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SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549
FORM 10-K

(Mark One)

[ X ]

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Systemax Inc.
(Exact name of registrant as specified in its charter)>

|Delaware
                           (State or other jurisdiction of
                           incorporation or organization) |  | 11-3262067
                             (I.R.S. Employer
                            Identification No.)
|----------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------

|22 Harbor Park Drive
                                   Port Washington, New York
                           (Address of principal executive offices) |  | 11050
                            (Zip Code)
|----------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------

Registrant's telephone number, including area
code: (516) 608-7000

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Securities registered pursuant to Section 12(b)
of the Act:

|Title of each class
Common Stock, par value $ .01 per share |  | Name of each exchange onwhich registered
New York Stock Exchange
|----------------------------------------------------------- |  | ----------------------------------------------------------------

Securities registered pursuant to Section 12(g)
of the Act: NONE

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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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best knowledge of the registrant, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment of this
Form 10-K. [X]

The
aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 16, 2001 was approximately $14,818,000. For purposes of
this computation, all executive officers and directors of the Registrant and all
parties to the Stockholders Agreement dated as of June 15, 1995 have been deemed
to be affiliates. Such determination should not be deemed to be an admission
that such persons are, in fact, affiliates of the Registrant.

The
number of shares outstanding of the registrant's common stock as of March 16,
2001 was 34,104,290 shares.

Documents incorporated by reference: The definitive Proxy Statement of Systemax
Inc. relating to the 2001 Annual Meeting of Stockholders is incorporated by
reference in Part III hereof.

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TABLE OF CONTENTS

|Part I | 
|------ | 

|Item 1.  Business | 1
|----------------- | -

| | General | 1
| | ------- | -

| | Recent Developments | 1
| | ------------------- | -

| | Products | 2
| | -------- | -

| | Sales and Marketing | 3
| | ------------------- | -

| | Distribution Centers | 5
| | -------------------- | -

| | Suppliers | 5
| | --------- | -

| | Management Information Systems | 6
| | ------------------------------ | -

| | Research and Development | 6
| | ------------------------ | -

| | Competition and Other Market Factors | 6
| | ------------------------------------ | -

| | Employees | 8
| | --------- | -

| | Environmental Matters | 8
| | --------------------- | -

| | Financial Information About Foreign and Domestic Operations | 8
| | ----------------------------------------------------------- | -

|Item 2.  Properties | 9
|------------------- | -

|Item 3.  Legal Proceedings | 9
|-------------------------- | -

|Item 4.  Submission of Matters to a Vote of Security Holders | 9
|------------------------------------------------------------ | -

|Part II | 
|------- | 

|Item 5.  Market for Registrant's Common Equity and Related  Stockholder Matters | 10
|------------------------------------------------------------------------------- | --

|Item 6.  Selected Financial Data | 10
|-------------------------------- | --

|Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations | 12
|--------------------------------------------------------------------------------------------- | --

|Item 7A. Quantitative and Qualitative Disclosures About Market Risk | 17
|------------------------------------------------------------------- | --

|Item 8.  Financial Statements and Supplementary Data | 18
|---------------------------------------------------- | --

|Item 9. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure | 18
|-------------------------------------------------------------------------------------------- | --

|Part III | 
|-------- | 

|Item 10. Directors and Executive Officers of the Registrant | 18
|----------------------------------------------------------- | --

|Item 11. Executive Compensation | 18
|------------------------------- | --

|Item 12. Security Ownership of Certain Beneficial Owners and Management | 18
|----------------------------------------------------------------------- | --

|Item 13.  Certain Relationships and Related Transactions | 18
|-------------------------------------------------------- | --

|Part IV | 
|------- | 

|Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K | 18
|------------------------------------------------------------------------- | --

| | Signatures | 21
| | ---------- | --

PART I

Unless otherwise indicated, all references herein to Systemax Inc. (sometimes
referred to as "Systemax" or the "Company") include its subsidiaries.

Item 1. Business.

General

Systemax is a direct marketer of private label and brand name personal desktop
computers ("PCs"), notebook computers, computer related products and industrial
products in North America and Europe. The Company assembles its own PCs,
primarily on a "build to order" basis, and sells them under the trademarks
Systemax, Tiger® and Ultra. The Company
features a broad selection of products, extensive customer service and prompt
order fulfillment. Computers and computer related products accounted for 88% of
the Company's net sales in 2000.

Systemax markets its products through an integrated system of distinctively
branded, full-color direct mail catalogs, proprietary "e-commerce" Internet
sites and personalized "relationship marketing" to business customers. The
Company targets individuals at major accounts (customers with more than 1,000
employees), mid-sized accounts (customers with 20 to 1,000 employees), small
office/home office ("SOHO") customers and resellers. The Company's portfolio of
catalogs includes such established brand names as Global Computer
Supplies, Misco®, HCS Misco,
GlobalDirect, ArrowStar, Dartek.com,
TigerDirect.com, 06, Midwest Microand
Infotel. The Company mailed approximately 157 million catalogs
comprising 37 different titles in 2000. The Company currently has twenty-four
e-commerce web sites and in 2000 generated over $103 million (6% of net sales)
in unassisted Internet sales. At December 31, 2000, the Company had
approximately 1.5 million active customers (defined as customers who have
purchased from the Company within the preceding 12 months) and combined customer
and prospect files of more than 50 million names.

The
Company operates in ten locations in North America. The Company's North American
operations accounted for 67.5% of net sales in 2000. Certain functions, such as
merchandising, marketing, purchasing and information systems, are performed
centrally in North America.

European
operations, which represented 32.5% of net sales for 2000, are generated from
nine sales and distribution centers located across Europe: two in England and
one each in Scotland, France, Germany, Italy, Spain, the Netherlands and Sweden.

A
large number of the Company's products are carried in stock, and orders for such
products are fulfilled directly from the Company's distribution centers,
typically on the day the order is received. The strategic locations of the
Company's distribution centers allow next day or second day delivery via low
cost ground carriers throughout most of the United States, Canada and Western
Europe. The strategic locations in Europe have enabled the Company to market
into four additional countries with limited incremental investment. The Company
maintains relationships with a number of distributors in the United States and
Europe that deliver products directly to the Company's customers.

Recent Developments

Discovery and Investigation of Financial Irregularities at
Midwest Micro Subsidiary

On
September 7, 2000 the Company announced that it had discovered certain
irregularities in the financial records of its Midwest Micro subsidiary based in
Fletcher, Ohio. Midwest Micro (now Systemax Manufacturing Inc.) is a
manufacturer of PCs and a direct mail provider of personal computers and related
supplies. The irregularities totaled $19.1 million (net of tax benefit) and
related principally to inventory. Following the Company's internal investigation
the matter was referred to local law enforcement officials to investigate
possible criminal misconduct. As a result of these irregularities the Company
restated its financial results for the first and second quarters of
2000.

Installation of New Management Team at Systemax Manufacturing

On
December 4, 2000 the Company announced the appointment of Robert H. Rose as vice
president and general manager of Systemax Manufacturing Inc. Mr. Rose has more
than 23 years experience in the computer sector, having held senior positions in
manufacturing, engineering and service management. Most recently, he was vice
president and general manager of operations at Wyle Systems, an industrial
distributor and contract manufacturer. Earlier in his career, Mr. Rose was
senior director of the newly created manufacturing division at CompUSA. He
played a critical role in the division's launch, with responsibilities ranging
from the design of its business model and execution of its operating strategy to
managing negotiations with outsource partners and development of its first
manufacturing facility. He has also held executive positions with Tandy
Corporation, Toshiba, and NEC. Mr. Rose heads a new management team at Systemax
Manufacturing with more than 85 years of combined experience in PC
manufacturing. The new team has reduced inventory levels at Systemax
Manufacturing Inc. by 15% and has reconfigured assembly operations to increase
manufacturing efficiencies.

Company Obtains Interim Credit Facility

In
December 2000 the Company entered into a Revolving Credit Agreement with its
domestic banks to provide an uncommitted credit facility of $70,000,000. The
agreement, originally expiring on January 31, 2001, was later extended to May
31, 2001. As of the date of filing of this Form 10-K the Company has accepted a
proposal from a financial institution to obtain a three-year committed domestic
borrowing facility to replace the existing Revolving Credit Agreement,
principally secured by the Company's eligible accounts receivable and inventory
balances. Closing is subject to due diligence and negotiation of a definitive
agreement.

Income Tax Refund

As a
result of the net loss incurred in the year ended December 31, 2000, the Company
applied for and has received a refund of approximately $25 million from the
Internal Revenue Service. The refund was used to reduce the Company's short-term
bank borrowings. As of March 23, 2001, the Company had total short-term
borrowings outstanding of $16.1 million, of which $15.8 million was in the
United States.

Products

The
Company has consistently expanded the breadth of its product offerings in order
to fulfill the increasingly wide range of product needs of its customers. In
total, Systemax offers over 40,000 brand name and private label
products.

Computer sales include a wide array of private label PCs complemented by
offerings of brand named PCs and notebook computers. The Company's computer
related products include supplies such as laser printer toner cartridges, ink
jet printer cartridges, and paper; media such as recordable compact disks,
floppy disks and magnetic tape cartridges; peripherals such as hard disks,
CD-ROM and DVD drives, printers and scanners; memory upgrades; data
communication and networking equipment; ergonomic accessories such as adjustable
monitor support arms and anti-glare screens; and packaged software.

The
Company's industrial products include storage equipment such as metal
shelving, bins and lockers, light material handling equipment such as hand carts
and hand trucks; furniture, small office machines and related supplies; and
consumable industrial products such as first aid items, safety items, protective
clothing and OSHA compliance items. The table below summarizes the
Company's mix of sales by product category:

`Product Type - Year Ended December 31 (Percentage of net sales)
         ---------------------------------------------------------------
                                                                                   2000      1999     1998
                                                                                   ----      ----     ----
         Computer and Computer Related Products  ................................   88%       87%      84%
         Industrial Products ....................................................   12        13       16
                                                                                    --        --       --
         Total  .................................................................  100%      100%     100%
                                                                                   ====      ====     ====`

Historically, the Company focused primarily on non-branded or private label
products. In 1993 the Company expanded its offerings of brand name computer
related products, including peripherals, data communications and networking
equipment, software and supplies. In 1995 the Company further expanded its
offering of brand name products to include notebooks, desktops and servers. In
1997 the Company entered the "build to order" PC market through the acquisition
of Midwest Micro Corp. (now Systemax Manufacturing Inc.). In 1998 and 1999 the
Company focused its efforts on the expansion of its PC assembly business by
substantially increasing its factory capacity to service additional sales
channels. These strategies have impacted the Company's overall gross profit
margin percentages as sales of PCs typically have lower gross profit margin
percentages than many of the Company's other products.

Sales and Marketing

Systemax has established an integrated three-pronged system of direct marketing
designed to maximize sales. The Company has been expanding its "relationship
marketing" team, which services large business customers. These efforts are
complemented by the Company's traditional method of frequent catalog mailings to
generate inbound telephone sales and the availability of interactive Company web
sites which allow customers to purchase products directly over the Internet. The
Company believes that the integration of these three marketing methods should
enable it to more thoroughly penetrate its customer base. Increased Internet
exposure, for example, should lead not only to more Internet sales but can also
generate more inbound telephone sales; just as catalog mailings which feature
the Company's web sites can result in greater Internet sales.

