining abandonment liability is $1,620.

9. Income Taxes

At December 31, 2011, after weighing both the positive and negative evidence of realizing the deferred tax asset, management determined that, based on the weight of all available evidence, it was more likely than not that the Company would not realize its deferred tax assets. The most influential negative evidence considered was three consecutive years of current taxable losses and uncertainty as to when taxable profit can be predicated in the future due to current economic environment. As such, the Company kept a full valuation allowance on its net deferred tax assets as of September 30, 2012 and December 31, 2011.

The valuation allowance on the Company’s net deferred tax assets is reviewed quarterly and will be maintained until sufficient positive evidence exists to support the reversal of all or a portion of the valuation allowance. In addition, until such time that the Company determines it is more likely than not that it will generate sufficient taxable income to realize all or a portion of its deferred tax assets, income tax benefits associated with future period losses, if any, will be fully reserved and income taxes associated with future period income will offset such reserve.

During 2010, the Company filed amended New York State and City returns. During the first quarter of 2011, the Company received a refund of $31 from New York and recorded an income tax benefit in that amount for the nine months ended September 30, 2011. The Company did not record an income tax provision or benefit for the three ~~and nine~~ months ended ~~September~~March 3031, 2013 and 2012.

~~On March 21, 2011, Phoenix Acquisition Company II, L~~9.L.C. (“Phoenix”), the holder of 5,000,000 shares or 69.3% of the Company’s outstanding common stock along with its parent entity Stonington Capital Appreciation 1994 Fund, L.P. (the “Fund”), and certain of their affiliates (collectively, “Stonington”) completed the transfer of all of its 5,000,000 shares of common stock to Saints Capital VI, L.P. (Saints Capital VI, L.P. transferred the shares to Saints Capital Granite, L.P. in May, 2011). The original transaction constituted a change of control as defined in Section 382 and resulted in an additional limitation in the Company’s ability to utilize its net operating loss carry-forward as well as its ability to use certain unrealized built-in losses. As a result of this change of control, the net operating losses and unrealized built-in losses are subject to an annual limitation of $698. The Company adjusted its deferred tax asset to reflect the estimated limitation as of March 31, 2011. At December 31, 2011, the Company had available U.S. Federal net operating loss carry-forwards of $17,388 which expire at various dates beginning December 31, 2012. As of December 31, 2011, $13,963 of the net operating loss carry-forwards is subject to the annual limitation as a result of the ownership change and the remaining amount of $3,425 is not restricted. Debt

10. Debt

Debt is classified on the balance sheet as follows:

	December 31, 2011		September 30, 2012
	December 31, 2012		March 31, 2013
Current:
Capital lease obligations	$	~~544~~425	$	~~548~~761
Revolving credit agreement		24,~~477~~353		~~1,564~~636
		3,021		2,112
		4,778		1,397
Non-current:
Capital lease obligations		~~897~~497		~~569~~801
Mandatorily redeemable preferred stock		1215,~~673~~393		1416,~~670~~137
Convertible subordinated note		-		2,022
Convertible notes		3,590		4,441
		13,570		17,261
		19,480		21,379
Total	$	1624,~~591~~258	$	1922,~~373~~776

Convertible ~~Note~~Notes

On August 20, 2012, the Company entered into a definitive ~~agreement~~Note Purchase Agreement with its majority stockholder, Saints Capital Granite, L.P. (“Saints”), for the issuance and sale of $2,000 in principal amount of its 10% Convertible Note (the “August Note”), due August 31, 2015. The transaction was completed and the August Note was issued on August 21, 2012.

~~The~~On ~~note~~November ~~accrues interest at 10% per annum and matures on August 31~~21, ~~2015. Interest on the note is payable in kind through increasing the outstanding principal amount of the note~~2012, ~~or, at~~ the Company’s ~~option,~~and ~~it may pay interest quarterly in cash. The note will not be convertible prior to March 31, 2013. After March 31, 2013, at~~ Saints’ ~~option,~~entered ~~the note is convertible, in whole or in part,~~ into ~~shares of Common Stock of Merisel at~~ a ~~conversion~~definitive ~~price~~Note ~~that~~Purchase isAgreement ~~the~~for ~~greater of (a)~~ $~~0.10~~1,500 orin ~~(b)~~principal an amount ~~equal~~of toits ~~(x)~~10% ~~EBITDA~~Convertible ~~for~~Note ~~the twelve months ended March 31, 2013 multiplied by six and one-half~~ (~~6.5), less amounts outstanding under~~ the ~~PNC~~“November ~~Agreement, and liabilities relating to the outstanding redeemable Series A Preferred Stock and the~~ Note ~~or other indebtedness for borrowed money plus the Company's cash balance and (y~~”) ~~divided by the number of shares of Common Stock outstanding as of the conversion date.[1] The note is unsecured. It may be redeemed~~, indue ~~whole~~August ~~or in part, at any time prior to March~~ 31, ~~2013,~~2015. The soNote ~~long~~was asissued ~~the Company’s outstanding Series A Preferred Stock has been redeemed, at a redemption price equal to two~~ and ~~one-half~~funding ~~times~~was ~~the~~received ~~outstanding~~on ~~principal~~November ~~amount of the Note~~21, ~~plus accrued interest~~2012.

~~The~~On February 4, 2013, the Company ~~incurred~~and ~~financing~~Saints ~~costs~~entered ofinto a definitive Note Purchase Agreement for $~~107~~750 onin ~~this~~principal ~~transaction~~amount ~~and~~of ~~has~~its ~~recorded~~10% Convertible Note (the ~~costs~~“February inNote”, ~~other~~and ~~assets~~together with the August Note and ~~will~~November ~~amortize~~Note, ~~this~~the ~~amount~~“Notes”), ~~over~~due August 31, 2015 under the ~~life~~same terms and conditions of the November 21, 2012 issuance. The February Note towas ~~interest~~issued ~~expense~~and funding was received on February 4, 2013.

~~The gross proceeds from the transaction are used for working capital purposes.~~7

~~[1]~~The ~~“EBITDA”~~Notes ~~means~~accrue interest at 10% per annum and mature on August 31, 2015. Interest on the ~~net~~Notes ~~income~~is payable in kind through increasing the outstanding principal amount of the Notes, or, at the Company’s ~~from~~option, ~~continuing~~it ~~operations~~may ~~before~~pay interest ~~expense~~quarterly in cash. The Notes will not be convertible prior to March 31, 2013. After March 31, 2013, at Saints’ option, the Notes are convertible, in whole or in part, into shares of Common Stock of Merisel at a conversion price that is the greater of (~~income~~a), ~~income~~$0.10 ~~taxes~~or (b) an amount equal to (x) EBITDA for the twelve months ended March 31, ~~depreciation~~2013 multiplied by six and ~~amortization~~one-half ~~expense~~(6.5), ~~adding~~less ~~back~~amounts ~~non-cash~~outstanding ~~charges~~under ~~including,~~the ~~without~~PNC ~~limitation~~Agreement, ~~compensation~~and ~~charges~~liabilities ~~for~~relating ~~equity~~to ~~grants~~the outstanding redeemable Series A Preferred Stock and ~~charges~~the Notes or other indebtedness for ~~unconsolidated~~borrowed ~~losses~~money and (~~gains~~y), ~~determined~~divided ~~directly~~by the number of shares of Common Stock outstanding as of the conversion date.[1] Each conversion of the principal amount then outstanding, or ~~indirectly~~any ~~from~~accrued and unpaid interest on the ~~financial~~Notes, ~~statements~~shall be in an amount at least equal to the lesser of (i) one million dollars ($1,000) or (ii) the ~~Company~~then ~~contained~~outstanding principal amount of the Notes and any accrued and unpaid interest thereunder. The Notes are unsecured. It may be redeemed, in whole or in part, at any time prior to March 31, 2013, so long as the ~~Quarterly~~Company’s ~~Report~~outstanding onSeries ~~Form~~A 10Preferred Stock has been redeemed, at a redemption price equal to two and one-Qhalf times the outstanding principal amount of the Notes, plus accrued interest. Each conversion of the principal amount then outstanding, or ~~Annual~~any ~~Report~~accrued and unpaid interest on ~~Form~~the ~~10-K~~Notes, shall be in an amount at least equal to the lesser of (i) one million dollars ($1,000) or (ii) the ~~Company~~then ~~for~~outstanding principal amount of the ~~applicable~~Notes ~~periods~~and any accrued and unpaid interest thereunder.

8The gross proceeds from these issuances are being used for working capital purposes.

The Company incurred financing costs of $132 on the transactions and has recorded the costs in other assets and will amortize this amount over the life of the Note to interest expense.

On April 18, 2013, the Company received a conversion notice stating that Saints had elected to convert $1,750 in principal of the Convertible Note into 17,500,000 shares of Common Stock of the Company at a conversion price of $.10 per share.

Mandatorily Redeemable Preferred Stock

On February 4, 2011, the Company issued 140,000 shares of a Series A Preferred Stock, par value $.01 per share, at an original issue price of $100 per share. The Series A Preferred ~~must~~was beissued ~~redeemed~~to byStonington ~~the~~as ~~Company~~part onof ~~or before February 4, 2017 and may be redeemed by~~ the ~~Company,~~consideration ingiven ~~whole or~~ in ~~part,~~the atredemption ~~any~~of ~~time~~all ~~after February 4~~346,163 ~~2013,~~outstanding inshares ~~each case at a price~~ of ~~$100~~the ~~per~~Company’s ~~share,~~Convertible ~~plus~~Preferred ~~any accrued but unpaid dividends~~Stock. On ~~Based~~March on21, ~~the guidance in ASC 480~~2011, ~~“Distinguishing~~Stonington ~~Liabilities~~completed ~~from Equity,”~~ the ~~Company~~sale ~~has~~of ~~classified~~all ~~the~~ Series A Preferred asto aSaints ~~liability~~in ~~because~~conjunction itwith isthe ~~mandatorily~~Stock ~~redeemable~~Purchase onAgreement dated February 418, ~~2017~~2011. ~~Accordingly, the Company records the dividends as interest expense over the life of the Series A Preferred.~~

The Series A Preferred earns cumulative cash or stock dividends at the rate of 12% per annum, payable quarterly in arrears and accruing regardless of whether they are declared by the Board of Directors of the Company or funds are legally available to pay them. Any dividends accrued and not paid by the Company in cash shall be paid in additional shares of Series A Preferred valued at $100 per share. If the Company does not pay dividends in cash equal to at least 8% per share per annum, the rate of the dividend will increase by 4% per annum to 16% per annum.

AsDuring ofthe ~~December~~first ~~31,~~three ~~2011,~~quarters of 2012 the Company ~~had~~did ~~accrued~~not ~~$434~~meet ~~for~~ the ~~fourth~~requirements ~~quarter~~under ~~dividend~~the ~~payment.~~PNC OnRevolving ~~March~~Credit ~~27,~~Agreement ~~2012,~~ (the ~~Company’s~~“Agreement”) ~~Board~~which ~~approved~~provided the ~~payment~~Company ~~for~~ the ~~three~~ability ~~month period ended December 31, 2011~~ to bepay ~~made~~the ~~with~~quarterly ~~additional~~dividend ~~Series~~payment ~~A Preferred shares~~ in ~~lieu of~~ cash. As ~~noted above~~such, ~~given 100% of~~ the ~~payment~~Company ~~was~~has ~~made~~accrued individends ~~kind,~~at the ~~dividend~~16% annual rate ~~for~~during ~~the~~2012 ~~payment increased to 16%~~ and ~~the~~has ~~Company~~ issued 518,~~781~~624.~~1222~~4708 shares of Series A Preferred at an original issue price of $100 per share in payment of the ~~dividend during the~~ first, ~~quarter. The~~second ~~incremental~~and ~~interest~~third ~~expense that was incurred as a result of the Board decision was recorded during the first~~ quarter dividend. During ~~each~~December, ~~quarterly period of~~ 2012 the Company ~~has~~and ~~not~~PNC ~~met~~amended the ~~requirements~~Agreement ~~under~~which ~~the~~would ~~PNC~~make ~~Revolving~~it ~~Credit~~possible ~~Agreement~~for ~~which provided~~ the Company ~~the ability~~ to pay ~~the~~cash ~~quarterly~~dividends ~~dividend~~again ~~payment~~ in ~~cash~~the future. ~~As such~~However, the Company ~~has~~anticipates ~~accrued~~it ~~dividends~~will atpay ~~the~~dividends ~~16%~~in ~~annual~~additional ~~rate during 2012 and has issued 12,134.8745~~ shares of ~~Series~~preferred Astock ~~Preferred~~for ~~at an original issue price of $100 per share in payment of~~ the ~~first~~foreseeable ~~and second quarter dividend. Until the Company meets the requirements~~future, itand accordingly will accrue ~~and pay future~~ dividends ~~in additional shares of preferred stock~~ at the annual rate of 16%. As of ~~September~~March 3031, ~~2012~~2013, the Company has accrued $~~649~~692 for this dividend payment.

