EX-99.3 3 exhibit99_3.htm EXHIBIT99_3

EXHIBIT 99.3


UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

On March 1, 2005, Merisel, Inc. (“Merisel” or “the Company”) completed the acquisitions of Color Edge, Inc. (“Color Edge”) and Comp 24, Inc. (“Comp 24”), (“Acquisitions”) for an estimated aggregate purchase price of $31.2 million, consisting of cash payments totaling $28.5 million and transaction costs of $2.7 million.

The unaudited pro forma condensed combined financial statements are based on the historical financial statements of Merisel, Color Edge and Comp 24 after giving effect to (1) the Color Edge and Comp 24 Acquisitions under the purchase method of accounting and (2) the adjustments described in the accompanying notes to the unaudited pro forma condensed combined financial statements.

The unaudited pro forma condensed combined balance sheet as of December 31, 2004 is presented as if the transactions occurred on December 31, 2004, and includes adjustments that are (1) directly attributable to the Acquisitions and (2) factually supportable. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2004 is presented as if the Acquisitions occurred on January 1, 2004, and includes adjustments that are (1) directly attributable to the Acquisition, (2) factually supportable and (3) expected to have a continuing impact.

In accordance with SFAS No. 141, “Accounting for Business Combinations”, the total estimated purchase price is allocated to the net tangible and identifiable intangible assets of Color Edge and Comp 24 based on the fair values as of the date of the Acquisitions. Merisel retained specialists to conduct independent valuations in order to assist in determining the fair values of a significant portion of these assets. The adjustments to the carrying values are based upon the final valuation studies. Purchase price was allocated as follows (dollars in thousands):

 
 
 


Purchase price
        
Cash
  
$
28,484
  
Transaction costs
    
2,672
  
Total purchase price
  
$
31,156
  
         
Purchase price allocation
        
Tangible assets, net of liabilities assumed
  
$
4,440
  
Intangible assets
    
5,900
  
Trademarks
    
10,311
  
Goodwill
    
10,505
  
Total purchase price allocation
  
$
31,156
  


The unaudited pro forma condensed combined financial statements do not give consideration to expense savings or asset dispositions and are based upon currently available information and certain assumptions that management believes are reasonable under the circumstances.

The unaudited pro forma condensed combined financial statements are not intended to represent or be indicative of the consolidated results of operations or financial condition of Merisel that would have been reported had the Acquisitions been completed as of the dates presented, and should not be taken as representative of the future consolidated results of operations or financial condition of Merisel. The unaudited pro forma condensed combined financial statements should be read in conjunction with:

·  
The accompanying notes to the unaudited pro forma condensed combined financial statements.
·  
Merisel’s historical consolidated financial statements as of December 31, 2004 and the year then ended included in Merisel’s Annual Report on Form 10-K.
·  
Color Edge’s historical consolidated financial statements as of December 31, 2004 and the year then ended included in Merisel’s Form 8-K/A Amendment No. 2 filed on October 31, 2005.
·  
Comp 24’s historical consolidated financial statements as of and for the year ended December 31, 2004 included in Merisel’s Form 8-K/A Amendment No. 1 filed on September 1, 2005.


 
 
 

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
AS OF YEAR ENDED DECEMBER 31, 2004
(In thousands, except per share amounts)


   
Historical
          
   
 
Merisel
  
 
Color Edge
  
 
Comp 24
  
Pro Forma Adjustments
  
Pro Forma Combined
  
Net sales
  
$
-
  
$
51,743
  
$
10,654
              
$
62,397
  
Cost of sales
    
-
    
25,836
    
4,008
                
29,844
  
Gross profit
    
-
    
25,907
    
6,646
                
32,553
  
                                       
Selling, general and administrative expenses
    
2,276
    
22,083
    
5,031
    
534
    
a
    
29,924
  
                                       
Operating income (loss)
    
(2,276
)
  
3,824
    
1,615
    
(534
)
        
2,629
  
                                       
Interest income
    
(586
)
  
(48
)
  
(31
)
  
457
    
b
    
(208
)
Interest expense
          
489
    
19
                
508
  
Other expense
                
13
                
13
  
                                       
Income (loss) before taxes
    
(1,690
)
  
3,383
    
1,614
    
(991
)
        
2,316
  
                                       
Income tax provision
    
-
    
1,857
    
76
    
(1,539
)
  
c
    
394
  
                                       
Net income (loss) from continuing operations
  
$
(1,690
)
$
1,526
  
$
1,538
    
548
        
$
1,922
  
                                       
Earnings (loss) Per Share
                                      
Basic and diluted
    
(0.22
)
                          
0.25
  
                                       
Weighted Average Shares
                                      
Basic and diluted
    
7,620
                            
7,620
  

See the accompanying notes to the unaudited pro forma condensed combined financial statements

 
 
 

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF YEAR ENDED DECEMBER 31, 2004
(In thousands, except per share amounts)

   
Historical
              
   
 