Relationship Marketing

The
Company's relationship marketing program focuses on expanding penetration
of large and mid-sized businesses by establishing a personal relationship
between such customers and a designated Systemax account manager. In the United
States, Systemax also has the ability to provide such customers with electronic
data interchange ("EDI") ordering and customized billing services,
customer savings reports and stocking of specialty items specifically requested
by customers. The goal of the relationship marketing sales force is to increase
the purchasing productivity of current customers and to actively solicit newly
targeted prospects to become customers. Relationship marketing sales increased
24% from 1999 to $897 million, or 53% of total revenues. The Company has taken a
number of initiatives to improve the productivity of its sales forces and to
more aggressively pursue business from both past customers and new prospects,
including strengthening its training programs and utilizing new computer
software sales tools.

Catalogs and Inbound Sales

The
Company produces a total of 37 full-line and targeted specialty catalogs under
distinct titles. Full-line computer product catalogs offer products such as PCs
and hardware, peripherals, magnetic media, data communication, networking and
power protection equipment, ergonomic accessories, furniture and software.
Full-line industrial product catalogs offer products such as material handling
products and industrial supplies. Specialty catalogs contain more focused
product offerings and are targeted to individuals most likely to purchase from
such catalogs. Systemax also mails multiple catalogs to many individuals at each
location, providing the Company with multiple points-of-entry into a business
location. Once a prospect purchases a particular product, however, the Company's
customers have exhibited strong brand loyalty, resulting in limited customer
overlap among the Company's various catalog brands. This multiple brand
strategy, with the accompanying customer exposure to the Company's products, is
a key factor in the Company's strategy to increase sales volume through broader
market coverage and improve the productivity of its customer file through more
focused marketing.

During 2000, the Company distributed approximately 157 million catalogs, of
which approximately 120 million catalogs were mailed in North America and
approximately 37 million catalogs were distributed in Europe. At December 31,
2000, the Company had approximately 1.5 million active customers.

The
Company's in-house staff designs all of the Company's catalogs. Catalog paper is
purchased from various sources and has historically been subject to price
fluctuations. The printing of the catalogs is done by third parties under fixed
pricing arrangements. In-house catalog production helps reduce overall catalog
expense and shortens catalog production time. This allows the Company the
flexibility to alter its product offerings and pricing and to refine its catalog
formats more quickly.

Systemax's catalogs generate calls to inbound sales groups. Sales
representatives use the capabilities of the Company's information systems to
fulfill orders and explore additional customer product needs. Each sales
representative has immediate access to customer files, including usage and
billing information, and real-time inventory levels by distribution center.
Using this data, inbound sales personnel are also prompted by their computer
screen to cross-sell selected products and obtain specific information relating
to customer-specific purchasing habits and product needs.

Internet Marketing and Sales

In
the past several years, the Company has greatly expanded and upgraded its
Internet presence. By year end, the Company had twenty-four e-commerce sites,
including WWW.SYSTEMAXPC.COM, WWW.GLOBALCOMPUTER.COM, WWW.MWMICRO.COM,
WWW.DARTEK.COM, WWW.TIGERDIRECT.COM, and WWW.GLOBALINDUSTRIAL.COM, offering a
wide variety of computer, office and industrial products. Many of these sites
also permit customers to purchase "build to order" PC's configured to their own
specifications. In 2000 the Company had over $103 million in unassisted Internet
sales, or 6% of total revenues.

Customer and Prospect Database

Systemax has invested consistently and aggressively in developing a proprietary
customer and prospect database. This database, which includes more than 50
million names, represents a major asset of the Company. The Company considers
its customers to be the various individuals who work within an organization
rather than the business location itself. The customer and prospect database
includes detailed information, including company size, number of employees,
industry, various demographic and geographic characteristics and purchasing
history. Management believes that this variety and depth of information on its
customers provides Systemax a significant competitive advantage.

Customer Service and Support

Order
entry and/or fulfillment occurs at each of the Company's 19 locations.
Systemax generally provides toll-free telephone number access to its customers.
The integration of the Company's call centers also provide domestic
locations with telephone backup in the event of a disruption in phone service.
In addition to telephone orders, Systemax also receives orders by mail, by fax,
by EDI and on the Internet.

When
an order is entered into the system, it is submitted for credit or credit card
approval, as applicable. Upon approval, the order is electronically transmitted
to the warehouse and a packing slip is printed for order fulfillment.
Approximately 74% of the Company's 2000 sales were on open account and the
Company's bad debt experience has traditionally been less than 1% of sales.
Orders generally are shipped by United Parcel Service in the United States and
by similar national small package delivery services in Europe, as well as by
various freight lines and local carriers. Air freight is also available. As a
result of the regional locations of the Company's warehouses, Systemax estimates
that most customers receive their orders (other than custom items, large
furniture and large industrial items shipped directly by the vendor) within one
or two business days of the order date. Customers are invoiced for merchandise,
shipping and handling promptly after shipment. To better manage sales growth the
Company has been working on upgrading its existing computer system for order
entry and fulfillment and plans to install a new and improved system in
2001.

The
Company provides extensive technical support to customers. A database of
commonly asked questions which is maintained for each product is available to
technical support representatives, enabling them to respond quickly to similar
questions. It also allows product managers to monitor the effectiveness of the
information provided in the catalogs. The Company conducts regular on-site
training seminars for its sales representatives to ensure that they are well
trained and informed regarding the Company's latest product
offerings.

Distribution Centers

North America

The
Company operates out of multiple sales and distribution facilities in North
America. Certain of these facilities are linked by a wide area network
management information system. In the event of adverse delivery conditions (such
as bad weather) the Company can shift inbound calls and/or order fulfillment and
shipping to an alternative location. Management believes this provides Systemax
with important operating flexibility and protection from possible sales
interruptions for its North American businesses. See "Management Information
Systems."

A
large number of the Company's products are carried in stock, and consequently
orders for such products are fulfilled from its distribution centers. Certain
products (such as selected computer hardware and large furniture and industrial
items) are shipped directly by the supplier. Order fulfillment at the
distribution centers is done continuously throughout the day as customer orders
are received.

Europe

The
Company has branch facilities in eight European countries and a central office
near London, England to direct their activities. The central office is
responsible for marketing support, catalog production, financial reporting,
logistics and computer programming support. In addition, each European branch
has a full service sales and distribution center to process orders and reports
to the respective country manager who has ultimate profit and loss
responsibility.

Suppliers

In
North America, the Company purchases the majority of its products and components
directly from manufacturers, except for certain peripherals, software and
hardware products which are purchased through wholesale distributors. In Europe,
products are sourced from a combination of local manufacturers and wholesalers.
Substantially all of the European catalog product content is sourced in Europe.
No single supplier accounted for more than 10% of Systemax's total purchases in
2000, 1999 or 1998.

Private label products are manufactured either by the Company or by third
parties to the Company's specifications. Many of these private label products
have been designed or developed by the Company's in-house research and
development teams. See "Research and Development".

Management Information Systems

The
Company operates information systems that allow centralized management of key
functions. These include communication links between distribution centers,
inventory and accounts receivable management, purchasing, pricing, sales and
distribution, and the preparation of daily operating control reports which
provide concise and timely information regarding key aspects of its business.
These management information systems enable the Company to enhance its
flexibility by promptly shipping customer orders (usually on a same-day basis),
responding quickly to order changes and providing a high level of customer
service. The Company maintains a database of over 50 million customer and
prospect names and keeps records of historical purchasing patterns in order to
prompt sales personnel with product suggestions to expand customer order values.
In addition, the Company has developed a customer prospecting function based
upon geographic, economic and demographic data which enables Systemax to utilize
its information systems to maintain and expand its customer data files. These
applications enable the Company to achieve cost savings, deliver extensive
customer service and centrally manage its operations.

Research and Development

The
Company's research and development teams design and develop products for
Systemax's private label programs. The individuals responsible for research and
development have backgrounds in engineering and industrial design.

This
in-house capability provides important support to the private label programs.
Many of the Company's private label products were designed or developed by an
in-house research and development team. Examples of products designed in-house
include PC's, servers, furniture, ergonomic monitor support arms, printer and
monitor stands, wrist rests and other durable computer related products, storage
racks and shelving systems, various stock and storage carts, work benches,
plastic bins and shop furniture. The Company owns the tooling for many of these
products, including plastic bins, computer accessories, furniture, and metal
alloy monitor arms. See "Research and Development Costs" in Footnote 1 to the
Consolidated Financial Statements for further information.

Competition and Other Market Factors

PCs
and Notebook Computers

The
North American and European computer industries are highly competitive with many
U.S., Asian and European companies vying for market share. There are few
barriers of entry to the PC market with PCs being sold through the direct market
channel, directly from manufacturers, computer superstores, mass merchants and
over the Internet. Timely introduction of new products or product features are
critical elements to remaining competitive. Other competitive factors include
product performance, quality and reliability, technical service and customer
support, marketing and distribution and price. There can be no assurance that
the Company will be able to maintain or improve its current competitive position
with respect to any of these or other competitive factors. Some of the
Company's competitors have stronger brand-recognition, broader product
lines and greater financial, marketing, manufacturing and technological
resources than the Company. Additionally, the Company's results could also
be adversely affected should it be unable to implement effectively its
technological and marketing arrangements with other companies, such as
Microsoft®, Intel® and Advanced Micro Devices.

Current weakness in the global economy has led to a market-wide slowdown in PC
sales. This slowdown has resulted in rising inventories among our competitors
creating an aggressive pricing environment that has affected and may continue to
affect profitability over the short-term. Our long-term view of the PC market,
however, remains optimistic, although there can be no assurance that current
economic conditions will soon improve.

Computer Related Products

The
North American computer related products market is highly fragmented and
characterized by multiple channels of distribution, including direct response
(mail order) distributors, local and national retail computer stores that carry
computer supplies, computer resellers, mass merchants, computer "superstores"
and the Internet. The tremendous growth in the computer related products market
during the past ten years has been accompanied by substantial changes in the
nature of product distribution and sales. The decentralization of computers
throughout factory, business, engineering and office environments has made it
increasingly difficult and expensive for many suppliers to use traditional
direct sales methods to locate users, initiate sales contacts and effectively
provide service to customers. Average order values also tend to be smaller than
in the past, reflecting individual requirements rather than the greater needs
traditionally associated with centralized data processing departments. These
changes in the structure of the computer related products market have placed
traditional distributors with direct sales forces at a competitive disadvantage
due to their cost structures and established selling methods. As a result,
direct marketers have been able to increase sales to the larger businesses that
have traditionally been served by contract stationers and value added resellers.
They have also been able to capture sales volume and market share from the
numerous small retail computer stores.

In
Europe, the Company's major competitors are regional or country-specific retail
and direct-mail distribution companies. The Company's presence in eight European
countries provides Systemax with the flexibility to purchase large volumes
centrally. In addition, the commonality of certain core pages of the European
catalogs provides for economies in catalog production. The Company believes that
these factors allow it to take advantage of cost savings not available to many
of its competitors in Europe.

The
market for computer products is subject to intense price competition, which we
anticipate will continue to have a negative impact on gross margins. There can
be no assurance that the Company will be able to maintain or improve its current
competitive position with respect to any of these or other competitive
factors.