~~The~~[1] ~~Company~~“EBITDA” ~~used~~means the ~~March~~net ~~21,~~income ~~2011~~of ~~Stonington and Saints sale transaction as~~ the ~~basis~~Company ~~for~~from ~~measuring~~continuing ~~fair~~operations ~~value~~before ofinterest ~~the~~expense ~~Series~~(income), Aincome ~~Preferred. Stonington sold its 5~~taxes,~~000,000~~ ~~common~~depreciation ~~shares~~ and ~~all~~amortization ~~140~~expense,~~000~~ ~~shares~~adding ofback ~~the~~non-cash ~~Series~~charges Aincluding, ~~Preferred~~without ~~to Saints for $14~~limitation,~~500.~~ ~~The~~compensation ~~Company~~charges ~~determined~~for ~~the~~equity ~~fair~~grants ~~value~~and ofcharges ~~the~~for ~~Series~~unconsolidated Alosses ~~Preferred Stock of $11~~(gains),~~750~~ ~~using~~determined ~~the~~directly ~~difference~~or ~~between~~indirectly ~~the~~from ~~total transaction price and~~ the ~~fair~~financial ~~value~~statements of the ~~common~~Company ~~stock~~contained asin of the ~~date~~Quarterly ofReport ~~the Stock Purchase Agreement~~ on ~~February~~Form ~~18,~~10-Q ~~2011.~~or ~~The~~Annual ~~unamortized~~Report ~~discount of $2,250~~ on ~~the~~Form ~~preferred~~10-K ~~stock will be amortized using the interest method over the 72 month term~~ of the ~~Series~~Company ~~A Preferred. The amortization of the discount~~ for the ~~three~~applicable ~~and nine month~~ periods ~~ended September 30, 2012 of $71 and $205, and for the three and nine month periods ended September 30, 2011 of $59 and $155, respectively, was recorded as interest expense for the periods then ended~~. ~~The Company also incurred $1,061 of costs in relation to this transaction, which were recorded as deferred financing cost to be amortized over the term of the Series A Preferred.~~

The Company used the March 21, 2011 Stonington and Saints sale transaction as the basis for measuring fair value of the Series A Preferred. Stonington sold its 5,000,000 common shares and all 140,000 shares of the Series A Preferred to Saints for $14,500. The Company determined the fair value of the Series A Preferred Stock of $11,750 using the difference between the total transaction price and the fair value of the common stock as of the date of the Stock Purchase Agreement on February 18, 2011. The unamortized discount of $2,250 on the preferred stock will be amortized using the effective interest method over the 72 month term of the Series A Preferred. The amortization of the discount for 2012 and 2013 of $66 and $77, respectively, was recorded as interest expense for the periods then ended. The Company also incurred $1,061 of costs in relation to this transaction, which were recorded as deferred financing cost to be amortized over the term of the Series A Preferred.

The Series A Preferred has no conversion rights and will have no voting rights except (i) the right to elect a single additional member to the Company’s Board of Directors upon the Company’s failure for at least four consecutive quarters to pay at least an 8% cash dividend per annum. The Company has not paid at least an 8% cash dividend per annum since August, 2011. As such Saints currently has the right to elect an additional member to the Company’s Board of Directors; and (ii) to separately vote or consent to alter the terms of the Series A Preferred, create or increase the number or terms of shares of any class that is senior to or in parity with the Series A Preferred or to incur debt securities senior to the Series A Preferred, other than the Company’s existing credit facility or any replacement thereof if the incurrence of debt pursuant to such debt securities would cause the ratio of the Company’s total indebtedness to EBITDA to be greater than 3.5:1 excluding the Series A Preferred. The Certificate of Designation limits the ability of the Company to pay dividends on its common stock.

Revolving Credit Agreement

~~During~~On ~~the~~August ~~second~~13, ~~quarter of~~ 2010, the Company entered into a Revolving Credit and Security Agreement (the “PNC Agreement”) with PNC Bank (“PNC”). The PNC credit facility (the “Facility”) ~~consists~~consisted of a $14,000 revolving loan, or revolver, including up to $3,000 in letters of credit. Proceeds ~~secured~~from bythe ~~separate~~revolver ~~cash~~were ~~collateral~~used to repay the indebtedness owed to Amalgamated Bank under a predecessor credit facility.

The maturity date of the Facility is August 13, 2013. The interest rate of the Facility is 3% over a “Base Rate,” which is a floating rate equal to the highest of (a) PNC’s publicly announced prime rate then in effect, (b) the Federal Funds Open Rate plus 0.5%, or (c) the LIBOR Rate plus 1%; or, at the advance election of the Company, 4% over PNC’s 30, 60 or 90 day Eurodollar Rate. As of ~~September~~March 3031, ~~2012~~2013 the Base Rate plus 3% is 6.25%. The revolver is also subject to a 0.75% fee per annum payable quarterly on the undrawn amount.

The PNC Agreement requires that all customer receivables collected shall be deposited by the Company into a lockbox account controlled by PNC. All funds deposited into the lockbox will immediately be used to pay down the Facility. Additionally, the PNC ~~agreement~~Agreement contains provisions that allow PNC to accelerate the scheduled maturities of the Facility for conditions that are not objectively determinable. As such, the Company has classified the PNC balance as a current liability since the date of the Agreement.

The Facility includes ~~one~~a financial covenant requiring that the Company maintain a fixed charge coverage ratio ~~for the trailing twelve month period~~ (defined as EBITDA less unfinanced capital expenditures, less cash dividends, less cash paid for taxes over all debt service) of not less than 1.1 to 1.0 ~~beginning in the quarter ending March 31, 2011, going forward~~. The Company has not been in compliance with this requirement beginning in the period ended March 31, 2012 and does not anticipate being in compliance for the foreseeable future. On October 3, 2012, the Company received a notification from PNC stating that the following events of default have occurred and are continuing under the Agreement: (i) failure to comply with the requirement to maintain a fixed charge coverage ratio of at least 1.1 to 1.0 for the quarters ended March 31, 2012 and June 30, 2012; and (ii) incurring indebtedness owing to Saints during August, 2012. The notification stated that PNC has determined not to exercise its option to charge interest at default rate under the Agreement and they shall continue to make advances at their discretion provided that the foregoing determinations shall not constitute a waiver of any rights related thereto. PNC has engaged in discussions with the Company to amend the current agreement and waive the events of default. Based on the discussions, the Company anticipates this to be completed during the fourth quarter of 2012, however, there are no assurances that this will take place.

The Company’s borrowing base under the Facility is the sum of (i) 85% of its eligible accounts receivable, including up to $500 of unbilled accounts receivable for work performed within the previous 30 days plus (ii) 50% of eligible raw material inventory up to $1,000. The borrowing base is reduced by an Availability Reserve which was reduced to $1,000 from $2,000 at February 3, 2011 pursuant to the PNC Amendment and by outstanding letters of credit in the amount of $2,000 as of June 30, 2012. The Facility must be prepaid when, and to the extent of, the amount of the borrowings exceed the borrowing base. In addition, borrowings under the Facility must be prepaid with net cash proceeds of certain insurance recoveries, at the option of PNC. Early voluntary termination and prepayment will incur a fee $30 from August 13, 2012 through August 12, 2013.9

On December 21, 2012, the Company entered into a Waiver and Amendment No. 3 (the “PNC Amendment No. 3”) to the PNC Agreement. Pursuant to the PNC Amendment No. 3, the Company and PNC agreed to amend the PNC Agreement to waive certain events of default arising from the Company’s failure to comply with the fixed charge coverage ratio set forth in the facility and the incurrence of debt to Saints, to amend the fixed charge coverage ratio and certain other financial covenants in the PNC Facility, and to permit the Company to borrow up to $6,000 in subordinated debt from Saints subject to certain conditions. The maximum available under the Facility was reduced to $9,000 and the Company may utilize an over-draft of $500 through April 30, 2013. The fixed charge coverage ratio of not less than 1.1 to 1.0 remains in place and will be tested quarterly. However, for the quarter ended December 31, 2012 the test was for the three months then ended, for the quarter ended March 31, 2013 the test was for the six months then ended and for the quarter ended June 30, 2013 the test will be for the nine months then ended. For purposes of this test only, fourth quarter 2012 EBITDA will be increased by $1,500 representing the amount of convertible notes purchased by Saints during the fourth quarter of 2012. As of March 31, 2013, the Company is in compliance with the covenant.

On May 8, 2013, the Company entered into an Amendment No. 4 to the PNC Agreement, which extended the ability to utilize an over-draft of $500 through the maturity of the Facility.

Any letter of credit (LOC) issued by PNC reduces the availability under the Facility in accordance with the terms of the Agreement. As of December 31, 2012 and March 31, 2013 the LOC’s outstanding were $1,100. The LOC represents security posted on the Company’s Carlstadt, NJ and New York City leases in the amount of $500 and $600, respectively at March 31, 2013. The fee for the LOC is 1.5% per annum.

10. Commitments and Contingencies

In connection with the Asset Purchase Agreement among Crush Creative, Inc., its shareholders and MCRU, LLC dated July 6, 2005 (the “Crush APA”), the Company informed the former shareholders of Crush Creative, Inc. (the “Crush Sellers”) in April 2009 that Crush Creative’s continuing business had not met the performance criteria that would entitle the Crush Sellers to an earnout payment for the one-year period ended December 31, 2008. On April 29, 2009 and September 14, 2009, the Company received notice from the Crush Sellers that they contest the calculations Merisel used to reach this conclusion. The parties are following the process set forth in the Crush APA for resolving such disputes through appointment of a third-party accounting firm (the “Arbitration Firm”), which will arbitrate the dispute. If the Arbitration Firm finds that Crush Creative has met the performance criteria set forth in the Crush APA, the Crush Sellers will be entitled to a payment of up to $750. Under the Crush APA, the Arbitration Firm’s determination is final, conclusive and binding.

In February 2011, the Company filed an order to show cause, request for a temporary restraining order and civil complaint in the Supreme Court of the State of New York, New York County naming as defendants the former President of Fuel, a former executive of Merisel, Splash (New York) Inc. and Splash (Northwest), Inc. The complaint alleges, among other things, that the former President of Fuel violated various provisions of his employment agreement with Merisel dated October 4, 2006 (the “Employment Agreement”) and that the defendants worked in concert to deprive the Company of the benefit of the good will of Fuel in connection with the Asset Purchase Agreement between Merisel FD, LLC and Fuel dated October 4, 2006 (the "APA"). The Company alleges causes of action for recovery of chattel/replevin, conversion, unjust enrichment/rescission, trespass, breach of contract, fraudulent inducement, breach of fiduciary duty, tortious interference with contract and interference with prospective advantage. The Company seeks injunctive relief and unspecified compensatory and punitive damages. The Court denied the Company’s application for a temporary restraining order and further ordered the former President of Fuel to produce certain materials in his possession or control, if any. The defendants have answered the complaint, asserting various affirmative defenses, and denied liability. The parties are currently engaged in discovery.

AsIn March 2011, the former President of ~~September~~Fuel ~~30,~~filed ~~2012,~~a civil complaint against the Company ~~has~~and ~~letters~~two of ~~credit~~its ~~under~~officers in the ~~Facility~~Supreme inCourt of the ~~amount~~State of $2New York,~~000,~~ ~~which~~County ~~reduces~~of New York. The plaintiff alleges causes of action for breach of the ~~availability~~Employment ~~under~~Agreement, breach of the ~~Facility~~APA, bydefamation, ~~that~~tortious ~~amount.~~interference ~~The~~with ~~letters~~prospective business relations, violation of ~~credit~~New ~~were~~York ~~used~~Labor toLaw ~~provide~~§ ~~security~~191(3), ~~deposits~~abuse onof ~~the~~process ~~real~~and ~~estate~~prima ~~leases~~facie ~~for~~tort. The ~~the~~plaintiff ~~facilities~~seeks incompensatory ~~Carlstadt~~damages of at least $3,000, NJplus ~~and~~unspecified ~~New~~punitive ~~York~~damages. The Company has answered the complaint, NYasserting various affirmative defenses, and denied liability. The parties are currently engaged in discovery.

11The Company is involved in certain legal proceedings arising in the ordinary course of business. ~~Commitments~~ None of these proceedings is expected to have a material impact on the Company’s financial condition or results of operations. The Company has evaluated its potential exposure and ~~Contingencies~~has concluded that for each of the above cases that no accrual was necessary because the amount of loss is not currently probable and/or estimable.

Litigation Arising from the Saints Capital Granite, L.P. Proposal

In the first quarter of 2012, four class action lawsuits were filed by shareholders of the Company naming as defendants Merisel, members of the Company’s Board of Directors, and Saints Capital Granite, L.P. (“Saints Capital Granite”), and its general partner, Saints Capital Granite, LLC (collectively, “Saints Capital”). The lawsuits arose from a proposal received by Merisel on December 28, 2011 from Saints Capital Granite, the holder of approximately 69.3% of the outstanding shares of Common Stock of the Company and 100% of the outstanding shares of Series A Preferred Stock of the Company, to acquire all of the outstanding shares of Merisel at a price of $1.35 per share (the “Proposal”).

Plaintiffs generally alleged that the Board of Directors failed to adequately consider whether the Proposal maximizes shareholder value and, therefore, the Board should have been enjoined from consummating the transaction. Plaintiffs further averred causes of action for breach of fiduciary duty against the Board of Directors, breach of duty of loyalty against Saints Capital and certain individual directors of Merisel, and aiding and abetting such breaches of fiduciary duty against Merisel and Saints Capital.

In a February 8, 2012 letter from Saints Capital Granite addressed to the Special Committee of the Board of Directors of the Company, Saints Capital Granite informed the Company that it withdrew its Proposal. The February 8th letter referenced the December 28th letter, which stated that Saints Capital Granite would have a termination right in the event that the transaction becomes the subject of shareholder litigation.

All of the foregoing actions were voluntarily dismissed.

The class action lawsuits are discussed in more detail in Item 3 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

Other Matters

In connection with the Asset Purchase Agreement among Crush Creative, Inc., its shareholders and MCRU, LLC dated July 6, 2005 (the “Crush APA”), the Company informed the former shareholders of Crush Creative, Inc. (the “Crush Sellers”) in April 2009 that Crush Creative’s continuing business had not met the performance criteria that would entitle the Crush Sellers to an earnout payment for the one-year period ended December 31, 2008. On April 29, 2009 and September 14, 2009, the Company received notice from the Crush Sellers that they contest the calculations Merisel used to reach this conclusion. The parties are following the process set forth in the Crush APA and have retained Grant Thornton LLP (“Grant”) as the arbitration firm that will arbitrate the dispute. If Grant finds that Crush Creative has met the performance criteria set forth in the Crush APA, the Crush Sellers will be entitled to a payment of up to $750. Under the Crush APA, Grant’s determination is final, conclusive and binding.

In February 2011, the Company filed an order to show cause, request for a temporary restraining order and civil complaint in the Supreme Court of the State of New York, New York County naming as defendants the former President of Fuel, a former executive of Merisel, Splash (New York) Inc. and Splash (Northwest), Inc. The complaint alleges, among other things, that the former President of Fuel violated various provisions of his employment agreement with Merisel dated October 4, 2006 (the “Employment Agreement”) and that the defendants worked in concert to deprive the Company of the benefit of the good will of Fuel in connection with the Asset Purchase Agreement between Merisel FD, LLC and Fuel dated October 4, 2006 (the "APA"). The Company alleges causes of action for recovery of chattel/replevin, conversion, unjust enrichment/rescission, trespass, breach of contract, fraudulent inducement, breach of fiduciary duty, tortious interference with contract and interference with prospective advantage. The Company seeks injunctive relief and unspecified compensatory and punitive damages. The court denied the Company’s application for a temporary restraining order. The defendants have answered the complaint, asserting various affirmative defenses, and denied liability. The parties are currently engaged in discovery.

