It was a bad day for investors in Merisel (NASDAQ:MSEL) -- shares fell more than 33% yesterday on news that McAfee (NYSE:MFE) will terminate its distribution agreement with the company. That's unsettling news for Merisel, which licenses software products from firms such as Microsoft (NASDAQ:MSFT), Macromedia (NASDAQ:MACR), and Symantec (NASDAQ:SYMC) to other companies that serve small and midsize businesses.

A press release further highlighted the need for concern: Merisel said McAfee products accounted for a remarkable 94% of its 2003 sales. (They were good for 84% of the company's first-quarter revenues this year. A good portion of what's left, incidentally, comes from McAfee competitor Symantec.) Merisel will look to cut costs to stay afloat. Nevertheless, the outlook is bleak enough that management admitted yesterday "there are no assurances that [it] will be successful in doing so."

A look at Merisel's latest 10-K report tells you just about all you need to know. Licensing revenues were crushed in 2000 as suppliers consolidated or ended relationships and many forged direct partnerships with clients. Things have since recovered, mostly on the back of the security business, which depends on products such as what McAfee provides. (Merisel's market value has plummeted since early 2000, and a lot of the gains made since then were lost today.)

As recent as the end of last year, the company saw big possibilities for its licensing business, and based on current earnings reports from McAfee and Symantec, it's easy to understand why. Still, it's unclear the direction Merisel will take. The company has been reorganizing -- a move that had a negative impact on sales in the first quarter -- and now it has to react to McAfee's decision. (In other disappointing first-quarter news, the company said one customer owing some $750,000 didn't think it could make good.)

As a result, Merisel's "looking at various strategic alternatives for its software-licensing business." Meanwhile, it's also looking for acquisition alternatives in other businesses. This could mean a lot of things, but it's a telling sign that the company is turning investor attention toward its financial health (about $50 million in cash and no long-term debt) as well as its operations. It's difficult for investors to know where to go from here, and it'll likely continue to be that way for some time.

Fool contributor Dave Marino-Nachison doesn't own any of the companies in this story.