Industrial Products

The
market for the sale of industrial products in the United States is highly
fragmented and is characterized by multiple distribution channels such as retail
outlets, small dealerships, direct mail distribution and large warehouse stores.
Systemax also faces competition from manufacturers' own sales
representatives who sell industrial equipment directly to customers, and from
regional or local distributors. Many high volume purchasers, however, utilize
catalog distributors as their first source of product specifications. In the
industrial products market, customer purchasing decisions are primarily based on
price, product selection, product availability, level of service and
convenience. The Company believes that direct mail is an effective and
convenient distribution method to reach mid-sized facilities which place many
small orders and require a wide selection of products. In addition, because the
industrial products market is highly fragmented and generally less brand
oriented, it is well suited to private label products. The majority of the
Company's industrial products are high gross profit margin, private label
products.

Competition
with respect to industrial products in the United Kingdom is similar to
competition in the U.S., with the exception that most direct mail companies in
the United Kingdom drop ship the majority of their products from the
manufacturer, resulting in long delivery lead times. As Systemax stocks the
majority of its products featured in its dedicated industrial catalogs,
management believes it has a significant advantage over most of its direct mail
competitors in the United Kingdom.

Elsewhere in Europe, no dedicated industrial catalogs are mailed by the Company,
although industrial products are featured in computer supplies and/or office
supplies catalogs. Overall, sales of industrial products in Central European
markets are not material to the Company's overall sales in those markets.

There
can be no assurance that the Company will be able to maintain or improve its
current competitive position with respect to any of these or other competitive
factors.

Employees

As
of December 31, 2000, the Company employed a total of 4,019 employees, including
3,865 full-time and 154 part-time employees, of whom 2,661 were in North America
and 1,358 were in Europe.

None
of the Company's employees is represented by a labor union, except for
approximately 39 warehouse employees in New York who are covered by an
"open-shop" agreement with the Company which expires at the end of 2001, and
certain employees at several locations in Europe. Employees are not required to
join the union.

The
Company considers its relationships with employees to be good and has not
experienced a work stoppage in 26 years.

Environmental Matters

Under
various national, state and local environmental laws and regulations in North
America and Europe, a current or previous owner or operator (including the
lessee) of real property may become liable for the costs of removal or
remediation of hazardous substances at such real property. Such laws and
regulations often impose liability without regard to fault. The Company leases
most of its facilities. In connection with such leases, the Company could be
held liable for the costs of removal or remedial actions with respect to
hazardous substances. Although the Company has not been notified of, and is not
otherwise aware of, any material environmental liability, claim or
non-compliance, there can be no assurance that the Company will not be required
to incur remediation or other costs in connection with environmental matters in
the future.

Financial Information About Foreign and Domestic Operations

The Company conducts its business in North America (the United
States and Canada) and Europe. The following sets forth the Company's operations
in its two geographic markets (in thousands):

`2000                                          Europe              North America            TOTAL
     ----                                   --------------------   ---------------------   --------------
     Net sales..............................      $548,097            $1,138,006           $ 1,686,103
     Income (loss) from operations..........       $17,294              $(78,302)             $(61,008)
     Identifiable assets....................      $107,800              $430,219              $538,018

     1999                                          Europe              North America            TOTAL
     ----                                   --------------------   ---------------------   --------------
     Net sales..............................      $491,071            $1,263,401           $ 1,754,472
     Income from operations.................       $10,541               $49,294               $59,835
     Identifiable assets....................       $93,900              $457,912              $551,812

     1998                                          Europe              North America             TOTAL
     ----                                   --------------------   ---------------------   -----------
     Net sales..............................      $314,404            $1,121,250            $1,435,654
     Income from operations.................       $10,851               $53,497               $64,348
     Identifiable assets....................      $111,412              $343,027              $454,439`

Item 2. Properties.

The
Company's primary facilities, which are leased except where otherwise
indicated, are as follows:

`Approx            Expiration
               Facility                             Location                   Sq. Ft.            of Lease
               --------                             --------                   -------            --------

Headquarters, Sales and
  Distribution Center, Catalog
  Operations (1)............................Port Washington, NY                178,000              2007
Sales and Distribution Center...............Suwanee, GA                        360,675             owned
Sales and Distribution Center...............Compton, CA                        140,000              2007
Sales and Distribution Center...............Naperville, IL                     241,000              2010
Sales Center................................Holmdel, NJ                         51,000              2002
Sales and Distribution Center...............Markham, Ontario                    45,000              2005
Sales and Distribution Center...............Verrieres le Buisson, France        10,000              2008
Sales and Distribution Center...............Frankfurt, Germany                  92,000              2010
Sales and Distribution Center...............Madrid, Spain                       35,000               (2)
Sales and Distribution Center...............Milan, Italy                        90,000              2003
Sales and Distribution Center...............Greenock, Scotland                  78,000             owned
Sales and Distribution Center...............Wellingborough, England             33,000              2013
Sales, Distribution and PC
Assembly Center  .......................... London, England                     68,000              2007
Sales Center................................Miami, FL                           71,000              2010
Sales Center................................Amstelveen, Netherlands              5,000              2003
PC Assembly, Sales and Distribution Center..Fletcher, Ohio                     297,000             owned
European Headquarters.......................Uxbridge, England                    7,400              2005
Sales Office................................Uxbridge, England                    3,600              2006

Sales and Distribution Center...............Lidkoping, Sweden                   20,000              2006

Sales Center................................Stockholm, Sweden                    3,000              2002`

(1) For information about facilities leased from related parties, see "Certain
Relationships and Related Transactions--Agreements--Leases and Related
Guarantees."

(2) Terminable upon two months prior written notice.

Item 3. Legal Proceedings.

The
Company is a party to various legal actions arising in the normal course of
business, none of which, in management's opinion, is anticipated to have a
material adverse effect on the Company's consolidated financial position or
results of operations.

Item 4. Submission of Matters to a Vote of Security Holders.

During the quarter ended December 31, 2000, there were no matters submitted to a
vote of the Company's security holders.

PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.

The
Company's Common Stock is traded on the New York Stock Exchange under the symbol
"SYX". The following table sets forth the high and low closing sales price of
the Company's Common Stock as reported on the New York Stock Exchange for the
periods indicated.

`2000                                                                  High         Low
              ----                                                                  ----         ---

              First quarter...................................................     $11.06       $ 8.19
              Second quarter..................................................       9.13         3.44
              Third quarter...................................................       5.19         2.75
              Fourth quarter..................................................       3.00         1.00


              1999                                                                  High         Low
              ----                                                                  ----         ---

              First quarter...................................................     $23.06       $12.75
              Second quarter..................................................      18.13        10.06
              Third quarter...................................................      11.75         8.38
              Fourth quarter..................................................      10.00         7.31`

On
March 16, 2001, the last reported sale price of the Company's Common Stock on
the New York Stock Exchange was $1.65 per share. As of March 16, 2001, the
Company had 246 stockholders of record.

The
Company has not paid any dividends since its initial public offering and
anticipates that all of its cash provided by operations in the foreseeable
future will be retained for the development and expansion of its business, and
therefore does not anticipate paying dividends on its Common Stock in the
foreseeable future. See "Certain Relationships and Related Transactions" for a
description of the Company's historical distributions.

Item 6. Selected Financial Data.

The
following selected financial information is qualified by reference to, and
should be read in conjunction with, the Company's Consolidated Financial
Statements and the notes thereto, and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contained elsewhere in this
report. The selected income statement data for the years ended December 31,
2000, 1999 and 1998 and the selected balance sheet data as of December 31, 2000
and 1999 is derived from the audited consolidated financial statements which are
included elsewhere in this report. The selected balance sheet data as of
December 31, 1998, 1997 and 1996 and the selected income statement data for the
year ended December 31, 1997 is derived from the audited financial statements of
the Company which are not included in this report.



`Year Ended December 31,
                                                --------------------------------------------------------
                                                2000          1999         1998         1997        1996
                                                ----          ----         ----         ----        ----
Income Statement Data:                            (In millions, except per common share data, number of
                                                      catalog titles and number of countries)

  Net sales.................................  $1,686.1     $1,754.5     $1,435.7     $1,145.4       $911.9
  Gross profit..............................   $ 209.9       $314.5       $288.6       $265.5       $249.6
  Selling, general and
     administrative expenses................    $270.9       $254.7       $224.2       $206.3       $180.1
  Income (loss) from operations.............    $(61.0)       $59.8        $64.3        $59.3        $69.5
  Income taxes..............................    $(24.5)       $24.5        $25.8        $23.3        $27.7

  Net income (loss).........................    $(40.8)       $36.0        $41.3        $38.8        $43.7
  Net income (loss) per common share:
      Basic.................................    $(1.19)       $1.01        $1.11        $1.02        $1.16
      Diluted...............................    $(1.19)       $1.01        $1.11        $1.02        $1.15

  Weighted average common
     shares outstanding:
      Basic.................................      34.3         35.8         37.3         38.0         37.6
      Diluted...............................      34.3         35.8         37.3         38.2         38.1

Selected Operating Data:

  Active customers (1)......................       1.5          1.8          1.8          1.8          1.7
  Orders entered............................       3.9          4.4          3.8          3.5          3.4
  Number of catalogs distributed............       157          171          179          162          160
  Number of catalog titles....................      37           37           44           41           40
  Number of countries receiving catalogs......      14           14           14           13           12

Balance Sheet Data (at December 31):
  Working capital ..........................    $106.7       $186.9       $194.6       $187.8       $194.4
  Total assets................................  $538.0       $551.8       $454.4       $399.7       $331.4
  Short-term debt...........................     $48.6         $9.0                                    $.5
  Long-term debt, excluding
    current portion.........................                   $1.7         $2.5         $2.0         $2.0
  Stockholders' equity......................    $255.7       $310.2       $286.6       $272.2       $228.6`

(1) An "active customer" is defined as a customer who has
purchased from the Company within the preceding 12 months.

Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.

Results of Operations

The
Company incurred a net loss for the year ended December 31, 2000 of $40.8
million compared to net income for the year ended December 31, 1999 of $36.0
million and net income for the year ended December 31, 1998 of $41.3 million. In
August 2000 the Company discovered certain irregularities in the financial
records of a subsidiary company. As a result, certain asset values were
overstated and income was overstated as disclosed in the Company's quarterly
statements for March 31 and June 31, 2000. The Company restated its financial
results for the aforementioned periods.