In March 2011, the former President of Fuel filed a civil complaint against the Company and two of its officers in the Supreme Court of the State of New York, County of New York. The plaintiff alleges causes of action for breach of the Employment Agreement, breach of the APA, defamation, tortious interference with prospective business relations, violation of New York Labor Law § 191(3), abuse of process and prima facie tort. The plaintiff seeks compensatory damages of at least $3,000, plus unspecified punitive damages. The defendants have answered the complaint, asserting various affirmative defenses, and denied liability. The parties are currently engaged in discovery.

The Company is involved in certain legal proceedings arising in the ordinary course of business. None of these proceedings is expected to have a material impact on the Company’s financial condition or results of operations. The Company has evaluated its potential exposure and has established reserves for potential losses arising out of such proceedings, if necessary. There can be no assurance that the Company’s accruals will fully cover any possible exposure. For each of the above cases, the Company has not accrued for payment because the amount of loss is not currently probable and/or estimable.

Facilities Leases

The Company leases certain of its facilities and equipment under non-cancelable operating leases with various expiration dates through ~~2021~~2023.

On June 20, 2011, the Company entered into a lease for 77,000 square feet of industrial and graphic production space, with use of outside loading and parking facilities, in Carlstadt, New Jersey. The lease has a 126-month term expiring in December 2021, with an annual base rent obligation ranging from approximately $650 to $700 per year through the lease term, exclusive of real estate tax and operating expense pass- throughs estimated at $165 per year in year one. The lease also included $575 of landlord allowances, which will be recognized as reductions of rental expense on a straight-line basis over the term of the lease. The Company expensed $197 and $214 in rent, real estate taxes, and operating expenses related to this location for the three months ended March 2012 and March 31, 2013, respectively.

The Company ~~leases~~leased 106,000 square feet of office and production space on the 1st through 5th floors at its New York City (“NYC”) location. During the month of January, 2012, the Company vacated most of the 1st thorough 4th floors and relocated and consolidated its manufacturing and production operations at its new 77,000 square feet facility in Carlstadt, New Jersey. Various creative services, sales, marketing and admin activities remain in the NYC location. On March 28, 2012, the Company entered into an agreement with its NYC landlord to terminate its current leases for the 1st through 4th floors (See Note 7) and entered into a ten (10) year lease (the “New Lease”) to move its remaining activities to a 27,109 square foot space on the 8th floor in the same building.

Under the terms of the New Lease, the Company will rent the 8th floor at an annual base rent of $1,139 beginning ~~February~~March 1, 2013, with increases at the rate of 2% per annum beginning January 1, 2014. The Landlord agreed to rent concessions through ~~January~~February 3128, 2013 and to reimburse the Company for up to $1,084 in costs expended by the Company in its build-out of the 8th floor~~, which work is scheduled to be completed by December 31, 2012~~. The Company’s ~~existing~~ sublease for the 5th floor terminated on December 31, 2011. The Company ~~has~~ extended its occupancy of that space through an interim lease agreement with the Landlord at the rate of $15 per month until its move to the 8th Floor in March 2013, and ~~will~~retained ~~retain~~ the basement space ~~through the end of 2012~~ at the rate of $2 per month.

1211

The Company will relocate remaining functions, currently housed in a portion of the Existing Premises, plus the Company’s executive and sales offices located on the 5th Floor, to the New Premises when work on the 8th Floor is completed, on or about January 31, 201311. As Stock-Based ~~such, the Company will not vacate the portion of the existing premises it still occupies on the 5th floor by November 30, 2012, and it may be subject to additional charges at the rate of $3 per day.~~Compensation

On January 11, 2012, the Company modified 100,000 of its Chief Executive Officer’s 300,000 fully vested stock options. The options had an exercise price of $12. ~~Temporary~~00 ~~Equity~~and an expiration date of November 22, 2014. The modified options have an exercise price of $1.35 per share and an expiration date of November 22, 2016. Compensation expense of $48, measured by the fair value of the modified options at the grant date less the fair value of the modified options at the same date, was recorded during the prior year.

InOn ~~June~~January ~~2000~~11, ~~Stonington~~2012, ~~through~~the ~~its~~Company ~~affiliate,~~granted ~~Phoenix, purchased~~ 150,000 ~~shares~~stock ofoptions ~~convertible~~to ~~preferred~~its ~~stock~~other (executive officers under the ~~“Convertible~~Stock ~~Preferred”)~~Award ~~issued~~and byIncentive ~~the~~Plan. The ~~Company~~options ~~for~~have an ~~aggregate~~exercise ~~purchase~~ price of $151.35 and an expiration date of January 11,~~000~~ 2022. The ~~Convertible~~options ~~Preferred~~vest ~~provided~~25% ~~for~~on anthe 8grant date, 25% ~~annual~~on ~~dividend~~December ~~payable~~31, ~~quarterly~~2012, 25% on December 31, 2013, and 25% on December 31, 2014. Compensation expense, measured by the options fair value at the grant date, will be recorded over the related vesting period starting in ~~additional~~January ~~shares~~2012. Compensation expense related to these grants was $6 and $45 for the three months ended March 31, 2013 and 2012, respectively. Fifty thousand of ~~Convertible~~these ~~Preferred~~options were cancelled during the quarter ended September 30, 2012 upon the termination of an executive officer. Fifty thousand options were cancelled on February 2013 upon the resignation of another executive officer, with 50,000 shares that were previously vested to remain exercisable for an additional 90 days from the resignation date.

On February 4, 2011, pursuant to the Redemption Agreement entered into on January 19, 2011, the Company redeemed all 346,163 outstanding shares of the Company’s Convertible Preferred Stock for consideration of $17,500, consisting of $3,500 paid out of the cash balance at December 31, 2010, plus the issuance of 140,000 shares of a Series A Preferred Stock. The Series A Preferred is classified as debt (see Note 9). The Convertible Preferred Stock redeemed had a value of $34,616 and any difference between the consideration paid out and issued was recorded against additional paid in capital.

13. Stock-Based Compensation

On December 19, 1997, the Company’s stockholders approved the Merisel Inc. 1997 Stock Award and Incentive Plan (the “1997 Plan”). On December 3, 2008, the Company’s stockholders approved the Merisel, Inc. 2008 Stock Award and Incentive Plan (the “2008 Plan”). Under both the 1997 Plan and the 2008 Plan, incentive stock options and nonqualified stock options as well as other stock-based awards may be granted to employees, directors, and consultants. The 1997 Plan authorized the issuance of an aggregate of 800,000 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 1997 Plan or forfeited. The 2008 Plan authorized the issuance of an aggregate of 500,000 shares of Common Stock, less the same limit for outstanding options. At September 30, 2012, 51,839 shares were available for grant under the 1997 Plan, and 400,000 shares were available for grant under the 2008 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.

Stock Option Grants

On January 11, 2012, the Company modified 100,000 of its Chief Executive Officer’s 300,000 fully vested stock options. The modified options originally had an exercise price of $12.00 and an expiration date of November 22, 2014. The modified options now have an exercise price of $1.35 per share and an expiration date of November 22, 2016. Compensation expense of $48 was recorded during the three month period ended March 31, 2012, to reflect the excess of the fair value of the modified options over the fair value of the original options at the date of the exchange. No expense associated with these options was incurred in the current quarter.

On January 11, 2012, the Company granted 150,000 stock options to its other executive officers under the Stock Award and Incentive Plan. The options have an exercise price of $1.35 and an expiration date of January 11, 2022. The options vest 25% on the grant date, 25% on December 31, 2012, 25% on December 31, 2013, and 25% on December 31, 2014. Compensation expense, measured by the options fair value at the grant date, will be recorded over the related vesting period starting in January 2012. Compensation expense related to these grants was $7 and $62 for the three and nine months ended September 30, 2012. 50,000 of these options were cancelled during the quarter ended September 30, 2012 upon the termination of an executive officer and 100,000 of these options held by the other executive officer remain outstanding as of September 30, 2012.

The fair value of each option granted during 2012 was estimated on the date of grant using the Black-Scholes option pricing model.

As of ~~September~~March 3031, ~~2012~~2013, ~~400~~350,000 options remain outstanding under the Stock Award and Incentive Plan. A summary of the Company’s stock option activity and weighted average exercise price is as follows:

	Options			Weighted Average Exercise Price
Outstanding at December 31, 2011		300,000		$	8.33
Outstanding at December 31, 2012		400,000		$	3.93
Granted		~~150,000~~-		$	~~1.35~~N/A
Exercised		-			N/A
Cancelled/forfeited		(50,000	)	$	1.35
Canceled		(50,000	)		1.35
Outstanding at September 30, 2012		400,000		$	3.93
Outstanding at March 31, 2013		350,000		$	4.29
Options exercisable at September 30, 2012		325,000		$	4.52
Options exercisable at March 31, 2013		350,000		$	4.29

The weighted average grant date fair value of options granted during the ~~period~~quarter isended March 31, 2012 was $0.9691. There were no stock option grants during the quarter ended March 31, 2013.

As of ~~September~~March 3031, ~~2012~~2013 and ~~2011~~2012, there was $540 and $098 of unrecognized compensation cost related to stock options, respectively.

1412. Earnings Per Share and Stockholders Equity

Basic earnings per share are 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 dilutive outstanding stock options using the “treasury stock” method.

1412

The Company has announced various Board of Directors’ authorizations to repurchase shares of the Company’s common stock from time to time in the open market or otherwise. On August 14, 2006, the Company announced that its Board of Directors had authorized the expenditure of up to an additional $2,000 for repurchasing the Company’s common stock at a maximum share price to be determined by the Board of Directors from time to time. As of ~~September~~March 3031, ~~2012~~2013, the Company had repurchased 1,238,887 shares, for an aggregate cost of $1,944; the repurchased shares are reflected as treasury stock in the accompanying condensed consolidated balance sheets. The Company did not repurchase any shares during each of the three ~~and nine~~ months ended ~~September~~March 3031, ~~2012~~2013 and ~~2011~~2012. ~~According to the terms of the PNC Agreement, dated August 13, 2010, the Company may not repurchase its own stock.~~

~~15. Restructuring Charge~~13

During the third quarter of 2012, the Company implemented a restructuring plan in response to the reduced revenues experienced during 2012. The plan is intended to reduce operating costs to a level more appropriate with the currently anticipated revenues. During the period the Company recorded a restructuring charge of $809 reflective of severance costs associated with the restructuring. During the three months ended September 30, 2012 the Company made payments of $175. As of September 30, 2012, the remaining restructuring charge liability is $634. The payments will be completed in August, 2013.

16. Subsequent Events

Hurricane Sandy:

On October 29th and 30th of this year the Atlantic Coast experienced Hurricane Sandy. Our Carlstadt, New Jersey facility lost power during the event and then was flooded resulting in significant damage to critical equipment located at the facility including computer systems and the vast majority of output equipment. To date we have restored the majority of our computer systems utilizing backup data and some of our output equipment is operational. Additionally, we have placed orders for replacement equipment for machinery that was damaged beyond reasonable repair; which we anticipate will be delivered and operating by the middle of December.

The Company has regained the use of some of its output equipment in the facility and has been able to produce work product typically produced in this facility in its Burbank, California facility and through agreements with other vendors to use their equipment/facility as necessary. The Company anticipates that its customer base will remain intact during the aftermath of this event and after the facility is fully restored, but there can be no assurances to this effect. Currently, the Company cannot estimate the amount of lost business due to the storm, if any. The Company maintains insurance, including flood and business interruption insurance for these types of events and has hired a public adjuster to represent the Company’s interests with our insurance carrier. The total extent of the damages has not yet been determined, however, the Company anticipates the damages will exceed its insurance coverage related to this event.

Additional Financing:

On November 21, 2012, The Company and its majority stockholder, Saints Capital Granite, L.P. (“Saints”) entered into a non-binding Financing Letter (the “Letter”) whereby Saints agreed, subject to the preparation and execution of a definitive agreement, to provide a financing facility of up to $4,000, consisting of (1) a 10% Convertible Note due 2015 in the principal amount of $1,500 (the “First Tranche”), which was issued on November 21, 2012, (2) a second tranche of $1,500 which will either be provided as a guaranty of an equipment lease or additional note purchased for cash (the “Second Tranche”), and (3) a third tranche of $1,000 to be provided contemporaneously (and conditioned on) the amendment of the Borrower’s loan agreement with PNC Bank, National Association (the “Third Tranche”). The First Tranche, Second Tranche and Third Tranche are collectively referred to as the “Facility”. Saints’ commitment under the Facility is subject to the preparation and execution of a definitive agreement and there not occurring or becoming known to Saints any material adverse condition or material adverse change in or affecting the business, operations, or condition (financial or otherwise) of the Borrower. In accordance with the Facility, on November 21, 2012, the Company and Saints entered into a definitive Note Purchase Agreement for $1,500 in principal amount of its 10% Convertible Note (the “Note”), due August 31, 2015. The Note was issued and funding was received on November 21, 2012. Because the effectiveness of the Letter is subject to conditions in addition to customary closing conditions, the Company cannot be assured that the Second and Third Tranches will be funded, although it believes Saints intends to fund them.

The note accrues interest at 10% per annum and matures on August 31, 2015. Interest on the note is payable in kind through increasing the outstanding principal amount of the note, or, at the Company’s option, it may pay interest quarterly in cash. The note will not be convertible prior to March 31, 2013. After March 31, 2013, at Saints’ option, the note is convertible, in whole or in part, into shares of Common Stock of Merisel at a conversion price that is the greater of (a) $0.10 or (b) an amount equal to (x) EBITDA for the twelve months ended March 31, 2013 multiplied by six and one-half (6.5), less amounts outstanding under the PNC Agreement, and liabilities relating to the outstanding redeemable Series A Preferred Stock and the Note or other indebtedness for borrowed money plus the Company's cash balance and (y) divided by the number of shares of Common Stock outstanding as of the conversion date.[1] Each conversion of the principal amount then outstanding, or any accrued and unpaid interest on the Note, shall be in an amount at least equal to the lesser of (i) one million dollars ($1,000) or (ii) the then outstanding principal amount of the Note and any accrued and unpaid interest thereunder. The note is unsecured. It may be redeemed, in whole or in part, at any time prior to March 31, 2013, so long as the Company’s outstanding Series A Preferred Stock has been redeemed, at a redemption price equal to two and one-half times the outstanding principal amount of the Note, plus accrued interest.