Merisel
  
 
Color Edge
  
 
Comp 24
  
Pro Forma Adjustments
      
Pro Forma Combined
  
Cash and cash equivalents
  
$
46,861
  
$
2,053
  
$
207
  
$
(31,156
)
  
d
  
$
17,965
  
Accounts receivable, net
    
-
    
10,166
    
1,872
    
-
          
12,038
  
Inventories
    
-
    
1,106
    
167
    
-
          
1,273
  
Restricted cash
    
759
    
-
    
-
    
-
          
759
  
Deferred income taxes
    
-
    
610
    
-
    
(610
)
  
e
    
-
  
Due from related party
    
-
    
133
    
7
    
-
          
140
  
Due from shareholder
    
-
    
4,393
    
728
    
(5,121
)
  
e
    
-
  
Prepaid expense and other current assets
    
330
    
68
    
185
    
-
          
583
  
Total current assets
    
47,950
    
18,529
    
3,166
    
(36,887
)
        
32,758
  
                                       
Property and equipment, net
    
-
    
3,161
    
432
    
472
    
g
    
4,065
  
Restricted cash
    
-
    
1,683
    
638
    
-
          
2,321
  
Deferred income taxes
    
-
    
4,243
    
-
    
(4,243
)
  
e
    
-
  
Security deposits
    
-
    
210
    
-
    
-
          
210
  
Trademarks
    
-
    
98
    
120
    
10,093
    
e,f
   
10,311
  
Intangible assets, net
                      
5,023
    
j
    
5,023
  
Goodwill
    
-
    
-
    
-
    
10,708
    
h
    
10,708
  
Total assets
  
$
47,950
  
$
27,924
  
$
4,356
  
$
(14,834
)
      
$
65,396
  
                                       
Accounts payable
  
$
10
  
$
3,474
  
$
427
  
$
-
        
$
3,911
  
Accrued expenses
    
4,099
    
3,680
    
507
    
-
          
8,286
  
Customer deposits
    
-
    
67
    
-
    
-
          
67
  
Income tax payable
    
-
    
803
    
-
    
(409
)
  
e
    
394
  
Notes payable, current maturities
    
-
    
1,058
    
330
    
-
          
1,388
  
Total current liabilities
    
4,109
    
9,082
    
1,264
    
(409
)
        
14,046
  
                                       
Notes payable, less current maturities
    
-
    
7,660
    
393
    
-
          
8,053
  
Deferred taxes
                      
203
    
i
    
203
  
Deferred occupancy costs
    
-
    
1,688
    
820
    
(2,508
)
  
e
    
-
  
                                       
Stockholders’ equity
    
43,841
    
9,494
    
1,879
    
(12,120
)
  
def
    
43,094
  
                                       
Total liabilities and stockholders’ equity
  
$
47,950
  
$
27,924
  
$
4,356
  
$
(14,834
)
      
$
65,396
  

See the accompanying notes to the unaudited pro forma condensed combined financial statements

 
 
 

NOTE TO UNADUTIED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS


1.  
Basis of Pro Forma Presentation

The unaudited pro forma condensed combined financial statements are based on the historical financial statements of Merisel, Color Edge and Comp 24 after giving effect to (1) the Color Edge and Comp 24 Acquisitions under the purchase method of accounting, (2) the Financing Agreements and (3) the adjustments described in the accompanying notes to the unaudited pro forma condensed combined financial statements.

The unaudited pro forma condensed combined balance sheet as of December 31, 2004 is presented as if the transactions occurred on December 31, 2004, and includes adjustments that are (1) directly attributable to the Acquisitions and (2) factually supportable. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2004 is presented as if the Acquisitions occurred on January 1, 2004, and includes adjustments that are (1) directly attributable to the Acquisitions, (2) factually supportable and (3) expected to have a continuing impact.

In accordance with SFAS No. 141, “Accounting for Business Combinations”, the total purchase price is allocated to the net tangible and identifiable intangible assets of Color Edge and Comp24 based on the fair values as of the date of the Acquisitions. Merisel has retained specialists to conduct independent valuations in order to assist management of Merisel in determining the fair values of a significant portion of these assets. The adjustments to the carrying values are based upon the finalized valuation studies.

2. Pro Forma Adjustments

a)  
To remove costs associated with other operating expenses of $343 and to add costs for amortization of intangibles assets of $877. Adjustments do not include cost savings related to acquisitions of approximately $3.0 million.
b)  
Remove interest earned of $457 on cash balances used to fund Acquisitions.
c)  
To adjust income tax provision to $394 based on an effective tax rate of 17%.
d)  
Remove cash of $31,156 used to fund acquisitions.
e)  
To eliminate historical balances of assets that have no on-going value and obligations that were not assumed by Merisel under the asset purchase agreement.
f)  
To record trademarks of $10,311 that have an indefinite life in accordance with SFAS No. 141.
g)  
To record fair market value of assets acquired in accordance with SFAS No. 141.
h)  
To record goodwill of $10,708 resulting from the Acquisitions in accordance with SFAS No. 141 of $10,505 and from recording a deferred tax liability of $203.
i)  
To record a deferred tax liability of $203 resulting from an adjustment to goodwill.
j)  
To record intangible assets of $5,900 for customer contracts and relationships with a weighted average life of 9.6 years in accordance with SFAS No. 141.


3. Pro Forma Earnings (Loss) Per Share

The pro forma basic and diluted earnings (loss) per share are based on the weighted average number of shares of Merisel’s common stock outstanding.