The
following table represents the Company's consolidated statement of income data
expressed as a percentage of net sales for the three most recent fiscal
years:

`2000         1999          1998
                                                                          ----         ----          ----
         Net sales.....................................................   100.0%       100.0%        100.0%
         Gross profit..................................................    12.4         17.9          20.1
         Selling, general and administrative expenses..................    16.1         14.5          15.6
         Income (loss) from operations.................................    (3.6)         3.4           4.5
         Interest and other income.....................................                   .1            .2
         Interest expense..............................................      .3
         Income taxes..................................................    (1.5)         1.4           1.8
         Net income (loss).............................................    (2.4)         2.1           2.9`

NET SALES

Net
sales of $1.69 billion in 2000 were $68 million or 3.9% lower than the $1.75
billion reported in 1999. Worldwide sales of PC's, representing approximately
25% of the Company's total sales, were down only 1% for the year in spite of
difficult market conditions. Sales attributable to the Company's North American
operations decreased 9.9% to $1.14 billion in 2000 from $1.26 billion in 1999.
The decrease was primarily in the Company's computer products business, as a
result of lower incoming orders from inbound customers. European sales increased
11.6% to $548.1 million in 2000 from $491.1 million in 1999, as all of the
Company's operations in Europe reported sales increases for the year. Movements
in foreign exchange rates negatively impacted the European sales comparison by
approximately $57 million in 2000 compared to 1999. Excluding the movements in
foreign exchange rates, European sales would have increased 23% over the prior
year. For the year ended December 31, 1999, net sales increased by $318.8
million or 22.2% to $1.75 billion from $1.44 billion in 1998. This increase was
primarily attributable to increased demand for the Company's PC's, increased
revenue from relationship marketing sales and the inclusion of sales from Simply
Computers Ltd. ("Simply") since its acquisition at the beginning of February
1999. Sales from the Company's North American operations increased 12.7% to
$1.26 billion in 1999 from $1.12 billion in 1998. European sales increased to
$491.1 million in 1999 from $314.4 million in 1998, an increase of 56.2%, of
which approximately $110 million (35%) related to Simply. The effect of changes
in exchange rates on European sales for 1999 was not significant.

GROSS PROFIT

Gross profit, which consists of net sales less product, shipping, assembly and
certain distribution center costs, decreased by $104.7 million or 33.3% to
$209.9 million in 2000 from $314.5 million in 1999. The gross profit margin
decreased to 12.4% in 2000 from 17.9% in 1999. Gross profit was significantly
impacted by losses in the Company's PC assembly business, principally related to
increased sales returns and losses on liquidation of excess inventory. Increased
technical support and service costs also contributed to the lower margin. Gross
profit margin in the North American computer products business declined by
approximately 3 percentage points on the lower sales volume and gross profit
margin in Europe declined by 1.5 percentage points. The market for computer
products is subject to intense price competition, which the Company anticipates
will continue to have a negative impact on gross margins. Gross profit margins
on industrial product sales remained consistent in 2000 from 1999 and 1998, but
the lower sales contribution of these higher-margin products negatively impacted
the Company's overall gross profit margin. Gross profit increased by $26.0
million or 9.0% to $314.5 million in 1999 from $288.5 million in 1998. Gross
profit margin decreased to 17.9% in 1999 from 20.1% in 1998. The decrease in
gross profit margin resulted from a continuing shift in product mix, reflecting
a greater percentage of PCs (which typically have a lower gross profit margin
percentage than many of the Company's other products) and increased relationship
marketing sales. Industry-wide shortages in certain key PC components also
resulted in increased costs.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses totaled $270.9 million, or 16.1% of
net sales in 2000, compared to $254.7 million, or 14.5% of net sales in 1999.
This resulted from higher personnel and related costs in both North America and
Europe, reflecting the increase in the worldwide relationship marketing sales
force and higher bad debt expense. These expense increases were partially offset
by lower advertising costs associated with catalog mailings as the Company's
focus continues to shift to relationship sales. The Company decreased its
staffing levels in areas other than relationship marketing during the year to
adjust to the lower level of incoming business. For the year ended December 31,
1999, selling, general and administrative expenses increased by $30.5 million or
13.6% to $254.7 million from $224.2 million in 1998. As a percentage of net
sales they decreased to 14.5% in 1999 from 15.6% in 1998. The decrease as a
percentage of net sales was primarily attributable to reduced catalog costs in
North America as a result of the increased efficiencies from larger average
order sizes, vendor supported advertising, expense control and the leveraging of
selling, general and administrative expenses over a larger sales base.

INCOME (LOSS) FROM OPERATIONS

The
Company incurred a loss from operations for the year ended December 31, 2000 of
$61.0 million compared to an operating profit of $59.8 million in the year-ago
period. The operating loss resulted from the decline in gross profit and
increase in selling, general and administrative expenses. During the second
quarter of 2000, the Company sold its internet auction subsidiary, EZBid Inc.,
and closed a small software sales subsidiary, which together eliminate
approximately $5 million in operating losses on an annualized basis. Operating
income in Europe, which increased to $17.3 million from $10.5 million a year
ago, was adversely affected by $1.5 million, due to the stronger dollar in
relation to major European currencies. Income from operations decreased by $4.5
million or 7.0% to $59.8 million in 1999 from $64.3 million in 1998.

INTEREST AND OTHER INCOME/INTEREST EXPENSE

Interest expense increased to $4.4 million in 2000 from $0.5 million in 1999 and
1998 due to increased borrowings under the Company's credit facilities. The
weighted average interest rate on short-term borrowings was 7.9% in 2000 and
8.2% in 1999. Interest and other income decreased from $3.2 million in 1998, to
$1.2 million in 1999 and $0.1 million in 2000 primarily due to lower levels of
investments in short-term securities as a result of less cash available for
investment.

INCOME TAXES

Income taxes in 2000 consist of income tax benefits for net operating loss
carrybacks, reduced by foreign income taxes paid or payable. No tax benefit was
recorded for state and local net operating loss carryforwards. The effective tax
rate in 1999 increased to 40.5% from 38.5% in 1998 as a result of higher state
and local taxes in the United States and a change in the relative income earned
in foreign locations.

NET INCOME (LOSS)

As a
result of the above, the net loss for 2000 was $40.8 million, or $1.19 per basic
and diluted share, compared to net income of $36.0 million, or $1.01 per basic
and diluted share, in 1999 and $41.3 million, or $1.11 per basic and diluted
share, in 1998.

Seasonality

The
operations of the Company are somewhat seasonal. In particular, net sales have
historically been modestly weaker during the second and third quarter as a
result of lower business activity during the summer months. The following table
sets forth the net sales, gross profit and income (loss) from operations for
each of the quarters since January 1, 1999 (amounts in millions).

`2000                                     March 31      June 30      September 30      December 31
         ----                                     --------      -------      ------------      -----------
         Net sales............................       $449         $406           $410            $421
         Gross profit.........................        $68          $44            $48             $50
         Loss from operations.................        $(3)        $(20)          $(21)           $(17)

         1999                                     March 31      June 30      September 30      December 31
         ----                                     --------      -------      ------------      -----------
         Net sales............................       $422         $414           $440            $478
         Gross profit.........................        $79          $76            $78             $81
         Income from operations...............        $17           $9            $16             $18`

Financial Condition, Liquidity and Capital
Resources

The
Company's cash balance decreased $3.0 million during the year ended December 31,
2000. The Company's working capital was $107 million at December 31, 2000, down
from $187 million at the end of 1999, due principally to a $40 million increase
in short-term bank borrowings to fund fixed asset purchases and the net loss
incurred, offset by a $47 million decrease in inventories.

Cash
was provided by operating activities in each of the three years presented, $8.5
million in 2000, $20.5 million in 1999 and $37.8 million in 1998. The
significant loss incurred by the Company in 2000 was the primary reason for the
decrease in operating cash flow compared to 1999. However, cash flow was
provided by operations in 2000 as a result of reductions in inventories and a
decrease in accounts receivable. The decrease in cash flow in 1999 resulted from
increased inventories, caused by a one-time buildup to service increased demand.
Additionally, accounts receivable increased in 1999 as a result of the increase
in sales and an increase in the average days sales outstanding due to a change
in the mix of sales by location.

In
2000 the Company used net cash in investing activities of $41.0 million,
primarily for property, plant and equipment additions. Capital additions in 2000
included $13.6 million for the purchase and outfitting of a new distribution
facility in Georgia, $2 million for upgrading the Company's information systems
infrastructure and $7.9 million in connection with software development programs
the Company expects to implement in 2001. In 1999 the Company used net cash of
$36.1 million for investing activities. Expenditures for property, plant and
equipment totaled $22.0 million and included expansion of the Company's PC
assembly facility and improvements to information systems. Expenditures for
business acquisitions, including the payment of contingent consideration,
totaled $19.2 million. Short-term investments decreased by $5.0 million to
partially fund these activities. Net cash of $13.0 million was used in 1998 in
investing activities for business acquisitions and additions to property, plant
and equipment, offset by a $4.0 million decrease in short-term investments. This
included capacity expansion at the PC assembly facility, completion of the
Company's Compton, California facility and improvements to information
systems.

Anticipated capital expenditures in 2001 are expected to be $10 million and
include the continued development and implementation of new information systems.
The Company plans to fund these expenditures out of cash from operations and
borrowings.

In
2000, $27.5 million of cash was provided by financing activities, while in 1999
$3.8 million and in 1998 $25.4 million of cash was used in financing activities.
In 2000, the Company purchased additional treasury shares for $9.8 million and
used $2.2 million to repay a long-term loan in Europe. The Company borrowed
$39.6 million to finance these expenditures as well as the fixed asset
additions. In 1999, $10.1 million was used to repurchase additional shares of
the Company's common stock and $2.8 million was used to repay a mortgage loan.
This was partially funded by $9.0 million in short-term bank borrowings. In
1998, the Company used $28.6 million of cash to purchase shares of its common
stock.

The
Company maintains uncommitted credit lines with financial institutions totaling
approximately $90 million in the United States and Europe, borrowings under
which are available at the discretion of the lenders.

In
December 2000 the Company entered into a Revolving Credit Agreement with its
domestic banks to provide an uncommitted credit facility of $70 million, secured
by all of the Company's domestic accounts receivable. The agreement, originally
expiring on January 31, 2001, was later extended to May 31, 2001. This facility
replaces previously uncommitted, unsecured lines of credit the Company
maintained with these banks, and is available for its domestic operations. The
agreement provides, at the Company's option, interest based on LIBOR or the
prime rate and contains certain covenants and restrictions, including limitation
on the payment of dividends and on business acquisitions. At December 31, 2000
there was $38,000,000 outstanding under this agreement. Included in this
agreement, the Company may have outstanding letters of credit equal to the
amount of the total line less outstanding borrowings. At December 31, 2000 there
were $2,405,000 of outstanding letters of credit.

The
Company also entered into a £15,000,000 ($22,395,000 at the December 31,
2000 exchange rate) multi-currency credit facility with a financial institution
in the United Kingdom in January 2000, which is available to its United Kingdom
subsidiaries. Drawings under the facility may be made by overdraft, trade
acceptance or loan. The facility is secured by assets of certain of the
Company's United Kingdom subsidiaries and a guaranty from the Company. At December 31,
2000 there were £7,068,000 ($10,559,000) of borrowings outstanding under
this line.

As a
result of the net loss incurred in the year ended December 31, 2000, the Company
applied for and has received a refund of approximately $25 million from the
Internal Revenue Service. The refund was used to reduce the Company's short-term
bank borrowings. As of March 23, 2001, the Company had total short-term
borrowings outstanding of $16.1 million, of which $15.8 million was in the
United States.

The
Company has accepted a proposal from a financial institution for a three-year
committed domestic borrowing facility to replace the existing Revolving Credit
Agreement, secured principally by the Company's eligible accounts receivable and
inventory balances. Closing is subject to due diligence and negotiation of a
definitive agreement. The Company believes it has access to adequate funds for
continued operations and growth through its available cash balances and funds
generated by operations and secured lines of credit maintained with financial
institutions but there can be no assurance that the Company will reach a
satisfactory agreement for a new facility.

The
Company is party to certain litigation, as disclosed in "Commitments and
Contingencies" in the Notes to Consolidated Financial Statements, the outcome of
which the Company believes will not have a material adverse effect on its
consolidated financial statements.