In conjunction with the Note Purchase Agreement above, the Company and Saints amended the Note Purchase Agreement dated August 20, 2012, changing the date whereby Saints agrees not to initiate a going private transaction from December 31, 2013 to March 31, 2013. The Company and Saints also agreed to amend the Convertible Note dated August 21, 2012, amending the conversion feature so that each conversion of the principal amount then outstanding, or any accrued and unpaid interest on the Note, shall be in an amount at least equal to the lesser of (i) one million dollars ($1,000) or (ii) the then outstanding principal amount of the Note and any accrued and unpaid interest thereunder.

The gross proceeds will be used for working capital purposes.

[1] “EBITDA” means the net income of the Company from continuing operations before interest expense (income), income taxes, depreciation and amortization expense, adding back non-cash charges including, without limitation, compensation charges for equity grants and charges for unconsolidated losses (gains), determined directly or indirectly from the financial statements of the Company contained in the Quarterly Report on Form 10-Q or Annual Report on Form 10-K of the Company for the applicable periods.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of the Company’s consolidated historical results of operations and financial condition should be read in conjunction with its unaudited condensed consolidated financial statements and the notes thereto included elsewhere in this report.

Merisel is a leading supplier of visual communication solutions. Until August 2004, the Company’s primary operations consisted of a software licensing solutions business. Thereafter, between March 2005 and October 2006, the Company, which conducts its operations through its main operating subsidiary, Merisel Americas, Inc. (“Americas”), acquired its current businesses:

On March 1, 2005, the Company acquired its New York-based graphics solutions, premedia and retouching services businesses, Color Edge, Inc. (“Color Edge”) and Color Edge Visual, Inc. (“Color Edge Visual”), and its New York-based prototype services provider, Comp 24, LLC (“Comp 24”);

On August 8, 2005, the Company acquired its California-based graphics solutions business, Crush Creative, Inc. (“Crush”);

On May 5, 2006, the Company acquired its California-based prototypes business, Dennis Curtin Studios, Inc. (“DCS”);

On May 10, 2006, the Company acquired its Georgia-based prototypes business, Advertising Props, Inc. (“AdProps”); and

On October 1, 2006, the Company acquired its New York-based premedia and retouching services business, Fuel Digital, Inc. (“Fuel”).

All of the acquired businesses operate as a single reportable segment in the graphic imaging industry, and the Company is subject to the risks inherent in that industry.

1714

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

The Company reported a ~~net~~ loss ofavailable ~~$(10,013)~~to orcommon ~~$(1.39)~~shareholders ~~per~~of ~~share and~~ $(182,~~895~~047) or $(20.6228) per share for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2012~~2013, ~~respectively,~~ as compared to a loss of $(17,~~831~~050) or $(0.2598) ~~and $(3,093) or $(0.43)~~ per share for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2011~~2012, respectively.

Three Months Ended ~~September~~March 3031, ~~2012~~2013, as Compared to the Three Months Ended ~~September~~March 3031, ~~2011~~2012

Net Sales - Net sales decreased $~~3,370~~729 or 205.4% to $1312,~~180~~837 for the three months ended ~~September~~March 3031, ~~2012~~2013, compared to $1613,~~550~~566 for the three months ended ~~September~~March 3031, ~~2011~~2012. ~~The~~This ~~Company~~was ~~has~~due ~~one~~primarily ~~major~~to ~~customer~~decreased ~~whose~~demand ~~sales constituted 23% of full year sales in 2011. Demand~~ for our services from ~~that~~our ~~customer~~existing ~~can fluctuate from quarter to quarter based on the timing and size of its marketing campaigns. During the three months ended September 30, 2012 sales to that~~ customer ~~increased 21.4% compared to the same period in 2011~~base, ~~after~~specifically ~~declining 38.4%~~ in the ~~first~~retail ~~quarter of 2012 and increasing 60.2% in the second quarter of 2012 compared to the respective periods in 2011. During January 2012~~market, ~~two~~which ~~sales~~represents ~~representatives~~a ~~resigned~~significant ~~without~~portion ~~notice, and the Company, to date, has been unable to retain the vast majority~~ of ~~the~~our ~~customers~~customer ~~and projects handled by those representatives~~base. Annual sales for those two representatives were approximately $6,000 for 2011. Sales to those customers decreased by 90.4% for the third quarter of 2012 compared to the same period in 2011. Sales from all other customers were down 15.5% during the three months ended September 30, 2012 compared to the same period in 2011.

Gross Profit – Total gross profit was $45,~~027~~250 for the three months ended ~~September~~March 3031, ~~2012,~~2013 compared to $54,~~793~~077 for the three months ended ~~September~~March 3031, ~~2011~~2012. The ~~decrease~~increase in total gross profit of $1,~~766~~173 or 3028.58% ~~was~~is ~~due~~primarily attributable to improving its production capabilities at the 20Carlstadt facility.4% ~~decrease~~The Company experienced some inefficiency in ~~net~~the ~~sales~~use ~~combined~~of ~~with~~raw amaterials ~~decrease~~and inproduction ~~gross~~supplies ~~profit~~during ~~percentage~~the first quarter of 2012 as it consolidated its East Coast production facilities. Gross profit percentage ~~decreased~~increased to 3040.69% for the three months ended ~~September~~March 3031, ~~2012~~2013, from 3530.01% for the three months ended ~~September~~March 3031, ~~2011~~2012. Additionally, ~~The~~the ~~decrease~~Company ishad ~~primarily~~one ~~attributable~~major tocustomer anwhose ~~increase~~sales induring ~~production~~2012 ~~labor~~ and ~~raw~~2011 ~~materials~~constituted asapproximately a24% ~~percentage~~and 23% of total sales, ~~due~~respectively. Demand for services from this customer can fluctuate quarter to ~~the~~quarter, ~~reduced~~which ~~sales~~can ~~and~~have ~~price~~a ~~compression~~corresponding ~~experienced~~impact on raw materials, work-in-progress ~~the~~and ~~industry~~to a lesser extent gross profit.

Selling, General and Administrative – Total Selling, General and Administrative expenses ~~decreased~~increased to $6,~~237~~367 for the three months ended ~~September~~March 3031, ~~2012~~2013, from $76,~~036~~278 for the three months ended ~~September~~March 3031, ~~2011~~2012. The ~~decrease~~increase of $~~799~~89 or 111.45% was due primarily to athe ~~decrease~~increase in ~~administrative salaries, commission expense and~~ rent ~~expense,~~costs ~~coupled with moving~~ related ~~costs~~to ~~recorded~~the ~~during~~relocation to the ~~three~~8th ~~months~~floor ~~ended~~(see ~~September~~facilities ~~30,~~note ~~2011~~above) ~~related~~and tocommission ~~the~~expense, ~~relocation~~offset toby ~~the~~a ~~New~~decrease ~~Jersey~~in ~~facility~~compensation ~~from~~related ~~New York~~costs. Total Selling, General and Administrative expenses as a percentage of net sales increased to 4749.36% for the three months ended ~~September~~March 3031, ~~2012~~2013, compared to 4246.53% for the three months ended ~~September~~March 3031, ~~2011~~2012.

Impairment Losses – During the three month period ended September 30, 2012, the Company recorded an impairment loss of $6,190 related to its trademarks compared to $0 impairment losses for the three month period ended September 30, 2011. The impairment is primarily attributes to weaker than expected revenue performance resulting in lower projected revenues and royalty rates for the trademarks. As of September 30, 2012, the carrying value of the trademarks is $0.

Restructuring charge – During the three month period ended September 30, 2012, the Company implemented a restructuring plan in response to the reduced revenues experienced during 2012. The plan’s objective is to reduce operating costs to a level more appropriate with the currently anticipated revenues. During the period the Company recorded a restructuring charge of $809 reflective of severance costs associated with the restructuring. During the three months ended September 30, 2012 the Company made payments of $175. As of September 30, 2012, the remaining restructuring charge liability is $634. The payments will be completed in August, 2013.

Interest Expense, Net - Interest expense, net increased to $804 for the three months ended September 30, 2012, from $588 for the three months ended September 30, 2011. The increase of $216 was primarily due to an increase in interest expense accrued on the Series A Preferred Stock at 16% during the three months ended September 30. 2012 compared to 12% during the three month period ended September 30, 2011.

Income Taxes – As of September 30, 2012 and December 31, 2011, the Company has placed a full valuation allowance on its net deferred tax assets. The valuation allowance on the Company’s net deferred tax assets is reviewed quarterly and will be maintained until sufficient positive evidence exists to support the reversal of all or a portion of the valuation allowance. In addition, until such time that the Company determines it is more likely than not that it will generate sufficient taxable income to realize all or a portion of its deferred tax assets, income tax benefits associated with future period losses, if any, will be fully reserved and income taxes associated with future period income will offset such reserve. As such, the Company did not record any income tax benefit on its loss for the three month periods ended September 30, 2012 or September 30, 2011.

Net Loss - As a result of the above items, the Company had a net loss of $(10,013) for the three months ended September 30, 2012, compared to net loss of $(1,831) for the three months ended September 30, 2011.

Nine Months Ended September 30, 2012, as Compared to the Nine Months Ended September 30, 2011

Net Sales - Net sales decreased $7,734 or 15.7% to $41,456 for the nine months ended September 30, 2012, compared to $49,190 for the nine months ended September 30, 2011. The Company has one major customer whose sales constituted 23% of full year sales in 2011. During the nine months ended September 30, 2012, sales to that customer increased 13.2% compared to the same period in 2011. Demand for our services from that customer can fluctuate from quarter to quarter based on the timing and size of its marketing campaigns. During January 2012, two sales representatives resigned without notice, and the Company, to date, has been unable to retain the vast majority of the customers handled by those representatives. Annual sales for those two representatives were approximately $6,000 for 2011. Sales to those customers decreased by 82.2% for the nine months ended September 30, 2012, compared to the same period in 2011. Sales from all other customers decreased 13.1% during the nine months ended September 30, 2012, compared to the same period in 2011.

Gross Profit – Total gross profit was $12,976 for the nine months ended September 30, 2012, compared to $19,259 for the nine months ended September 30, 2011. The decrease in total gross profit of $6,283 or 32.6% was due to the 15.7% decrease in net sales combined with a decrease in gross profit as a percentage of sales. Gross profit percentage decreased to 31.3% for the nine months ended September 30, 2012 from 39.2% for the nine months ended September 30, 2011. The decrease is primarily attributable to an increase in production salaries and raw materials as a percentage of sales due to the reduced sales and price compression experienced in the industry.

Selling, General and Administrative – Total Selling, General and Administrative expenses decreased by $2,368 or 11.4% to $18,438 for the nine months ended September 30, 2012, from $20,805 for the nine months ended September 30, 2011. The decrease was due primarily to a decrease in administrative salaries, commission expense and rent expense, combined with moving costs recorded during the nine month period ended September 30, 2011 related to the move to the Carlstadt, NJ facility. Total Selling, General and Administrative expenses as a percentage of net sales increased to 44.5% for the nine months ended September 30, 2012, compared to 42.3% for the nine months ended September 30, 2011.

Impairment Losses – During the nine month period ended September 30, 2012, the Company recorded an impairment loss of $6,190 related to its trademarks compared to $0 impairment losses for the nine month period ended September 30, 2011. The impairment is primarily attributes to weaker than expected revenue performance resulting in lower projected revenues and royalty rates for the trademarks. As of September 30, 2012, the carrying value of the trademarks is $0.

Lease Abandonment Charge – In the first quarter of 2012, the Company recorded an abandonment charge related to its relocation and consolidation of its manufacturing and production operations from the 1st thorough 4th floors in its New York City facility to its new 77,000 square feet facility in Carlstadt, New Jersey. The abandonment charge was $3,977 and consisted of $3,832 for estimated payments related to rent, termination payments, taxes and utilities and $402 for the write-off of the remaining leasehold improvements, partially offset by $257 for the reversal of the deferred occupancy liability related to the abandoned space.

~~Restructuring~~Interest ~~charge~~Expense, –Net ~~During~~- ~~the~~Interest ~~nine~~expense, ~~month~~net ~~period~~increased to $930 for the three months ended ~~September~~March 3031, ~~2012~~2013, from $872 for the ~~Company~~three ~~posted~~months aended ~~restructuring~~March ~~charge~~31, of2012. ~~$809~~The ~~related~~increase was primarily due to ~~severance~~the ~~agreements~~interest ~~entered~~expense ~~into~~of ~~during~~$101 on the ~~period~~convertible notes issued since August 2012 (see Convertible Notes above) offset by a decrease in interest expenses of $32 resulting from lower bank borrowings.

~~Interest Expense,~~ Net Loss - ~~Interest~~As ~~expense,~~a ~~net~~result ~~increased~~of tothe $2above items,~~457~~ ~~for~~ the ~~nine~~Company ~~months~~had ~~ended~~a ~~September~~loss ~~30,~~of ~~2012, from~~ $12,~~578~~047 for the ~~nine~~three months ended ~~September~~March 3031, ~~2011.~~2013, ~~The~~compared ~~increase of $879 was primarily due~~ to ana ~~increase~~loss ~~in interest expense on the Series A Preferred Stock recorded at 16% during the nine months ended September 30. 2012, reflective~~ of ~~the interest being paid in kind~~$7,050 ~~compared~~for ~~to 12% during~~ the ~~nine~~three ~~month~~months ~~period~~ ended ~~September~~March 3031, ~~2011~~2012.