Recent Accounting Developments

Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for
Derivative Instruments and Hedging Activities, is effective for all fiscal years
beginning after June 15, 2000. SFAS 133, as amended, establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. Under SFAS
133, certain contracts that were not formerly considered derivatives may now
meet the definition of a derivative. The Company will adopt SFAS 133 effective
January 1, 2001. The Company currently does not make use of derivative
instruments as defined by SFAS No. 133. If the Company does not increase the
utilization of derivative instruments, the adoption of this standard is not
expected to have a significant impact on the financial position, results of
operations, or cash flows of the Company.

In
December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." SAB 101 summarizes certain SEC views in applying generally accepted
accounting principles to revenue recognition in financial statements. The
Company adopted SAB 101 in the fourth quarter of 2000. The adoption did not have
a significant effect on the consolidated results of operations or financial
position.

Implications to the Company From the Adoption of a European
Common Currency

The
Company has extensive operations in Europe, including France, Germany, Italy,
the Netherlands, Spain, Sweden, England and Scotland. It also sells into
additional countries in Europe. For the 2000 fiscal year, approximately 32.5% of
the Company's net sales were in Europe. With the exception of Sweden and the
United Kingdom, all of the countries in which the Company has operations are
participants in the European common currency, the Euro. The adoption of such
common currency is being phased in over a three-year period that ends in June
2002. During the phase-in period, both the Euro and the historical currency of a
country will be valid, although new Euro-denominated currency will not be issued
until 2002. Until the introduction of Euro-denominated currency, the paying
party will have the option to decide whether to pay in the legacy currency or in
Euros converted to the legacy currency. The introduction of the Euro has not
required a significant modification to the Company's accounting systems and has
not had a significant adverse impact on European sales or pricing. There is no
expectation of a significant adverse impact in the future.

Forward Looking Statements

This
report contains forward looking statements within the meaning of that term in
the Private Securities Litigation Reform Act of 1995 (Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934).
Additional written or oral forward looking statements may be made by the Company
from time to time, in filings with the Securities Exchange Commission or
otherwise. Statements contained herein that are not historical facts are forward
looking statements made pursuant to the safe harbor provisions referenced above.
Forward looking statements may include, but are not limited to, projections of
revenue, income or loss and capital expenditures, statements regarding future
operations, financing needs, compliance with financial covenants in loan
agreements, plans for acquisition or sale of assets or businesses and
consolidation of operations of newly acquired businesses, and plans relating to
products or services of the Company, assessments of materiality, predictions of
future events and the effects of pending and possible litigation, as well as
assumptions relating to the foregoing. In addition, when used in this
discussion, the words "anticipates", "believes", "estimates", "expects",
"intends", "plans" and variations thereof and similar expressions are intended
to identify forward looking statements.

Forward
looking statements are inherently subject to risks and uncertainties, some of
which cannot be predicted or quantified based on current expectations.
Consequently, future events and actual results could differ materially from
those set forth in, contemplated by, or underlying the forward looking
statements contained in this report. Statements in this report, particularly in
"Item 1. Business", "Item 3. Legal Proceedings", "Item
7. Management's Discussion and Analysis of Financial Condition and Results
of Operations", and the Notes to Consolidated Financial Statements describe
certain factors, among others, that could contribute to or cause such
differences. Other factors that could contribute to or cause such differences
include, but are not limited to, unanticipated developments in any one or more
of the following areas: (i) the Company's ability to manage rapid growth as
a result of internal expansion and strategic acquisitions, (ii) the effect on
the Company of volatility in the price of paper and periodic increases in
postage rates, (iii) the operation and anticipated upgrading of the
Company's management information systems, (iv) the general risks attendant
to the conduct of business in foreign countries, including currency fluctuations
associated with sales not denominated in United States dollars, (v) significant
changes in the computer products retail industry, especially relating to the
distribution and sale of such products, (vi) competition in the PC, notebook
computer, computer related products, industrial products and office products
markets from superstores, direct response (mail order) distributors, mass
merchants, value added resellers, the Internet and other retailers, (vii) the
potential for expanded imposition of state sales taxes, use taxes, or other
taxes on direct marketing and e-commerce companies, (viii) the continuation of
key vendor relationships including the ability to continue to receive vendor
supported advertising, (ix) timely availability of existing and new products,
(x) risks involved with e-commerce, including possible loss of business and
customer dissatisfaction if outages or other computer-related problems should
preclude customer access to the Company's web sites, (xi) risks associated
with delivery of merchandise to customers by utilizing common delivery services
such as UPS, including possible strikes, (xii) risks due to shifts in market
demand and/or price erosion of owned inventory, (xiii) ability to consummate and
maintain satisfactory loan agreements with the Company's lenders, (xiv)
borrowing costs, (xv) changes in taxes due to changes in the mix of U.S. and
non-U.S. revenue, (xvi) pending or threatened litigation and investigations and
(xvii) the availability of key personnel, as well as other risk factors which
may be detailed from time to time in the Company's Securities and Exchange
Commission filings.

Readers
are cautioned not to place undue reliance on any forward looking statements
contained this report, which speak only as of the date of this report. The
Company undertakes no obligation to publicly release the result of any revisions
to these forward looking statements that may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of unexpected
events.

Item 7A.  Quantitative and Qualitative Disclosure About Market Risk.

The
Company is exposed to market risks, which include changes in U.S. and
international interest rates as well as changes in currency exchange rates as
measured against the U.S. dollar and each other. Systemax may attempt to reduce
these risks by utilizing certain derivative financial instruments.

The
value of the U.S. dollar affects the Company's financial results. Changes
in exchange rates may positively or negatively affect Systemax's sales (as
expressed in U.S. dollars), gross margins, operating expenses and retained
earnings. The Company may engage in hedging programs aimed at limiting in part
the impact of certain currency fluctuations. Using primarily forward exchange
and foreign currency option contracts, Systemax may from time to time hedge
certain of its assets that, when remeasured according to generally accepted
accounting principles, may impact the Statement of Consolidated Operations.
These hedging activities provide only limited protection against currency
exchange risks. Factors that could impact the effectiveness of the
Company's hedging programs include accuracy of sales forecasts, volatility
of the currency markets, availability of hedging instruments and the
credit-worthiness of the parties which have entered into such contracts with the
Company. Any currency contracts that are entered into by Systemax are for the
sole purpose of hedging an existing or anticipated currency exposure, not for
speculative or trading purposes. In spite of Systemax's hedging efforts to
reduce the effect of changes in exchange rates against the U.S. dollar, the
Company's sales or costs could still be adversely affected by changes in
those exchange rates.

As
of December 31, 2000, the Company had no outstanding forward exchange
contracts.

Item 8. Financial Statements and Supplementary
Data.

The
information required by Item 8 of Part II is incorporated herein by reference to
the Consolidated Financial Statements filed with this report; see Item 14 of
Part IV.

Item 9. Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure.

None.

PART III

Item 10. Directors and Executive Officers of the Registrant.

The
information required by Item 10 of Part III is hereby incorporated by reference
from the Company's Proxy Statement for the 2001 Annual Meeting of Stockholders
(the "Proxy Statement").

Item 11. Executive Compensation.

The
information required by Item 11 of Part III is hereby incorporated by reference
from the Proxy Statement.

Item 12. Security Ownership of Certain Beneficial Owners and Management.

The
information required by Item 12 of Part III is hereby incorporated by reference
from the Proxy Statement.

Item 13. Certain Relationships and Related Transactions.

The
information required by Item 13 of Part III is hereby incorporated by reference
from the Proxy Statement.

PART IV

Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K.

| | (a) | 1. | The Consolidated Financial Statements of Systemax Inc. | Reference
| | --- | -- | ------------------------------------------------------ | ---------

| | Independent Auditors' Report
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements | F-1
F-2
F-3
F-4
F-5
F-6 - F-13
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------

| | 2. | Financial Statement Schedules:
Schedules not included with this additional financial data have been omitted
because they are not applicable or the required information is shown in the
Consolidated Financial Statements or Notes thereto.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3. | Exhibits.
| | -- | ---------

| | ExhibitNo. | Description
| | ---------- | -----------

| | 3.1 | Certificate of Incorporation of Registrant1
| | --- | -------------------------------------------

| | 3.2 | By-laws of Registrant1
| | --- | ----------------------

| | 3.3 | Certificate of Amendment of Certificate of Incorporation changing the Company's
name to Systemax Inc.7
| | --- | ------------------------------------------------------------------------------------------------------

| | 4.1 | Stockholders Agreement2
| | --- | -----------------------

| | 10.1 | Form of 1995 Long-Term Stock Incentive Plan3*
| | ---- | ---------------------------------------------

| | 10.2 | Exchange Agreement dated as of May 8, 1995 between certain stockholders of the
Predecessor Companies and the Company1
| | ---- | ---------------------------------------------------------------------------------------------------------------------

| | 10.3 | Lease Agreement dated October 14, 1992 between the Company and 2RB Associates
Co. (Port Washington facility)1
| | ---- | -------------------------------------------------------------------------------------------------------------

| | 10.4 | Lease Agreement dated September 20, 1988 between the Company and Addwin Realty
Associates (Port Washington facility)1
| | ---- | ---------------------------------------------------------------------------------------------------------------------

| | 10.4A | Amendment to Lease Agreement dated September 29, 1998 between the Company and
Addwin Realty Associates (Port Washington facility)8
| | ----- | ----------------------------------------------------------------------------------------------------------------------------------

| | 10.5 | Lease Agreement dated as of July 17, 1997 between the Company and South Bay
Industrials Company (Compton facility)4
| | ---- | -------------------------------------------------------------------------------------------------------------------

| | 10.6 | Build-to-Suit Lease Agreement dated April, 1995 among the Company, American
National Bank and Trust Company of Chicago and Walsh, Higgins&Company
(Naperville facility)1
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.7 | Lease Agreement dated September 17, 1998 between Tiger Direct, Inc. and Keystone
Miami Property Holding Corp. (Miami facility)5
| | ---- | -------------------------------------------------------------------------------------------------------------------------------

| | 10.9 | Royalty Agreement dated June 30, 1986 between the Company and Richard Leeds,
Bruce Leeds and Robert Leeds, and Addendum thereto1
| | ---- | --------------------------------------------------------------------------------------------------------------------------------

| | 10.10 | Form of 1995 Stock Plan for Non-Employee
Directors3*
| | ----- | ----------------------------------------------------

| | 10.11 | Consulting Agreement dated as of January 1, 1996
between the Company and Gilbert Rothenberg3*
| | ----- | ---------------------------------------------------------------------------------------------

| | 10.12 | Asset Purchase Agreement dated September 12, 1997 among Infotel, Inc., Mark L.
Runkle, Midwest Micro Corp. and the Company6
| | ----- | ---------------------------------------------------------------------------------------------------------------------------

| | 10.13 | Employment Agreement dated as of December 12, 1997 between the Company and
Steven M. Goldschein4*
| | ----- | -------------------------------------------------------------------------------------------------

| | 10.14 | Revolving Credit Agreement among the Company, certain subsidiaries of the
Company, The Chase Manhattan Bank, as Agent, and The Bank of New York, as
Documentation Agent, dated November 30, 200010
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.15 | Security Agreement, dated as of October 16, 2000, among the Company, certain
subsidiaries of the Company and the Chase Manhattan Bank for itself and as agent
for The Bank of New York 11
| | ----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.16 | First Amendment, dated as of January 22, 2001 to Revolving Credit Agreement
among the Company, certain subsidiaries of the Company, The Chase Manhattan
Bank, as Agent, and The Bank of New York, as Documentation Agent, dated November
30, 200013
| | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.17 | Second Amendment, dated as of March 16, 2001 to Revolving Credit Agreement among
the Company, certain subsidiaries of the Company, The Chase Manhattan Bank, as
Agent, and The Bank of New York, as Documentation Agent, dated November 30, 2000
| | ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 19.1 | Specimen stock certificate of Registrant14
| | ---- | ------------------------------------------

| | 19.2 | Form of 1999 Long-Term Stock Incentive Plan9*
| | ---- | ---------------------------------------------

| | 21 | Subsidiaries of the Registrant
| | -- | ------------------------------

| | 23 | Consent of experts and counsel: Consent of Independent Public Accountants
| | -- | -------------------------------------------------------------------------

| | 99 | Audit Committee Charter 12
| | -- | --------------------------

* Management contract or compensatory plan or arrangement

(b)          
Reports on Form 8-K.