Income Taxes – As of September 30, 2012 and December 31, 2011, the Company has placed a full valuation allowance on its net deferred tax assets. The valuation allowance on the Company’s net deferred tax assets is reviewed quarterly and will be maintained until sufficient positive evidence exists to support the reversal of all or a portion of the valuation allowance. In addition, until such time that the Company determines it is more likely than not that it will generate sufficient taxable income to realize all or a portion of its deferred tax assets, income tax benefits associated with future period losses, if any, will be fully reserved and income taxes associated with future period income will offset such reserve. As such, the Company did not record any income tax benefit on its loss of for the nine months ended September 30, 2012. During 2010, the Company filed amended New York State and City returns. During the first quarter of 2011, the Company received a refund of $31 from New York and recorded an income tax benefit in that amount.15

Net Loss - As a result of the above items, the Company had net loss of $(18,895) for the nine months ended September 30, 2012, compared to a loss of $(3,093) for the nine months ended September 30, 2011.

LIQUIDITY AND CAPITAL RESOURCES

Going Concern

As reflected in the accompanying consolidated financial statements, the Company had a cash balance of $286 at September 30, 2012 and experienced reduced revenues for the three and nine months ended September 30, 2012, resulting in a net loss and net cash used in operating activities for the interim periods then ended. Additionally, during October 29th and 30th the Company’s Carlstadt, New Jersey facility experienced significant damage due to Hurricane Sandy; the long term effect of which cannot yet be determined. These factors raise substantial doubt about the Company’s ability to continue as a going concern. While the Company is attempting to generate sufficient revenues, the Company’s cash position may not be sufficient enough to support the Company’s daily operations. The Company is in active discussions with its primary lender, largest stockholder and other potential funding sources concerning immediate possible ways of addressing its liquidity and working capital needs, including with respect to the Facility and other forms of debt or equity financing. The Company will need to raise additional equity or debt financing (whether from its primary lender, largest stockholder or other sources) to meet its liquidity needs for the next twelve months. The Company’s largest stockholder has purchased $1,500 of the Company’s 10% Convertible Note on November 21, 2012 and has committed, subject to a number of conditions as described above, to an additional $2,500 funding. Management believes that the actions presently being taken to further implement its business plan and generate sufficient revenues provide the opportunity for the Company to continue as a going concern. While the Company believes in the viability of its strategy to generate sufficient revenues and in its ability to raise additional funds, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to meet its financing arrangements and to further implement its strategy and generate sufficient revenues.

Hurricane Sandy

On October 29th and 30th of this year the Atlantic Coast experienced Hurricane Sandy. Our Carlstadt, New Jersey facility lost power during the event and then was flooded resulting in significant damage to critical equipment located at the facility including computer systems and the vast majority of output equipment. To date we have restored the majority of our computer systems utilizing backup data and some of our output equipment is being utilized. Additionally, we have placed orders for replacement equipment for pieces that were damaged beyond reasonable repair; which we anticipate will be delivered and operating by the middle of December.

Cash Flow Activity

Net cash ~~used~~provided by operating activities was $~~798~~4,090 during the ~~nine~~three months ended ~~September~~March 3031, ~~2012~~2013. The primary ~~use~~source of cash was the ~~net~~decrease ~~loss~~in accounts receivable of $187,~~895,~~219 ~~partially~~and ~~offset~~prepaid byexpense ~~the~~and ~~non-cash~~other ~~impairment~~assets ~~charge~~ of $61,~~190~~359, aoffset ~~decrease~~by inthe ~~accounts~~net ~~receivable~~loss of $32,~~054,~~047 and a decrease in ~~prepaid~~accounts ~~and~~payable ~~other assets~~ of $~~692~~1,183 anand ~~increase~~accrued inliabilities ~~accounts payable~~ of $1,~~280,~~221. anThe ~~increase~~timing inof ~~accrued~~collections ~~abandoned~~of ~~lease~~the ~~costs~~Company’s oflargest $1customer,~~620,~~ ~~non~~as ~~cash~~well ~~interest~~as ~~expense~~improved ofcollection ~~$2,029~~efforts ~~and~~led ~~depreciation~~to ~~and~~a ~~amortization~~significant ofdecrease ~~$1,851~~in accounts receivable.

Net cash used byin operating activities was $~~3,226~~884 during the ~~nine~~three months ended ~~September~~March 3031, ~~2011~~2012. The primary ~~use~~uses of cash ~~was~~were the net loss of $37,~~093,~~050 ~~coupled~~offset ~~with~~by ana ~~increase~~non-cash loss recorded on abandoned leasehold improvements of $1402,~~811~~ indepreciation ~~prepaid~~ and ~~other~~amortization ~~assets~~of $631, a decrease in ~~accrued~~account ~~liabilities~~receivable of $~~831~~1,178, ~~and~~ an increase ~~of $707~~ in ~~inventories,~~accounts ~~partially~~payable ~~offset by depreciation and amortization~~ of $2431,~~138~~ and aan ~~decrease~~increase in ~~accounts~~accrued ~~payable~~abandoned lease costs of $~~748~~3,268.

Net cash used in investing activities for capital expenditures was $1,~~265~~181 and $~~1,123~~614 ~~used~~ for ~~capital expenditures for~~ the ~~nine~~three months ended ~~September~~March 3031, ~~2012~~2013 and ~~2011~~2012, respectively.

For the ~~nine~~three months ended ~~September~~March 3031, ~~2012~~2013, net cash ~~provided~~used byin financing activities was $~~565~~3,192 ~~due~~related to ~~the~~repayments ~~issuance~~on ofthe arevolving ~~convertible~~line ~~note~~of ~~for~~credit of $23,~~000,~~716 ~~partially~~and ~~offset~~capital bylease ~~$913~~payments inof ~~repayments~~$226 onoffset by the ~~revolving~~issuance ~~line~~ of ~~credit~~a ~~and~~convertible ~~$415~~note ~~for~~of ~~capital lease payments~~$750.

For the ~~nine~~three months ended ~~September~~March 3031, ~~2011~~2012, net cash ~~used~~provided inby financing activities was $~~6,552~~132 ~~primarily~~related ~~due~~ to ~~$2,841~~borrowings ~~in repayments~~ on the revolving line of credit ~~and~~of $~~3,500~~264 ~~used~~offset inby ~~the~~capital ~~redemption~~lease payments of ~~Convertible Preferred Stock~~$132.

Financing Sources and Capital Expenditures

~~Convertible~~Mandatorily ~~Note~~Redeemable Preferred Stock

On ~~August~~February 204, ~~2012~~2011, the Company ~~entered~~issued ~~into~~140,000 ashares ~~definitive~~of ~~agreement~~Series ~~with~~A ~~its~~Preferred ~~majority stockholder~~Stock, ~~Saints~~at ~~Capital~~an ~~Granite~~original issue price of $100 per share (the “Series A Preferred”) to Phoenix Acquisition Company II, L.PL.C. (“~~Saints~~Phoenix”), ~~for~~a ~~the~~wholly ~~issuance~~owned ~~and~~subsidiary ~~sale~~ of $2Stonington ~~million~~Capital inAppreciation ~~principal~~1994 ~~amount~~Fund, ofL.P. ~~its~~(the ~~10%~~“Fund”), ~~Convertible~~a ~~Note~~majority shareholder (~~the~~together “~~Note~~Stonington”),. At ~~due~~that ~~August~~time ~~31,~~Stonington ~~2015~~was the Company’s majority shareholder. The ~~transaction~~Series A Preferred was ~~completed~~issued ~~and~~as part of a Redemption Agreement with Stonington whereby the ~~Note~~Company ~~was~~agreed to redeem 100% of the outstanding shares of the Company’s Convertible Preferred Stock issued onto ~~August~~Stonington in June 2000. On March 21, ~~2012~~2011, Stonington completed the transfer of 5,000,000 shares of common stock and 140,000 shares of Series A Preferred to Saints Capital VI, L.P. (“Saints”) for $14,500.

21The Series A Preferred provides for a cumulative 12% annual dividend payable in cash or additional shares of Series A Preferred, valued at $100 per share, payable quarterly in arrears and accruing regardless of whether or not declared by the Board of Directors of the Company or funds are legally available to pay them. If the Company does not pay dividends in cash equal to at least 8% per share per annum, the rate of the dividend shall increase by 4% per annum to 16% per annum, which additional dividend shall be paid or accrue in additional shares of Series A Preferred. At March 31, 2012, the Company did not meet the requirements under the PNC Revolving Credit Agreement which provided the Company the ability to pay the first quarter 2012 dividend payment in cash. As such, the dividend will be paid in stock and was accrued at 16% for the period. Until the Company meets the requirements it will pay future dividends in additional shares of preferred stock at the annual rate of 16%.

The note accrues interest at 10% per annum and matures on August 31, 2015. Interest on the note is payable in kind through increasing the outstanding principal amount of the note, or, at the Company’s option, it may pay interest quarterly in cash. The note will not be convertible prior to March 31, 2013. After March 31, 2013, at Saints’ option, the note is convertible, in whole or in part, into shares of Common Stock of Merisel at a conversion price that is the greater of (a) $0.10 or (b) an amount equal to (x) EBITDA for the twelve months ended March 31, 2013 multiplied by six and one-half (6.5), less amounts outstanding under the PNC Agreement, and liabilities relating to the outstanding redeemable Series A Preferred Stock and the Note or other indebtedness for borrowed money and (y) divided by the number of shares of Common Stock outstanding as of the conversion date.[1] The note is unsecured. It may be redeemed, in whole or in part, at any time prior to March 31, 2013, so long as the Company’s outstanding Series A Preferred Stock has been redeemed, at a redemption price equal to two and one-half times the outstanding principal amount of the Note, plus accrued interest.

The Company incurred financing costs of $107 on this transaction and has recorded the costs in other assets and will amortize this amount over the life of the Note to interest expense.

On November 21, 2012, the Company entered into a definitive Note Purchase Agreement with its majority stockholder, Saints Capital Granite, L.P. (“Saints”), for $1,500 in principal amount of its 10% Convertible Note (the “Note”), due August 31, 2015. The Note was issued and funding was received on November 21, 2012.

The terms of the Note are substantially the same as the Convertible Note issued on August 21, 2012 except that each conversion of the principal amount then outstanding, or any accrued and unpaid interest on the Note, shall be in an amount at least equal to the lesser of (i) one million dollars ($1,000) or (ii) the then outstanding principal amount of the Note and any accrued and unpaid interest thereunder. The August 21, 2012 Note was amended to reflect the conversion language above.

The note is unsecured. It may be redeemed, in whole or in part, at any time prior to March 31, 2013, so long as the Company’s outstanding Series A Preferred Stock has been redeemed, at a redemption price equal to two and one-half times the outstanding principal amount of the Note, plus accrued interest.

In conjunction with the November 21, 2012 Note Purchase Agreement, the Company and Saints agreed to amend the Note Purchase Agreement dated August 20, 2012, changing the date whereby Saints agrees not to initiate a going private transaction from December 31, 2013 to March 31, 2013.

The gross proceeds from both Convertible Notes will be used for working capital purposes.

Preferred Stock

On February 4, 2011, the Company issued 140,000 shares of Series A Preferred Stock, at an original issue price of $100 per share (the “Series A Preferred”) to Phoenix Acquisition Company II, L.L.C. (“Phoenix”), a wholly owned subsidiary of Stonington Capital Appreciation 1994 Fund, L.P. (the “Fund”), a majority shareholder (together “Stonington”). At that time Stonington was the Company’s majority shareholder. The Series A Preferred was issued as part a Redemption Agreement with Stonington whereby the Company agreed to redeem 100% of the outstanding shares of the Company’s Convertible Preferred Stock issued to Stonington in June 2000. On March 21, 2011, Stonington completed the transfer of 5,000,000 shares of common stock and 140,000 shares of Series A Preferred to Saints Capital VI, L.P. and in May 2011 the shares were transferred to Saints Capital Granite, L.P. (“Saints”).

The Series A Preferred provides for a cumulative 12% annual dividend payable in cash or additional shares of Series A Preferred, valued at $100 per share, payable quarterly in arrears and accruing regardless of whether or not declared by the Board of Directors of the Company or funds are legally available to pay them. If the Company does not pay dividends in cash equal to at least 8% per share per annum, the rate of the dividend shall increase by 4% per annum to 16% per annum, which additional dividend shall be paid or accrue in additional shares of Series A Preferred. During each quarterly period of 2012 the Company did not meet the requirements under the PNC Revolving Credit Agreement which provided the Company the ability to pay the quarterly dividend payments in cash. As such, the dividend will be paid in stock and was accrued at 16% for each period. Until the Company meets the requirements it will pay future dividends in additional shares of preferred stock at the annual rate of 16%.

The Series A Preferred has no conversion rights. The Series A Preferred must be redeemed by the Company on or prior to the sixth anniversary of issuance and may be redeemed by the Company, in whole or in part, at any time after the second anniversary, in each case at a price of $100 per share, plus any accrued but unpaid dividends. If there is a change in control of the Company as a result of a sale of at least 75% of the fair market value of the Company’s assets, or as a result of the sale of a majority of the common stock by any holder other than Phoenix or a holder of the Series A Preferred, the holder(s) may redeem the Series A Preferred, upon notice, at a price of $101 per share plus any accrued but unpaid dividends.

Revolving Credit Facility

On August 13, 2010, the Company and each of its operating subsidiaries, as Borrowers, entered into a Revolving Credit and Security Agreement (the “PNC Agreement”) with PNC Bank (“PNC”). The PNC Agreement ~~provides~~provided for a three-year revolving credit facility (the “Facility”) of up to $14,000 including a letter of credit facility of up to $3,000. On February 3, 2011 and March 21, 2011, the Company and PNC entered into Consent, Waiver and Amendment Nos. 1 and 2 (the “PNC Amendment”) to the PNC Agreement. The PNC ~~Amendments~~Amendment consent to the transactions described in the Redemption Agreement, waive certain covenants in order to permit the transactions, amend certain definitions and covenants contained in the Credit Agreement to account for the Series A Preferred and impose financial covenants which must be satisfied prior to each cash dividend payment in respect of the Series A Preferred. The PNC Amendment also replaced all references to Stonington with references to Saints and exempted certain changes in the Board of Directors between March 21, 2011 and June 30, 2011 from the definition of change of control. As of December 31, 2012 and March 31, 2013, the Company had $4,353 and $636 outstanding on the PNC Facility, respectively.