| | A report on Form 8-K was filed by the Company on
November 9, 2000 concerning the Company's announcement of its financial results
for the quarter ended September 30, 2000 and its restatement of financial
results for the quarters ended March 31, 2000 and June 30, 2000.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | A report on Form 8-K was filed by the Company on
December 20, 2000 concerning the December 20, 2000 execution of the Revolving
Credit Agreement dated November 30, 2000 among the Company, certain subsidiaries
of the Company, The Chase Manhattan Bank, as Agent, and The Bank of New York, as
Documentation Agent.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|1 | Incorporated herein by reference to the Company's registration
statement on Form S-1 (Registration No. 33-92052).
|- | -----------------------------------------------------------------------------------------------------------------

|2 | Incorporated herein by reference to the Company's quarterly report
on Form 10-Q for the quarterly period ended September 30, 1995.
|- | ----------------------------------------------------------------------------------------------------------------------------------

|3 | Incorporated herein by reference to the Company's registration
statement on Form S-1 (Registration No. 333-1852).
|- | -----------------------------------------------------------------------------------------------------------------

|4 | Incorporated herein by reference to the Company's annual report on
Form 10-K for the year ended December 31, 1997.
|- | ------------------------------------------------------------------------------------------------------------------

|5 | Incorporated herein by reference to the Company's quarterly report on Form 10-Q
for the quarterly period ended September 30, 1998.
|- | ----------------------------------------------------------------------------------------------------------------------------------

|6 | Incorporated
herein by reference to the Company's report on Form 8-K dated September 26,
1997.
|- | ----------------------------------------------------------------------------------------------

|7 | Incorporated herein by reference to the Company's report
on Form 8-K dated May 18, 1999.
|- | ----------------------------------------------------------------------------------------

|8 | Incorporated herein by reference to
the Company's annual report on Form 10-K for the year ended December 31,
1998.
|- | ------------------------------------------------------------------------------------------------------------------

|9 | Incorporated herein by reference to the Company's report
on Form 10-Q for the quarterly period ended September 30, 1999
|- | -----------------------------------------------------------------------------------------------------------------------

|10 | Incorporated herein by reference to the Company's report on Form 8-K dated
December 20, 2000
|-- | --------------------------------------------------------------------------------------------

|11 | Incorporated herein by reference to the
Company's quarterly report on Form 10-Q for the quarterly period ended
September 30, 2000.
|-- | ----------------------------------------------------------------------------------------------------------------------------------

|12 | Incorporated herein by reference to the Company's quarterly report
on Form 10-Q for the quarterly period ended June 30, 2000
|-- | ----------------------------------------------------------------------------------------------------------------------------

|13 | Incorporated herein by reference to the Company's report on Form
8-K dated February 5, 2001.
|-- | --------------------------------------------------------------------------------------------

|14 | Incorporated herein by reference to the Company's annual report on
Form 10-K for the year ended December 31, 1999.
|-- | ------------------------------------------------------------------------------------------------------------------

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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 in the City of New York,
State of New York, on the 27th day of March, 2001.

| | SYSTEMAX INC.
By: /s/ RICHARD LEEDS
          
      Richard Leeds
       Chairman and Chief Executive Officer
| | --------------------------------------------------------------------------------------------------------------

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.

|Signature | Title | Date
|--------- | ----- | ----

|/s/ RICHARD LEEDS
Richard Leeds | Chairman and Chief Executive Officer
(Principal Executive Officer) | March 27, 2001
|------------------------------- | ------------------------------------------------------------------ | --------------

|/s/ BRUCE LEEDS
Bruce Leeds | Vice Chairman and President of International
Operations | March 27, 2001
|--------------------------- | ------------------------------------------------------- | --------------

|/s/ ROBERT LEEDS 
Robert Leeds | Vice Chairman and President of Domestic
Operations | March 27, 2001
|------------------------------ | -------------------------------------------------- | --------------

|/s/ ROBERT DOOLEY
Robert Dooley | Director and Senior Vice President--
Worldwide Computer Sales and Marketing | March 27, 2001
|------------------------------- | --------------------------------------------------------------------------- | --------------

|/s/ STEVEN GOLDSCHEIN
Steven Goldschein | Senior Vice President and Chief Financial Officer
(Principal Financial Officer) | March 27, 2001
|--------------------------------------- | ------------------------------------------------------------------------------- | --------------

|/s/ MICHAEL J. SPEILLER
Michael J. Speiller | Vice President and Controller
(Principal Accounting Officer) | March 27, 2001
|------------------------------------------- | ------------------------------------------------------------ | --------------

|/s/ ROBERT D. ROSENTHAL
Robert D. Rosenthal | Director | March 27, 2001
|------------------------------------------- | -------- | --------------

|/s/ STACY DICK 
Stacy Dick | Director | March 27, 2001
|-------------------------- | -------- | --------------

********

INDEPENDENT AUDITORS' REPORT

The Shareholders and Board of Directors of
SYSTEMAX INC.:

We have audited the accompanying consolidated balance sheets of
Systemax Inc. and its subsidiaries, (the "Company"), as of December 31, 2000 and
1999 and the related consolidated statements of operations, shareholders' equity
and cash flows for each of the three years in the period ended December 31,
2000. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present
fairly, in all material respects, the consolidated financial position of the
Company at December 31, 2000 and 1999, and the consolidated results of their
operations and their cash flows for each of the three years ended December 31,
2000 in conformity with accounting principles generally accepted in the United
States of America.

/S/ DELOITTE & TOUCHE LLP
New York, New York
February 13, 2001

SYSTEMAX INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
(IN THOUSANDS, except for share data)

`2000            1999
                                                                                    ----            ----

ASSETS
------

CURRENT ASSETS:
  Cash and cash equivalents                                                      $  14,496       $   17,470
  Accounts receivable, net                                                         183,493          200,082
  Inventories                                                                      127,271          173,966
  Prepaid expenses and other current assets                                         29,509           28,890
  Income taxes receivable                                                           25,486
  Deferred income tax benefit                                                        8,781            6,369
                                                                                 ---------       ----------
         Total current assets                                                      389,036          426,777

PROPERTY, PLANT AND EQUIPMENT, net                                                  74,749           46,839

GOODWILL, net                                                                       70,672           73,684

DEFERRED INCOME TAX BENEFIT                                                          3,224            4,190

OTHER ASSETS                                                                           337              322
                                                                                 ---------       ----------

      TOTAL                                                                      $ 538,018       $  551,812
                                                                                 =========       ==========

LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:

  Notes payable to banks                                                         $  48,559    $       9,000
  Current portion of long-term debt                                                                     634
  Accounts payable                                                                 170,548          165,525
  Accrued expenses and other current liabilities                                    63,240           64,727
                                                                                 ---------       ----------
         Total current liabilities                                                 282,347          239,886
                                                                                 ---------       ----------

LONG-TERM DEBT                                                                                        1,740
                                                                                                 ----------

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY:
  Preferred stock, par value $.01 per share, authorized
      25 million shares, issued none
  Common stock, par value $.01 per share, authorized
     150 million shares, issued 38,231,990; outstanding
     34,104,290 (2000) and 35,237,790 (1999)                                           382              382
  Additional paid-in capital                                                       176,743          176,743
  Accumulated other comprehensive loss                                              (6,662)          (2,748)
  Retained earnings                                                                133,697          174,468
                                                                                 ---------       ----------
                                                                                   304,160          348,845
                                                                                 ---------       ----------
  Less: common stock in treasury at cost - 4,127,700 (2000) and
     2,994,200 (1999) shares                                                        48,489           38,659
                                                                                 ---------       ----------
                Total shareholders' equity                                         255,671          310,186
                                                                                 ---------       ----------

      TOTAL                                                                      $ 538,018       $  551,812
                                                                                 =========       ==========`

See notes to consolidated financial statements.

SYSTEMAX INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(IN THOUSANDS, EXCEPT PER COMMON SHARE AMOUNTS)

`2000              1999            1998
                                                                 ----              ----            ----

NET SALES                                                    $ 1,686,103       $1,754,472      $1,435,654

COST OF SALES                                                  1,476,248        1,439,947       1,147,098
                                                               ---------        ---------      ----------

GROSS PROFIT                                                     209,855          314,525         288,556

SELLING, GENERAL AND ADMINISTRATIVE
  EXPENSES                                                       270,863          254,690         224,208
                                                               ---------        ---------      -----------

INCOME (LOSS) FROM OPERATIONS                                    (61,008)          59,835          64,348

INTEREST AND OTHER INCOME                                           (106)          (1,153)         (3,225)

INTEREST EXPENSE                                                   4,352              465             497
                                                               ---------        ---------      -----------

INCOME (LOSS) BEFORE INCOME TAXES                                (65,254)          60,523          67,076

PROVISION (BENEFIT) FOR INCOME TAXES                             (24,483)          24,511          25,824
                                                               ---------        ---------      -----------

NET INCOME (LOSS)                                             $  (40,771)       $  36,012       $  41,252
                                                              ===========       =========        ==========

NET INCOME (LOSS) PER COMMON SHARE:
    BASIC                                                     $    (1.19)       $    1.01       $    1.11
                                                              ===========       =========        =========
    DILUTED                                                   $    (1.19)       $    1.01       $    1.11
                                                              ===========       =========        =========`

See notes to consolidated financial statements.

SYSTEMAX INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(IN THOUSANDS)

`Accumulated
                              Common Stock                                Other
                                Number           Additional            Comprehensive   Treasury    Comprehensive
                                 of               Paid-in   Retained   Income (Loss),   Stock        Income
                                Shares   Amount   Capital   Earnings    Net of Tax     at Cost       (Loss)
                              --------- -------- ---------  --------   ------------    ---------   ---------

Balances, January 1, 1998      38,232   $    382 $ 176,743  $ 97,204  $   (1,174)

Change in cumulative
  translation adjustment                                                   1,083                    $   1,083
Purchase of treasury shares    (2,104)                                                 $ (28,604)
Net income                                                    41,252                                   41,252
                              -------   -------- ---------  --------  ----------       ---------    ---------
Total comprehensive income                                                                          $  42,335
                                                                                                    ---------
Balances, December 31, 1998    36,128        382   176,743   138,456         (91)        (28,604)

Change in cumulative
 translation adjustment                                                   (2,657)                   $  (2,657)
Purchase of treasury shares      (890)                                                   (10,055)
Net income                                                    36,012                                   36,012
                              -------   -------- ---------  --------  ----------       ---------    ---------

Total comprehensive income                                                                          $  33,355
                                                                                                    ---------

Balances, December 31, 1999    35,238        382   176,743   174,468      (2,748)        (38,659)

Change in cumulative
 translation adjustment                                                   (3,914)                   $  (3,914)
Purchase of treasury
  shares                       (1,134)                                                    (9,830)
Net loss                                                     (40,771)                                 (40,771)
                              -------   -------- ---------  --------  ----------       ---------    ---------

Total comprehensive loss                                                                            $ (44,685)
                                                                                                     ---------

Balances, December 31, 2000    34,104   $    382  $176,743 $ 133,697  $   (6,662)       $(48,489)
                              =======    =======  ========  ========   =========        ========`

See notes to consolidated financial statements.

SYSTEMAX INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(IN THOUSANDS)

`2000             1999                   1998
                                                                       ----             ----                   ----
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income (loss)                                                    $(40,771)        $  36,012         $    41,252
Adjustments to reconcile net income (loss)  to net
  cash provided by (used in) operating activities:
    Depreciation and amortization, net                                 13,608            11,170               7,482
   Charges associated with the impairment of certain long lived assets                    1,921
    Provision for deferred income taxes                                   230             1,160              (2,728)
    Provision for returns and doubtful accounts                        12,721             8,832               5,264
    Changes in certain assets and liabilities:
      Accounts receivable                                              (3,263)          (46,578)            (23,688)
      Inventories                                                      43,124           (39,506)            (23,942)
      Prepaid expenses and other current assets                        (1,245)           (7,186)                330
      Income tax receivable                                           (25,486)
      Accounts payable and accrued expenses                             9,554            54,714              33,801
                                                                     --------         ---------         -----------

         Net cash provided by operating activities                      8,472            20,539              37,771
                                                                     --------         ---------         -----------

CASH FLOWS USED IN INVESTING ACTIVITIES:
Net change in short-term investments                                                      5,050               3,967
Investments in property, plant and equipment                          (40,738)          (21,981)            (11,051)
Acquisitions, net of cash acquired                                                      (10,176)
Deferred payments on acquisitions                                        (249)          ( 9,000)             (5,942)
                                                                     --------         ---------         -----------

         Net cash used in investing activities                        (40,987)          (36,107)            (13,026)
                                                                     --------          ---------         -----------

CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Proceeds from long-term borrowings
3,326
Proceeds from short-term borrowings from banks                         39,559             9,000
Repayments of long-term borrowings                                     (2,245)           (2,767)               (168)
Purchase of treasury shares                                            (9,830)          (10,055)            (28,604)
                                                                     --------         ---------         -----------

         Net cash provided by (used in) financing activities           27,484            (3,822)            (25,446)
                                                                     --------         ---------         -----------

EFFECTS OF EXCHANGE RATES ON CASH                                       2,057            (5,169)               (702)
                                                                     --------         ---------         -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS                              (2,974)          (24,559)             (1,403)
                                                                     --------         ---------         -----------
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD                        17,470            42,029              43,432
                                                                     --------         ---------         -----------
CASH AND CASH EQUIVALENTS - END OF PERIOD                            $ 14,496         $  17,470         $    42,029
                                                                     ========         =========         ===========
SUPPLEMENTAL DISCLOSURES:
Interest paid                                                        $  4,176         $     537         $       309
                                                                     ========         =========         ===========
Income taxes paid                                                    $  5,027         $  21,684         $    28,577
                                                                     ========         =========         ===========`

SYSTEMAX INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

1.     SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES

| | Principles
of Consolidation - The accompanying consolidated financial
statements include the accounts of Systemax Inc. and its wholly-owned
subsidiaries (collectively, the "Company" or "Systemax").
All significant intercompany accounts and transactions have been eliminated in
consolidation.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Cash,
Cash Equivalents and Short-term Investments - The Company
considers amounts held in money market accounts and other short-term investments
with an original maturity date of approximately three months or less to be cash
equivalents. The Company's investments in cash equivalents and short-term
investments are classified as debt securities available-for-sale. These
equivalents are stated at fair market value. Unrealized holding gains and losses
are not significant for any of the years presented.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Revenue
Recognition and Accounts Receivable  The Company recognizes
sales of products, including shipping revenue, at the time of shipment. Accounts
receivable are shown in the consolidated balance sheets net of allowances for
doubtful collections and subsequent customer returns of approximately
$15,329,000 and $13,963,000 at December 31, 2000 and 1999, respectively. The
changes in these allowance accounts are summarized as follows (in thousands):
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

`Year ended December 31                            2000         1999         1998
          ----------------------                         -------       -------      -------
          Balance, beginning of year.....................$  13,963    $  8,664      $ 7,338
          Charged to expense..............................  12,721       8,832        5,264
          Acquisitions....................................               1,614
          Reductions, principally write-offs..............( 11,355)     (5,147)      (3,938)
                                                          ---------   ---------     -------
          Balance, end of year...........................$  15,329    $ 13,963      $ 8,664
                                                         =========    =========     =======`

| | Inventories
- Inventories consist primarily of finished goods and are stated at the
lower of cost or market value. Cost is determined by using the first-in,
first-out method.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Property,
Plant and Equipment  Property, plant and equipment is
stated at cost. Depreciation of furniture, fixtures and equipment is on the
straight-line or accelerated method over their estimated useful lives ranging
from three to ten years. Depreciation of buildings is on the straight-line
method over estimated useful lives of 30 to 50 years. Leasehold improvements are
amortized over the term of the respective leases.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Capitalized
Software Costs  The Company capitalizes purchased software
ready for service and capitalizes software development costs incurred on
significant projects from the time that the preliminary project stage is
completed and management commits to funding a project until the project is
substantially complete and the software is ready for its intended use.
Capitalized costs include materials and service costs and payroll and
payroll-related costs. Capitalized software costs are amortized using the
straight-line method over the estimated useful life of the underlying system,
generally five years.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Foreign
Currency Translation - The financial statements of the foreign
entities are translated into U.S. dollars, the reporting currency, using
year-end exchange rates for consolidated balance sheet items and average
exchange rates for the consolidated statements of net income items. The
translation differences are made directly to a separate component of
shareholders' equity.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Foreign
Currency Transactions - Transactions in foreign currencies are
recorded at the exchange rate in effect at the transaction date. Realized and
unrealized exchange gains and losses during the year are included in the
respective year's consolidated statement of net income.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Advertising
Costs - Direct response advertising costs, consisting primarily
of catalog preparation, printing and postage expenditures, are amortized over
the period of catalog distribution during which the benefits are expected.
Advertising expenditures relating to the Company's national advertising
campaign are expensed in the period the advertising takes place. Advertising
costs, net of rebates from vendors, of $54.1 million in 2000, $57.1 million in
1999 and $64.2 million in 1998 are included in the accompanying Consolidated
Statement of Operations. Prepaid expenses at December 31, 2000 and 1999 include
deferred advertising costs of $14.8 million and $13.8 million, respectively,
which are reflected as an expense during the period benefited.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Research
and Development Costs - Costs incurred in connection with
research and development are expensed as incurred. Such expenses for the years
ended December 31, 2000, 1999 and 1998 aggregated approximately $1,868,000,
$2,256,000 and $1,352,000, respectively.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Goodwill,
net  Goodwill and negative goodwill are combined and
presented net of accumulated amortization. Goodwill represents the excess of
acquisition costs over the fair market value of the net assets of acquired
businesses and is being amortized on a straight-line basis over their estimated
useful lives, ranging from 10 to 40 years. In instances where the Company had
acquired a business below the fair value of the assets acquired, the Company recorded negative
goodwill. Annual amortization of goodwill was an expense of $1,698,000 in 2000,
$2,323,000 in 1999 and $751,000 in 1998
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Evaluation
of Long-lived Assets  Long-lived assets are assessed for
recoverability whenever events or changes in circumstances indicate that an
asset may have been impaired. In evaluating an asset for recoverability, the
Company estimates the future cash flows expected to result from the use of the
asset and eventual disposition. If the sum of the expected future cash flows
(undiscounted and without interest charges) is less than the carrying amount of
the asset, an impairment loss, equal to the excess of the carrying amount over
the fair market value of the asset is recognized. During the second quarter of
1999, the Company wrote off $1.9 million of goodwill associated with a number of
small acquisitions made during the previous few years.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Net
Income (Loss) Per Common Share  The Company accounts for
net income (loss) per share in accordance with Statement of Financial Accounting
Standard No. 128, "Earnings Per Share". Net income (loss) per common
share-basic was calculated based upon the weighted average number of common
shares outstanding during the respective periods. Net income (loss) per common
share-diluted was calculated based upon the weighted average number of common
shares outstanding and included the equivalent shares for dilutive options
outstanding during the respective periods except in loss periods, where the
effect is anti-dilutive.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
weighted average common shares outstanding for the computation of basic earnings
per common share for 2000, 1999 and 1998 were 34.3 million, 35.8 million and
37.3 million, respectively. Additionally 42,000 in 1999 and 16,000 in 1998 of
equivalent common shares were included for the diluted calculation.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Comprehensive
Income (Loss) - In 1998, the Company adopted Statement of
Financial Accounting Standard No. 130 "Reporting Comprehensive
Income". This statement establishes rules for the reporting of
comprehensive income and its components. Comprehensive income (loss) consists of
net income (loss) and foreign currency translation adjustments and is included
in the Consolidated Statements of Shareholders' Equity. Comprehensive
income (loss) was ($44,685,000) in 2000, $33,355,000 in 1999 and $42,335,000 in
1998, net of tax effects on currency translation adjustments of $1,719,000 in
2000, $1,593,000 in 1999 and ($699,000) in 1998.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Use
of Estimates In Financial Statements - The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amount of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Recent
Accounting Pronouncements - Statement of Financial Accounting
Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging
Activities, is effective for all fiscal years beginning after June 15, 2000.
SFAS 133, as amended, establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts and for hedging activities. Under SFAS 133, certain contracts
that were not formerly considered derivatives may now meet the definition of a
derivative. The Company will adopt SFAS 133 effective January 1, 2001. The
Company currently does not make use of derivative instruments as defined by SFAS
No. 133. If the Company does not increase the utilization of derivative
instruments, the adoption of this standard is not expected to have a significant
impact on the financial position, results of operations, or cash flows of the
Company.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue
Recognition in Financial Statements." SAB 101 summarizes certain SEC views
in applying generally accepted accounting principles to revenue recognition in
financial statements. The Company adopted SAB 101 in the fourth quarter of 2000.
The adoption did not have a significant effect on the consolidated results of
operations or financial position.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

2.      ACQUISITIONS

| | The
Company acquired two businesses in 1999 for $12.2 million in cash and two
businesses in 1998 for $5.9 million in cash. These acquisitions were accounted
for as purchases, and accordingly, the assets and liabilities of the acquired
entities have been recorded at their estimated fair values at the dates of
acquisition. The excess of purchase price over the estimated fair values of net
assets acquired, in the amount of $17.0 million in 1999 and $5.2 million in 1998
has been recorded as goodwill and is being amortized over the estimated useful
lives.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
pro forma results for 2000, 1999 and 1998, assuming these acquisitions had been
made at the beginning of the period, would not have been materially different
from the reported results.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