The ~~maturity~~Company ~~date~~was ofnot ~~the~~in ~~Facility~~compliance iswith ~~August~~the ~~13,~~covenants ~~2013. The~~contained ~~interest~~in ~~rate~~the ofPNC Agreement for the ~~Facility~~periods isended 3%March ~~over~~31, a2012, ~~“Base~~June ~~Rate~~30,” ~~which~~2012 isand September 30, 2012. On October 3, 2012, the Company received a ~~floating~~notification ~~rate~~from ~~equal~~PNC tostating that the ~~highest~~following events of ~~(i)~~default ~~PNC’s~~had ~~prime~~occurred ~~rate~~and inwere ~~effect~~continuing onunder ~~such~~the ~~day,~~Agreement: (iii) failure to comply with the ~~Federal~~requirement ~~Funds~~to ~~Open~~maintain ~~Rate~~a ~~plus~~fixed ½charge coverage ratio of at least 1%,.1 orto ~~(iii)~~1.0 for the ~~Daily~~quarters ~~Libor~~ended ~~Rate~~March ~~plus~~31, ~~100~~2012 ~~basis~~and ~~points~~June 30, 2012; and (1%ii) ~~or,~~incurring atindebtedness ~~the~~owing ~~advance~~to ~~election~~Saints ofduring ~~the Company~~August, 4%2012. The ~~over~~notification stated that PNC’s ~~30,~~had 60determined ornot 90to ~~day~~exercise ~~Eurodollar~~its ~~Rate. As~~option ofto ~~September~~charge ~~30,~~interest ~~2012,~~at default rate under the ~~Base~~Agreement ~~Rate~~and ~~plus~~they 3%would ~~was~~continue ~~6.25%. The~~to ~~Facility~~make isadvances ~~subject~~in totheir adiscretion ~~.75%~~provided ~~fee~~that ~~per~~the ~~annum~~foregoing ~~payable~~determinations ~~quarterly~~did onnot ~~the~~constitute ~~undrawn~~a ~~amount~~waiver of any rights related thereto.

The Facility includes one financial covenant requiring that the Company maintain a fixed charge coverage ratio (defined as EBITDA less unfinanced capital expenditures, less cash dividends, less cash paid for taxes over all debt service) of not less than 1.1 to 1.0 beginning in the quarter ending March 31, 2011, going forward. The Company has not been in compliance with this requirement beginning in the period ended March 31, 2012 and does not anticipate being in compliance for the foreseeable future. On October 3, 2012, the Company received a notification from PNC stating that the following events of default have occurred and are continuing under the Agreement: (i) failure to comply with the requirement to maintain a fixed charge coverage ratio of at least 1.1 to 1.0 for the quarters ended March 31, 2012 and June 30, 2012; and (ii) incurring indebtedness owing to Saints during August, 2012. The notification stated that PNC has determined not to exercise its option to charge interest at default rate under the Agreement and they shall continue to make advances at their discretion provided that the foregoing determinations shall not constitute a waiver of any rights related thereto. PNC has engaged in discussions with the Company to amend the current agreement and waive the events of default. The Company expects this to be completed during the fourth quarter of 2012, however, there are no assurances that this will take place17

~~The~~On ~~Company’s~~December ~~borrowing~~21, ~~base~~2012 ~~under~~ the ~~Facility~~Company isand ~~the~~PNC ~~sum~~entered ofinto ~~(i)~~a ~~85%~~Waiver ofand ~~its~~Amendment ~~eligible~~No. ~~accounts~~3 ~~receivable,~~(the ~~including~~Amendment up3”) to ~~$500~~the ofPNC ~~unbilled~~Agreement. The ~~accounts~~Amendment ~~receivable~~3 ~~for~~changes ~~work performed within~~ the ~~previous~~definition 30of ~~days~~capital ~~plus~~expenditures ~~(ii)~~to ~~50%~~exclude ofany ~~eligible~~expenditures ~~raw~~made ~~material~~to ~~inventory~~repair upor toreplace ~~$1,000.~~assets ~~The~~of ~~borrowing~~the ~~base~~Company isdamaged ~~reduced~~ by anHurricane ~~Availability~~Sandy; ~~Reserve~~changed ~~which~~the ~~was~~definition ~~reduced~~of tofixed ~~$1,000~~charge ~~from~~coverage ~~$2,000~~ratio atto ~~February~~increase 3,the ~~2011~~EBITDA ~~pursuant~~of to the ~~PNC~~quarter ~~Amendment~~ended ~~and~~December by31, ~~outstanding~~2012 ~~letters~~by of$1,500, ~~credit~~representing in the principal amount of ~~$2,000~~indebtedness asincurred ofby ~~June~~the ~~30,~~Company ~~2012. The~~in ~~Facility~~favor ~~must~~of beSaints ~~prepaid~~Capital ~~when~~Granite, ~~and~~L.P. to(its ~~the~~majority ~~extent~~shareholder) ~~of,~~during the ~~amount~~quarter ofended ~~the~~December ~~borrowings exceed the borrowing base. In addition~~31, ~~borrowings~~2012; ~~under~~reduced the ~~Facility~~maximum ~~must~~revolving beadvance ~~prepaid~~amount ~~with~~to ~~net~~$9,000 ~~cash~~and ~~proceeds~~enabled ofthe ~~certain~~Company ~~insurance~~to ~~recoveries,~~incur atan ~~the~~over-advance ~~option~~ of ~~PNC. Early~~up ~~voluntary~~to ~~termination~~$500 ~~and~~through ~~prepayment~~April ~~will~~30, ~~incur~~2013, awhich ~~fee~~on ~~$30~~May ~~from~~8, ~~August~~2013 ~~13,~~was ~~2012~~extended through ~~August~~maturity ~~12,~~of ~~2013~~the PNC Agreement.

The maturity date of the Facility is August 13, 2013. The interest rate of the Facility is 3% over a “Base Rate,” which is a floating rate equal to the highest of (i) PNC’s prime rate in effect on such day, (ii) the Federal Funds Open Rate plus ½ of 1%, or (iii) the Daily Libor Rate plus 100 basis points (1%) or, at the advance election of the Company, 4% over PNC’s 30, 60 or 90 day Eurodollar Rate. As of December 31, 2012 and March 31, 2013, the Base Rate plus 3% was 6.25%. The Facility is subject to a .75% fee per annum payable quarterly on the undrawn amount.

The Facility, as amended, includes one financial covenant requiring that the Company maintain a fixed charge coverage ratio (defined as EBITDA less unfinanced capital expenditures, less cash dividends, less cash paid for taxes over all debt service) of not less than 1.1 to 1.0 for the quarter December 31, 2012, for the six month period ended March 31, 2013 and for the nine month period ended June 30, 2013.

The Company’s borrowing base under the Facility is the sum of (i) 85% of its eligible accounts receivable, including up to $500 of unbilled accounts receivable for work performed within the previous 30 days plus (ii) 50% of eligible raw material inventory up to $1,000. The borrowing base is reduced by an Availability Reserve which was reduced to $1,000 from $2,000 at February 3, 2011 pursuant to the PNC Amendment. The Facility must be prepaid when, and to the extent of, the amount of the borrowings exceed the borrowing base. In addition, borrowings under the Facility must be prepaid with net cash proceeds of certain insurance recoveries, at the option of PNC. Early voluntary termination and prepayment will incur a fee of $30 from August 13, 2012 through August 12, 2013.

The PNC Agreement requires that all customer receivables collected shall be deposited by the Company into a lockbox account controlled by PNC. All funds deposited into the lockbox will immediately be used to pay down the Facility. Additionally, the PNC agreement contains provisions that allow PNC to accelerate the scheduled maturities of the Facility for conditions that are not objectively determinable. As such, the Company has classified the PNC balance as a current liability.

23The PNC Agreement expires on August 13, 2013 and management believes it will be able to enter into an extension with PNC or a replacement facility on or before that date, however there can be no assurances to that affect. Management believes that, with the Company’s cash balances, anticipated cash balances and PNC Facility, or a replacement facility, it has sufficient liquidity for the next twelve months. However, the Company’s operating cash flow can be impacted by macroeconomic factors outside of its control.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements in conformity with generally accepted accounting principles requires the appropriate application of certain accounting policies, many of which require the Company to make estimates and assumptions about future events and their impact on amounts reported in the Company’s condensed consolidated financial statements and related notes. Since future events and their impact cannot be determined with certainty, the actual results will inevitably differ from the Company’s estimates. Such differences could be material to the condensed consolidated financial statements.

The Company believes the application of its accounting policies, and the estimates inherently required therein, are reasonable. These accounting policies and estimates are constantly reevaluated, and adjustments are made when facts and circumstances dictate a change.

There have been no material changes in our critical accounting policies and estimates from those disclosed in Item 8 of our Annual Report on Form 10-K for the year ended December 31, ~~2011~~2012.

2419

Item 4. Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief ~~Financial~~Accounting Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report pursuant to Rule 13a-15(e) or Rule 15d-15(e) of the Securities Exchange of 1934, as amended. Based on that evaluation, our management, including the Chief Executive Officer and Chief ~~Financial~~Accounting Officer, concluded that our disclosure controls and procedures are effective to ensure that the information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and to ensure that information required to be disclosed is accumulated and communicated to our management, including our Chief Executive Officer and Chief ~~Financial~~Accounting Officer, to allow timely decisions regarding timely disclosure.

There were no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

2520

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

In ~~connection~~February ~~with~~2011, ~~the~~Merisel ~~Asset~~Inc. ~~Purchase~~filed ~~Agreement~~an ~~among~~order ~~Crush~~to ~~Creative,~~show ~~Inc.~~cause, ~~its~~request ~~shareholders~~for a temporary restraining order and ~~MCRU,~~civil ~~LLC~~complaint ~~dated~~in ~~July~~the 6,Supreme ~~2005~~Court (of the ~~“Crush~~State ~~APA”)~~of New York, ~~the~~New ~~Company~~York ~~informed~~County naming as defendants Edward Weinstock, the former ~~shareholders~~President of ~~Crush~~Fuel, ~~Creative~~and Domenick Propati, a former executive of Merisel, Splash (New York) Inc. ~~(the~~and ~~“Crush~~Splash ~~Sellers”~~(Northwest), inInc. (Merisel, ~~April~~Inc. ~~2009~~v. ~~that~~Weinstock, ~~Crush~~et ~~Creative’s~~al., ~~continuing~~New ~~business~~York ~~had~~State ~~not~~Supreme ~~met~~Court, ~~the~~Index ~~performance~~No. ~~criteria~~650411/2011). The ~~that~~complaint ~~would~~alleges, ~~entitle~~among ~~the~~other ~~Crush~~things, ~~Sellers~~that todefendant anWeinstock ~~earnout~~violated ~~payment~~various ~~for~~provisions ~~the~~of ~~one-year~~his ~~period~~employment ~~ended~~agreement ~~December~~with ~~31,~~Merisel ~~2008. On~~dated ~~April~~October 294, ~~2009~~2006 (the “Employment Agreement”) and ~~September~~that ~~14,~~the ~~2009,~~defendants worked in concert to deprive the Company ~~received~~of ~~notice~~the ~~from~~benefit of the ~~Crush~~good ~~Sellers~~will ~~that~~of ~~they~~Fuel ~~contest~~in connection with the ~~calculations~~Asset Purchase Agreement between Merisel ~~used~~FD, toLLC ~~reach~~and ~~this~~Fuel ~~conclusion~~dated October 4, 2006 (the "APA"). ~~The~~Merisel ~~parties~~alleges ~~are~~causes ~~following~~of ~~the~~action ~~process~~for ~~set~~recovery ~~forth~~of inchattel/replevin, ~~the~~conversion, ~~Crush~~unjust ~~APA~~enrichment/rescission, ~~and~~trespass, ~~have~~breach ~~retained~~of ~~Grant~~contract, ~~Thornton~~fraudulent ~~LLP~~inducement, ~~(“Grant”)~~breach asof ~~the~~fiduciary ~~arbitration~~duty, ~~firm~~tortious ~~that~~interference ~~will~~with ~~arbitrate~~contract ~~the~~and ~~dispute~~interference with prospective advantage. If ~~Grant~~Merisel ~~finds~~seeks ~~that~~injunctive ~~Crush~~relief ~~Creative~~and ~~has~~unspecified ~~met~~compensatory ~~the~~and ~~performance~~punitive ~~criteria~~damages. The ~~set~~defendants ~~forth~~have inanswered the ~~Crush APA~~complaint, ~~the~~asserting ~~Crush~~various ~~Sellers~~affirmative ~~will~~defenses, beand ~~entitled~~denied toliability. aThe ~~payment~~parties ofhave upcompleted toprincipal ~~$750~~discovery. ~~Under~~Defendant Weinstock and the ~~Crush~~Splash ~~APA,~~defendants ~~Grant’s~~(including ~~determination~~defendant isPropati) ~~final,~~separately ~~conclusive~~moved for summary judgment. Merisel opposed both motions for summary judgment and ~~binding~~cross-moved to strike the pleadings of the Splash defendants and defendant Propati.

~~Item~~With 1Arespect to Merisel’s affirmative claims against Weinstock, Splash and Domenick Propati, the Court’s March 20, 2013 decision and order dismissed all claims against Splash and Propati, but did not specifically address the remaining claims against defendant Weinstock. ~~Risk~~Merisel ~~Factors~~filed a notice of appeal of the order. Additionally, the Company awaits clarification from the Court as to its position regarding the remaining claims against defendant Weinstock.

~~This~~In ~~report~~March ~~and~~2011, Edward Weinstock filed a civil complaint in the ~~following~~Supreme ~~discussion~~Court of ~~risk~~the ~~factors~~State ~~contain~~of ~~forward-looking~~New ~~statements~~York, New York County naming as ~~discussed~~defendants Merisel, Inc., as successor in ~~Part~~interest 1to Merisel, ~~Item~~FD, 2LLC, ~~"Management's~~Merisel, ~~Discussion~~Inc., ~~and~~Donald ~~Analysis~~Uzzi ofand ~~Financial~~Michael ~~Condition~~Berman. ~~and~~(Weinstock ~~Results~~v. ofMerisel ~~Operations"~~Inc., ~~Our~~et ~~actual~~al., ~~results~~New ~~may~~York ~~differ~~State ~~materially~~Supreme ~~from~~Court, ~~those~~Index ~~anticipated~~No. in650712/2011). The ~~these~~plaintiff ~~forward-looking~~alleges ~~statements~~causes asof aaction ~~result~~for breach of ~~certain~~the ~~factors~~Employment Agreement, ~~including~~breach of the ~~risks~~APA, ~~and~~defamation, ~~uncertainties~~tortious ~~described~~interference ~~below~~with ~~and~~prospective ~~elsewhere~~business inrelations, ~~this~~violation ~~report.~~of ~~These~~New ~~risks~~York ~~and~~Labor ~~uncertainties~~Law ~~are~~§ ~~not~~191(3), ~~the~~abuse ~~only~~of ~~ones~~process weand ~~may~~prima ~~face~~facie tort. The ~~Additional~~plaintiff ~~risks~~seeks ~~and~~compensatory ~~uncertainties~~damages of ~~which~~at weleast ~~are~~$3 ~~not aware~~million, orplus ~~that~~unspecified wepunitive ~~currently~~damages. The ~~deem~~defendants ~~immaterial~~have answered the complaint, ~~may~~asserting ~~also~~various ~~become~~affirmative ~~important~~defenses, ~~factors~~and ~~that~~denied ~~affect~~liability. The ~~our~~parties ~~financial~~have ~~condition,~~completed ~~results~~principal discovery. The plaintiff moved for summary judgment with respect to his claim for breach of ~~operations~~the Employment Agreement. The defendants opposed that motion and ~~cash~~cross-moved ~~flows~~for summary judgment on all of the plaintiff’s claims except for his defamation claim.

~~Risks~~On ~~relating~~April 25, 2013, the Court issued a decision and order granting the plaintiff summary judgment with respect to ~~our~~his ~~financial~~first ~~position~~cause of action. The decision did not reference the defendants’ factual and legal arguments that would potentially preclude summary judgment in favor of the plaintiff. Accordingly, the defendants filed a letter with the Court requesting that it clarify its decision. The defendants will also file a timely notice of appeal of the order on the grounds that the court overlooked significant evidence and otherwise committed reversible error in granting summary judgment. The court’s decision and order was silent on the issue of damages.

~~Our~~The ~~business~~Company is ~~highly~~involved ~~competitive~~in ~~and~~certain ~~subject~~legal proceedings arising in the ordinary course of business. None of these proceedings is expected to have a ~~high~~material ~~degree~~impact on the Company’s financial condition or results of ~~volatility,~~operations. The Company has evaluated its potential exposure and ~~our~~has ~~revenues~~established inreserves ~~any~~for ~~quarter~~potential ~~may~~losses arising out of such proceedings, if necessary. There can be ~~insufficient~~no toassurance ~~meet~~that ~~our~~the ~~liquidity~~Company’s ~~and~~accruals ~~working~~will ~~capital~~fully ~~needs~~cover any possible exposure. For each of the above cases, the Company has not accrued for payment because the amount of loss is not currently probable and/or estimable.

The Company has one major customer whose sales constituted 23% of full year sales in 2011. Demand for our services from that customer can fluctuate from quarter to quarter based on the timing and size of its marketing campaigns. Demand for our services from other customers is subject to even greater volatility due to the highly competitive nature of our industry. Other unforeseen events can further contribute to such volatility, such as Hurricane Sandy in October 2012, which severely curtailed our operations and those of our customers for an extended period of time. If demand for our services falls significantly in any fiscal quarter, our cash flows and revenues could be insufficient to meet our working capital needs, including the cost of raw materials which are required to support future orders and revenues. Any such shortfall would have a significant negative effect on our financial position, results of operations and cash flows. Conversely, an increase in demand for our services in any quarter could result in increased liquidity, which could conceivably reduce the need to raise capital in future quarters where a shortfall occurs; however, our ability to predict such increases is extremely limited.21

26Item 1A. Risk Factors.

WeThere ~~face~~have ~~severe~~been ~~liquidity~~no ~~constraints~~material ~~and~~changes ~~will~~to ~~likely~~our ~~require~~risk ~~additional~~factors ~~external~~during ~~sources~~the ofthree ~~capital~~months ~~for~~ended ~~our~~March ~~debt~~31, ~~service~~2013 ~~obligations~~as ~~and~~compared to ~~fund~~those ~~our~~reported ~~operations,~~in ~~which~~our ~~may~~2012 ~~not~~Form ~~be available or may not be available on acceptable terms~~10-K.

AsItem ~~at September 30, 2012, we had $286 of cash and cash equivalents; cash used in operating activities was $905 for the nine months ended September 30, 2012~~4. InMine ~~our~~Safety second and third quarters, we experienced a significant decline in the demand for our services compared to our previous expectations. As a result, we were required to raise additional capital through the issuance of a convertible note to our majority stockholder in August 2012. In the absence of a sustained recovery in the demand for our services, we expect that our cash flows from operating activities will continue to be insufficient for the next twelve months to cover operating expenses and interest payments and we will need other capital resources to fund our debt service and other obligations as they became due. We are exploring other options to improve our liquidity, including equity financings, debt financing and possible additional advances from our primary lender. In addition, we are taking further steps to optimize costs. There can be no assurances that our overall financial performance will improve, that the steps outlined above will be successful in improving our liquidity or that there will not be other unanticipated developments that have a negative impact on our liquidity. If we are not able to address our liquidity needs, our financial condition and results of operations will be materially and adversely affected.Disclosures

~~A default by us in connection with our obligations under our outstanding indebtedness could result in our inability to continue to conduct our business~~None.

~~Under~~Item ~~the PNC Agreement we are subject to a number of financial and operating covenants~~5. On Other October 3, 2012, the Company received a notification from PNC stating that the following events of default have occurred and are continuing under the Agreement: (i) failure to comply with the requirement to maintain a fixed charge coverage ratio of at least 1Information.1 to 1.0 for the quarters ended March 31, 2012 and June 30, 2012; and (ii) incurring indebtedness owing to Saints during August, 2012. The notification stated that PNC has determined not to exercise its option to charge interest at default rate under the Agreement and they shall continue to make advances at their discretion provided that the foregoing determinations shall not constitute a waiver of any rights related thereto. PNC has engaged in discussions with the Company to amend the current agreement and waive the events of default. The Company expects this to be completed during the fourth quarter of 2012, however, there are no assurances that this will take place. If it does not take place, it is also not likely that we will be able to obtain additional advances under the PNC Agreement. To date, there have been no defaults in our payment obligations under the PNC Agreement.

WeOn ~~may~~April be12, ~~unable~~2013, Saints disclosed on Amendment No. 6 to ~~refinance~~its ~~our~~Statement ~~existing~~of ~~indebtedness~~Beneficial ~~and~~Ownership ~~may~~on ~~not~~Schedule be13D ~~able~~that it was considering terminating Merisel’s status as a public company. On April 22, Saints disclosed on Amendment No. 7 to ~~obtain~~its ~~favorable~~Statement ~~refinancing~~of ~~terms~~Beneficial Ownership on Schedule 13D that it had delivered a conversion notice with respect to $1.75 million in principal amount of Notes, bringing its holdings of Common Stock to 22,500,000 shares held of record, representing approximately 90.1% of the outstanding shares of Common Stock. Saints still holds Notes convertible into an additional 25,000,000 shares.

WeOn ~~face~~April 15, 2013, the ~~risk~~Board ~~that~~of ~~our~~Directors ~~indebtedness~~established ~~will~~a ~~not~~special becommittee ~~able~~consisting toof beEric ~~renewed,~~Salzman ~~repaid~~and orBradley ~~refinanced~~Hoecker ~~when~~(the ~~due~~“Special Committee”), oreach ~~that~~of ~~the~~whom ~~terms~~is ofan ~~any~~independent ~~renewal~~and ordisinterested ~~refinancing~~director. ~~will~~The ~~not~~Special beCommittee aswas ~~favorable~~appointed asto ~~the~~help ~~terms~~ensure ofa ~~such~~fair ~~indebtedness~~process ~~being~~and ~~refinanced.~~determine ~~This~~a ~~risk~~fair isprice ~~exacerbated~~as byconsideration ~~the~~offered ~~current~~minority ~~volatility~~stockholders in the ~~capital~~event ~~markets~~that Saints should decide to terminate Merisel’s status as a public company. In furtherance of this purpose, ~~which~~the ~~has~~Special ~~resulted~~Committee inhas ~~tightened~~retained ~~lending~~a ~~requirements~~financial adviser and independent legal counsel in ~~some~~connection ~~cases~~with its evaluation, and expects that the ~~inability~~financial adviser will prepare and deliver to ~~refinance~~the ~~indebtedness. If~~Special weCommittee ~~were~~and ~~unable~~Board toof ~~refinance~~Directors ~~our~~a ~~indebtedness~~valuation onanalysis ~~acceptable~~setting ~~terms~~forth ora atfair ~~all~~price, weor a range of prices that might be ~~forced~~considered toa ~~dispose~~fair ofprice, ~~assets~~for onthe ~~disadvantageous~~Company ~~terms~~in orconnection ~~reduce~~with ora ~~suspend~~possible ~~operations,~~short-form ~~any~~merger. There can be no assurance that Saints will undertake a short-form merger. Neither the Board of ~~which~~Directors ~~would~~nor ~~materially~~minority ~~and~~stockholders ~~adversely~~need ~~affect~~to ~~our~~take ~~financial~~any ~~condition,~~action ~~results~~in connection with a short-form merger. Minority stockholders would be advised of ~~operations~~their ~~and~~rights ~~cash~~under ~~flows~~Delaware law in accordance with applicable rules and regulations.

2722

Our success depends on attracting and retaining key personnel.

Our success depends partly upon the efforts and abilities of our key personnel, including both management and sales representatives, and our ability to attract and retain key personnel. Our management team has significant experience in the printing industry and has made important contributions to our growth and success. Although we have been successful in attracting and retaining such people in the past, competition for highly skilled individuals is intense. If we lose productive sales representatives or key managers, as we did in the first part of 2012, it can have an immediate and adverse effect on our revenues and cash flows. There can be no assurance that we will continue to be successful in attracting and retaining such individuals in the future. The loss of the services of any of these individuals could have an adverse effect on our businesses, results of operations and cash flows.

Risks Relating to our Common Stock

Our stock price may be adversely affected by future issuances of our common stock or other equity securities.

As a result of the issuance of a convertible note to our majority stockholder in August 2012, once such note becomes convertible after March 31, 2013, the conversion of the note will result in significant additional dilution to our common stockholders.

The interests of our controlling stockholder may conflict with the interests of other stockholders.

Our majority stockholder, Saints, currently owns approximately 69.3% of our outstanding common stock, and all of our outstanding preferred stock, as well as the convertible note issued in August 2012. As a result of the issuance of the convertible note, when such note becomes convertible after March 31, 2013, depending on the final calculation of the conversion price, it is possible that Saints will beneficially own in excess of 90% of our outstanding common stock. While Saints has agreed not to initiate a “going private” transaction, as defined under Rule 13e-3 promulgated under the Exchange Act, until after March 31, 2013, and has not expressed any current intention to engage in such a transaction, after such time it is possible that Saints will effect a short-form merger under Delaware law, which may leave our other common stockholders with no remedy other than appraisal rights under Delaware law. For these and other reasons Saints’ interests may conflict with the interests of our other stockholders.

Item 5. Other Information

Creation of a Direct Financing Obligation or an Obligation under an Off-Balance Sheet Arrangement of the Registrant

The note accrues interest at 10% per annum and matures on August 31, 2015. Interest on the note is payable in kind through increasing the outstanding principal amount of the note, or, at the Company’s option, it may pay interest quarterly in cash. The note will not be convertible prior to March 31, 2013. After March 31, 2013, at Saints’ option, the note is convertible, in whole or in part, into shares of Common Stock of Merisel at a conversion price that is the greater of (a) $0.10 or (b) an amount equal to (x) EBITDA for the twelve months ended March 31, 2013 multiplied by six and one-half (6.5), less amounts outstanding under the PNC Agreement, and liabilities relating to the outstanding redeemable Series A Preferred Stock and the Note or other indebtedness for borrowed money and (y) divided by the number of shares of Common Stock outstanding as of the conversion date.[1] Each conversion of the principal amount then outstanding, or any accrued and unpaid interest on the Note, shall be in an amount at least equal to the lesser of (i) one million dollars ($1,000) or (ii) the then outstanding principal amount of the Note and any accrued and unpaid interest thereunder.

The issuance and sale of the notes was reviewed, negotiated and approved by a Special Committee of the Board of Directors, consisting of an independent director, who was charged with representing the interests of unaffiliated stockholders of the Company. The Special Committee retained independent legal counsel and financial advisers in connection with its review and approval of this transaction.

In conjunction with the Note Purchase Agreement above, the Company and Saints amended the Note Purchase Agreement dated August 20, 2012, changing the date whereby Saints agrees not to initiate a going private transaction from December 31, 2013 to March 31, 2013. The Company and Saints also amended the Convertible Note dated August 21, 2012 amending the conversion feature so that each conversion of the principal amount then outstanding, or any accrued and unpaid interest on the Note, shall be in an amount at least equal to the lesser of (i) one million dollars ($1,000) or (ii) the then outstanding principal amount of the Note and any accrued and unpaid interest thereunder.

The gross proceeds will be used for working capital purposes.

Item 6. Exhibits

Index of Exhibits

Exhibit	~~Description~~	Description	~~Method of Filing~~	Method of Filing
3.1	~~Restated Certificate of Incorporation of Merisel, Inc., as amended.~~	Restated Certificate of Incorporation of Merisel, Inc., as amended.	Filed as Exhibit 3.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2005. **	Filed as Exhibit 3.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2005. **
3.2	~~Bylaws of Merisel, Inc., as amended.~~	Bylaws of Merisel, Inc., as amended.	Filed as Exhibit 3.2 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2005. **	Filed as Exhibit 3.2 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2005. **
4.1	Certificate of Designation of Convertible Preferred Stock of Merisel, Inc., dated June 9, 2000.		Filed as Exhibit 99.2 to the Company’s Current Report on Form 8-K dated June 9, 2000. **
3.3		Certificate of Amendment to Restated Certificate of Incorporation		Filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed January 4, 2013. **
4.2	Certificate of Designation of Series A Preferred Stock, dated February 4, 2011.		Filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the SEC on February 7, 2011. **
4.1		Certificate of Designation of Convertible Preferred Stock of Merisel, Inc., dated June 9, 2000.		Filed as Exhibit 99.2 to the Company’s Current Report on Form 8-K filed with the SEC on June 21, 2000. **
4.3	Form of 10% Convertible Note, due August 31, 2015 of Merisel, Inc.		Filed as exhibit 4.3 to the Company’s Quarterly report on Form 10-Q filed with the SEC on August 20, 2012.
4.2		Certificate of Designation of Series A Preferred Stock, dated February 4, 2011.		Filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the SEC on February 7, 2011. **
10.1	Assignment and Assumption Agreement, between Merisel, Inc. and Saints, dated March 21, 2011.		Filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on March 28, 2011. **
4.3		Form of 10% Convertible Note, due December 31, 2015 of Merisel, Inc.		Filed as Exhibit 4.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012. **
10.2	Agreement and Waiver, between Merisel, Inc. and Saints, dated March 21, 2011.		Filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on March 28, 2011. **
4.4		10% Convertible Note, due August 31, 2015, issued by Merisel, Inc. on August 21, 2012, in favor of Saints Capital Granite, L.P. in the original principal amount of $2 million.		Filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the SEC on August 24, 2012.**
10.3	Consent, Waiver and Amendment No. 2 to Revolving Credit and Security Agreement, between Merisel, Inc. and each of its subsidiaries as Borrowers and PNC, dated March 21, 2011.		Filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on March 28, 2011. **
4.5		10% Convertible Note, due August 31, 2015, issued by Merisel, Inc. on February 4, 2013, in favor of Saints Capital Granite, L.P. in the original principal amount of $750,000.		Filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the SEC on February 8, 2013.**
*10.4	Merisel, Inc. 1997 Stock Award and Incentive Plan.		Filed as Annex II to the Company’s Schedule 14A dated October 6, 1997. **
*10.1		Merisel, Inc. 1997 Stock Award and Incentive Plan.		Filed as Annex II to the Company’s Schedule 14A filed with the SEC on October 6, 1997. **
*10.5	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. **
*10.2		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. **
*10.6	Form of Indemnity Agreement entered into between Merisel, Inc. and each of its Directors and certain Officers.		Filed as Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the SEC on March 28, 2011.**
*10.3		Employment Agreement dated November 22, 2004 between Merisel, Inc. and Donald R. Uzzi.		Filed as Exhibit 99.1 to the Company’s Current Report on Form 8-K filed with the SEC on November 24, 2004. **
*10.7	Amendment to 1997 Merisel Inc. Stock Award and Incentive Plan Form of Restricted Stock Agreement for Directors.		Filed as Exhibit 10.50 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007. **
*10.4		Amendment, dated March 3, 2006, to Employment Agreement dated November 22, 2004 between Merisel, Inc. and Donald R. Uzzi.		Filed as Exhibit 10.1 to the Company’s current report on Form 8-K filed with the SEC on March 9, 2006.**
*10.5		Form of Indemnity Agreement entered into between Merisel, Inc. and each of its Directors and certain Officers.		Filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on March 9, 2006.**

3023

Exhibit Description Method of Filing

*10.6	1997 Merisel Inc. Stock Award and Incentive Plan Form of Restricted Stock Agreement for Executives and Key Employees.	Filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on December 19, 2006. **

*10.7	Amendment to 1997 Merisel Inc. Stock Award and Incentive Plan Form of Restricted Stock Agreement for Directors.	Filed as Exhibit 10.50 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007. **

*10.8	Amendment No. 2 to Employment Agreement, dated January 18, 2008, between Merisel, Inc. and Donald R. Uzzi.	Filed as Exhibit 10.51 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007. **

*10.9	Merisel, Inc. 2008 Stock Award and Incentive Plan.	Filed as Annex A to the Company’s Schedule 14A filed with the SEC on November 7, 2008. **

*10.10	Employment Agreement dated May 6, 2009 by and between Merisel, Inc. and Victor L. Cisario.	Filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on June 12, 2009.**

*10.11	Amendment #3 to Employment Agreement, dated June 29, 2009 by and between Merisel, Inc. and Donald R. Uzzi.	Filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on July 1, 2009.**

10.12	Revolving Credit and Security Agreement dated as of August 13, 2010 by and among Merisel, Inc., Merisel Americas, Inc., Color Edge LLC, Color Edge Visual LLC, Comp 24 LLC, Crush Creative LLC, Dennis Curtin Studios, LLC, MADP, LLC, Advertising Props, Inc., Fuel Digital, LLC, and PNC Bank, National Association.	Filed as Exhibit 10.20 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2010. **

10.13	Pledge Agreement dated as of August 13, 2010 made by Merisel, Inc. in favor of PNC Bank, National Association.	Filed as Exhibit 10.21 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2010. **

*10.14	Amendment #4 to Employment Agreement, dated as of December 22, 2010, by and between Merisel, Inc. and Donald R. Uzzi.	Filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on December 23, 2010. **

*10.15	Amendment to Employment Agreement, dated as of December 22, 2010, by and between Merisel, Inc. and Victor L. Cisario.	Filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on December 23, 2010. **

10.16	Redemption Agreement, between Merisel, Inc. and Phoenix Acquisition Company II, L.L.C., dated as of January 19, 2011.	Filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on January 19, 2011. **

10.17	Consent, Waiver and Amendment No. 1 to Revolving Credit and Security Agreement, between Merisel, Inc. and each of its subsidiaries as Borrowers and PNC Bank, National Association, as Lender, dated February 3, 2011.	Filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on February 7, 2011. **

10.18	Registration Rights Agreement, between Merisel, Inc. and Phoenix Acquisition Company II, L.L.C., dated February 4, 2011.	Filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on February 7, 2011. **

*10.8	Merisel, Inc. 2008 Stock Award and Incentive Plan.	Filed as Annex A to the Company’s Schedule 14A dated November 7, 2008. **
*10.9	Employment Agreement dated May 6, 2009 by and between Merisel, Inc. and Victor L. Cisario.	Filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on June 12, 2009.**
10.10	Revolving Credit and Security Agreement dated as of August 13, 2010 by and among Merisel, Inc., Merisel Americas, Inc., Color Edge LLC, Color Edge Visual LLC, Comp 24 LLC, Crush Creative LLC, Dennis Curtin Studios, LLC, MADP, LLC, Advertising Props, Inc., Fuel Digital, LLC, and PNC Bank, National Association.	Filed as Exhibit 10.20 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2010. **
10.11	Pledge Agreement dated as of August 13, 2010 by and between and PNC Bank, National Association.	Filed as Exhibit 10.21 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2010. **
*10.12	Employment Agreement, dated as of December 17, 2010, by and between Merisel, Inc. and Michael A. Berman.	Filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on December 23, 2010. **
*10.13	Amendment to Employment Agreement, dated as of December 22, 2010, by and between Merisel, Inc. and Victor L. Cisario.	Filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on December 23, 2010. **
10.14	Redemption Agreement, between Merisel, Inc. and Phoenix Acquisition Company II, L.L.C., dated as of January 19, 2011.	Filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on January 19, 2011. **
10.15	Consent, Waiver and Amendment No. 1 to Revolving Credit and Security Agreement, between Merisel, Inc. and each of its subsidiaries as Borrowers and PNC Bank, National Association, as Lender, dated February 3, 2011.	Filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on February 7, 2011. **
10.16	Registration Rights Agreement, between Merisel, Inc. and Phoenix Acquisition Company II, L.L.C., dated February 4, 2011.	Filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on February 7, 2011. **
10.17	Amendment No. 2 to Stock and Note Purchase Agreement, dated February 4, 2011.	Filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on February 7, 2011. **

10.18 Lease Agreement, dated June 20, 2011, between SPI 190 JONY, LLC, as landlord, and Merisel Americas, Inc., as tenant for the premises located at 190 Jony Drive, Carlstadt, New Jersey. Filed as Exhibit 10.21 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.**

10.19	Amendment No. 2 to Stock and Note Purchase Agreement, dated February 4, 2011.	Filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on February 7, 2011. **

10.20	Lease Agreement, dated June 20, 2011, between SPI 190 JONY, LLC, as landlord, and Merisel Americas, Inc., as tenant, for the premises located at 190 Jony Drive, Carlstadt, New Jersey.	Filed as Exhibit 10.21 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. **

10.21	Agreement of Lease, dated March 28, 2012, between 132 West 31st Street Building Investors II, LLC, as landlord, and Merisel, Inc., as tenant, for the 8th floor located at 132 West 31st Street, New York, NY (aka 127 West 30th Street).	Filed as Exhibit 10.22 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. **

10.22	Termination Letters, dated March 28, 2012, between 132 West 31st Street Building Investors II, LLC, as landlord, and Merisel, Inc., as tenant.	Filed as Exhibit 10.23 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. **

*10.23	Employment Agreement, dated as of August 16, 2012, by and between Merisel, Inc. and Terry A. Tevis.	Filed as Exhibit 10.22 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012. **

*10.24	Amended and Restated Employment Agreement, dated as of August 16, 2012, by and between Merisel, Inc. and Donald R. Uzzi.	Filed as Exhibit 10.23 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012. **

10.25	Note Purchase Agreement dated August 20, 2012, by and between Merisel, Inc. and Saints.	Filed as Exhibit 10.24 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012. **

10.26	Amendment No. 1 to Registration Rights Agreement, dated as of August 20, 2012, by and among Merisel, Inc., Saints Capital Granite, L.P. and Saints Capital VI, L.P.	Filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on August 24, 2012.**

10.27	Note Purchase Agreement dated November 21, 2012, by and between Merisel, Inc. and Saints.	Filed as Exhibit 10.27 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012. **

10.28	Waiver and Amendment No.3 to Revolving Credit and Security Agreement, between the Company and each of its subsidiaries as Borrowers and PNC, dated December 21, 2012.	Filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on January 4, 2013. **

10.29	Note Purchase Agreement, dated as of February 4, 2013, by and between Merisel, Inc. and Saints Capital Granite, L.P.	Filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on February 8, 2013.**

10.30	Amendment No. 2 to Registration Rights Agreement, dated as of February 4, 2013, by and among Merisel, Inc. and Saints Capital Granite, L.P.	Filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on February 8, 2013.**

*10.31	Amended and Restated Employment Agreement, dated as of February 13, 2013, by and between Victor L. Cisario and Merisel, Inc.	Filed as Exhibit 10.31 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2012. **

3125

Exhibit Description Method of Filing

*10.32	Amendment No.2 to Employment Agreement, dated as of March 28, 2013, between Merisel, Inc. and Terry A. Tevis.	Filed as Exhibit 10.32 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2012. **

*10.33	Employment Agreement, dated as of March 28, 2013, 2013, between Merisel, Inc. and John E. Ball.	Filed as Exhibit 10.33 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2012. **

14.1	Code of Business Conduct.	Filed as exhibit 99.2 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.**

31.1	Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	Filed herewith.

31.2	Certification of the Chief Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	Filed herewith.

32	Certification of Chief Executive Officer and Chief Accounting Officer pursuant to 18 U.S.C. Section 1350.	Filed herewith.

99.1	Press Release dated May 15, 2013	Filed herewith.

101	The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013 formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets; (ii) the Consolidated Statement of Operations; (iii) the Consolidated Statements of Cash Flows; and (iv) notes to the Consolidated Financial Statements.	Filed herewith.

~~10.18~~* Management ~~Lease~~contract ~~Agreement,~~or ~~dated~~executive ~~June~~compensation ~~20,~~plan ~~2011,~~or ~~between SPI 190 JONY, LLC, as landlord, and Merisel Americas, Inc~~arrangement., as tenant for the premises located at 190 Jony Drive, Carlstadt, New Jersey. Filed as Exhibit 10.21 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.**

10.19	Agreement of Lease, dated March 28, 2012, between 132 West 31st Street Building Investors II, LLC, as landlord, and Merisel, Inc., as tenant, for the 8th floor located at 132 West 31st Street, New York, NY (aka 127 West 30th Street).	Filed as Exhibit 10.22 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.**
10.20	Termination Letters, dated March 28, 2012, between 132 West 31st Street Building Investors II, LLC, as landlord, and Merisel, Inc., as tenant	Filed as Exhibit 10.23 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.**
10.21	Merisel, Inc. Board of Directors Compensation Plan, dated April 27, 2011.	Filed as Exhibit 10.26 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on May 16, 2011.**
*10.22	Employment Agreement, dated as of August 16, 2012, by and between Merisel, Inc. and Terry A. Tevis.	Filed as exhibit 10.22 to the Company’s Quarterly report on Form 10-Q filed with the SEC on August 20, 2012.**
*10.23	Amended and Restated Employment Agreement, dated as of August 16, 2012, by and between Merisel, Inc. and Donald R. Uzzi.	Filed as exhibit 10.23 to the Company’s Quarterly report on Form 10-Q filed with the SEC on August 20, 2012.**
10.24	Note Purchase Agreement dated August 20, 2012, by and between Merisel, Inc. and Saints.	Filed as exhibit 10.24 to the Company’s Quarterly report on Form 10-Q filed with the SEC on August 20, 2012.**
10.25	10% Convertible Note, original issue date; August 21, 2012, by and between Merisel, Inc. and Saints	Filed as exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the SEC on August 24, 2012. **
10.26	Amendment to Registration Rights Agreement, by and between Merisel, Inc. and Saints, dated August 20, 2012	Filed as exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on August 24, 2012. **
10.27	Note Purchase Agreement dated November 21, 2012, by and between Merisel, Inc. and Saints.	"Filed herewith"
10.28
10.29
10.30
10.31
10.32

** Incorporated by reference.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: May 15, 2013

	Merisel, Inc.



	By:	/s/ Terry A. Tevis
		Terry A. Tevis
		Chief Executive Officer and President

	By:	/s/ John E. Ball
		John E. Ball
		Chief Accounting Officer and Chief Operating Officer

Filing Compare · MERISEL INC /DE/