3.     PROPERTY,
PLANT AND EQUIPMENT

`Property, plant and equipment, net consists of the following (in thousands):

                                                                      2000           1999
                                                                   -----------     ----------
     Land and buildings............................................$    25,518     $   11,348
     Furniture and fixtures, office, computer and
          warehouse equipment.......................................    74,774         55,825
     Leasehold improvements.........................................    12,505         10,774
     Transportation equipment.......................................     2,431          2,529
                                                                    ----------     ----------
                                                                       115,228         80,476
     Less accumulated depreciation and amortization.................    40,479         33,637
                                                                    ----------     ----------
     Property, plant and equipment, net.............................$   74,749     $   46,839
                                                                    ==========     ==========`

4.      RELATED
PARTY TRANSACTIONS

| | The
Company leases several warehouse and office facilities from affiliates (see Note
8). Rent expense under those leases aggregated approximately $1,314,000,
$1,584,000 and $1,584,000 for the years ended December 31, 2000, 1999 and 1998,
respectively.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

5.      DEBT

| | In December 2000 the Company entered into a Revolving Credit Agreement with its
domestic banks to provide an uncommitted credit facility of $70 million, secured
by all of the Company's domestic accounts receivable. The agreement, originally
expiring on January 31, 2001, was later extended to May 31, 2001. This facility
replaces previously uncommitted, unsecured lines of credit the Company
maintained with these banks, and is available for its domestic operations. The
agreement provides, at the Company's option, interest based on LIBOR or the
prime rate. The agreement contains certain covenants and restrictions, including
limitation on the payment of dividends and on business acquisitions. At December
31, 2000 there was $38,000,000 outstanding under this agreement. Included in
this agreement, the Company may have outstanding letters of credit equal to the
amount of the total line less outstanding borrowings. At December 31, 2000 there
were $2,405,000 of outstanding letters of credit.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Subsequent to December 31, 2000, the Company
accepted a proposal from a financial institution for a three-year committed
domestic borrowing facility to replace the existing Revolving Credit Agreement,
secured principally by the Company's eligible accounts receivable and inventory
balances. Closing is subject to due diligence and negotiation of a definitive
agreement, which management believes will be completed during the Company's
quarter ending June 30, 2001.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company entered into a £15,000,000 ($22,395,000 at the December 31, 2000
exchange rate) multi-currency credit facility with Barclays Bank in the United
Kingdom in January 2000, which is available to its United Kingdom subsidiaries.
Drawings under the facility may be made by overdraft, trade acceptance or loan.
The facility is secured by assets of certain of the Company's United Kingdom
subsidiaries and a guaranty from the Company. At December 31, 2000 there were
£7,068,000 ($10,559,000) of borrowings outstanding under this line.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The weighted average interest rate on short-term borrowings was 7.9% in 2000 and 8.2% in 1999.
| | ----------------------------------------------------------------------------------------------

| | At
December 31, 1999, there was $2,374,000 of long-term debt outstanding, of which
$634,000 was current. This represented the balance of a five-year loan agreement
in the amount of 26.7 million Swedish Krone, payable in quarterly installments,
with interest at a rate of LIBOR plus 200 basis points. The loan was secured by
substantially all of the assets of the Company's United Kingdom
subsidiaries and was repaid during the first quarter of 2000.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

6.      SHAREHOLDERS' EQUITY

| | In
May 1998 the Board of Directors authorized a share repurchase program to acquire
up to 1,350,000 (subsequently increased to 4,350,000) common shares on the open
market. The Company purchased an aggregate of 1,133,500 shares during 2000 at an
aggregate cost of $9.8 million, 890,300 shares during 1999 at an aggregate cost
of $10.1 million and 2,103,900 shares during 1998 at an aggregate cost of $28.6
million.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
required by law, certain foreign subsidiaries must retain a percentage of
shareholders' capital in the respective company. Accordingly, a portion of
retained earnings is restricted and not available for distribution to
shareholders. Such amount at December 31, 2000 was not material.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Stock
Option Plans-The Company has three fixed option plans
which reserve shares of common stock for issuance to key employees, directors,
consultants and advisors to the Company. The following is a description of these
plans:
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The 1995 Long-Term Stock Incentive Plan - This plan allows the Company to issue
qualified, non-qualified and deferred compensation stock options, stock
appreciation rights, restricted stock and restricted unit grants, performance
unit grants and other stock based awards authorized by the Compensation
Committee of the Board of Directors. Options issued under this plan expire ten
years after the options are granted and generally become exercisable ratably on
the third, fourth, and fifth anniversary of the grant date. A maximum total
number of 2.0 million shares may be granted under this plan of which a maximum
of 800,000 shares may be of restricted stock and restricted stock units. No
award shall be granted under this plan after December 31, 2005. A total of
1,771,782 options were outstanding under this plan as of December 31, 2000.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The 1995 Stock Option Plan for Non-Employee Directors - This plan provides for
automatic awards of non-qualified options to directors of the company who are
not employees of the Company or its affiliates. All options granted under this
plan will have a ten year term from grant date and are immediately exercisable.
A maximum of 100,000 shares may be granted for awards under this plan. This plan
will terminate the day following the tenth annual stockholders meeting. A total
of 30,000 options were outstanding under this plan as of December 31,
2000.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The 1999 Long-Term Stock Incentive Plan - This plan was adopted on October 25,
1999 with substantially the same terms and provisions as the 1995 Long-Term
Stock Incentive Plan, restricting the awards to non-qualified stock options
authorized by the Compensation Committee of the Board of Directors. A maximum
total number of 2.0 million shares may be granted under this plan. No award
shall be granted under this plan after December 31, 2009. A total of 324,850
options were outstanding under this plan as of December 31, 2000.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The Company accounts for these plans in accordance with Accounting Principles
Board Opinion No. 25 "Accounting for Stock Issued to Employees", under which no
compensation costs have been recognized for stock options. Had compensation
costs of the plans been determined under a fair value alternative method as
stated in Statement of Financial Accounting Standard No. 123, "Accounting for
Stock-Based Compensations", the Company would have recorded such amount in the
accompanying consolidated financial statements as compensation expense. On a pro
forma basis, net income (loss) would have been ($42.6) million for 2000, $33.9
million for 1999 and $39.8 million for 1998, and diluted earnings (loss) per
common share would have been ($1.24) for 2000, $0.95 for 1999 and $1.07 for
1998. The Company arrived at the fair value of stock grant at the date of the
grant by using the Black-Scholes pricing option model with the following
assumptions used for grants: risk-free interest rate of 6.0% (2000), 6.0% (1999)
and 5.9% (1998); expected dividend rate of 0% for 2000, 1999 and 1998; expected
life of 3.72 years (2000), 3.67 years (1999) and 3.78 years (1998); and expected
volatility of 62% (2000), 48% (1999) and 38% (1998). The stock options
outstanding at December 31, 2000, 1999 and 1998 have a weighted average
contractual life of 6.7 years, 7.8 years and 7.7 years, respectively. The
following table reflects the plan activity for the years ended December 31,
2000, 1999 and 1998:
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

`Year-end Options
                                           For Shares         Option Prices
                                           ----------         -------------
      Outstanding, January 1, 1998          1,304,948        $17.50 to $39.06
      Granted                                 469,450        $12.38 to $17.50
      Cancelled                              (131,550)       $17.50 to $18.41
                                             --------        ----------------
      Outstanding, December 31, 1998        1,642,848        $12.38 to $39.06
      Granted                                 848,700        $ 7.31 to $ 7.88
      Cancelled                               (65,164)       $12.38 to $18.41
                                              -------        ----------------
      Outstanding, December 31, 1999        2,426,384        $ 7.31 to $39.06
      Granted                                   4,000        $ 7.19
      Cancelled                              (303,752)       $ 7.31 to $18.41
                                             --------        ----------------
      Outstanding, December 31, 2000        2,126,632        $ 7.19 to $39.06
                                            =========`

| | The
following table summarizes information for the three years ended December 31,
2000 concerning currently outstanding and exercisable options:
| | ------------------------------------------------------------------------------------------------------------------------------------------------

`2000                         1999                        1998
                                 --------------------------  ---------------------------  ------------------------
                                          Weighted-Average             Weighted Average          Weighted Average
Fixed Options                     Shares   Exercise Price      Shares   Exercise Price     Shares Exercise Price
                                  ------------------------------------------------------------------------------
Outstanding at beginning of year 2,426,384    $14.34        1,642,848      $18.04        1,304,948   $19.28
Granted .........................    4,000    $ 7.19          848,700      $ 7.32          469,450   $14.49
Cancelled ....................... (303,752)   $11.72          (65,164)     $17.14         (131,550)  $17.64
                                 ----------                ----------                     --------
Outstanding at end of year ......2,126,632    $14.70        2,426,384      $14.34        1,642,848   $18.04
                                 =========                  =========                    =========

Options exercisable at year end  1,133,547                    595,050                      335,550

Weighted average fair value per
   option granted during the year    $5.60                      $3.02                        $5.77


     As of December 31, 2000:
          Range of                                    Weighted-Average   Weighted-Average              Weighted-Average
          Exercise                   Number               Remaining          Exercise        Number        Exercise
           Price                  Outstanding         Contractual Life         Price       Exercisable      Price
     -----------------------      -----------         ----------------   ----------------  -----------  ---------------

     $  7.19 to $ 15.00             901,850                 8.58             $  8.49        167,526        $  7.47
     $ 15.01 to $ 20.00             977,782                 5.38             $ 17.39        719,021        $ 17.41
     $ 20.01 to $ 30.00             243,000                 4.71             $ 26.57        243,000        $ 26.57
     $ 30.01 to $ 39.06               4,000                 5.33             $ 39.06          4,000        $ 39.06
                                  ---------                                               ---------
     $  7.19 to $ 39.06           2,126,632                 6.66             $ 14.70      1,133,547        $ 17.98
                                  =========                                               =========`

7.      INCOME TAXES

| | The provision (benefit) for income taxes consists of the following (in thousands):
| | ----------------------------------------------------------------------------------

`Year Ended December 31          2000            1999          1998
           ----------------------        --------        --------     ---------
           Current:
              Federal                    $(24,915)       $ 18,145     $  22,072
              State                        (1,146)          3,558         4,259
              Foreign                       1,348           1,648         2,242
           Deferred                           230           1,160        (2,749)
                                         --------        --------     ---------
              Total                      $(24,483)       $ 24,511     $  25,824
                                         ========        ========     =========`

| | Income taxes are accrued and paid by each foreign entity in accordance with
applicable local regulations.
| | ---------------------------------------------------------------------------------------------------------

| | A
reconciliation of the difference between the income tax expense (benefit) and
the computed income tax expense based on the Federal statutory corporate rate is
as follows (in thousands):
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

`Year Ended December 31                                       2000         1999        1998
           ----------------------                                     -------      -------     ---------
           Income tax at Federal statutory rate                      $(22,839)    $ 21,183     $  23,477
           State and local income taxes, net of federal tax benefit      (766)       2,461         2,511
           Foreign operating losses with no benefit provided                           932
           Foreign income taxed at different rates                       (481)
           Other items, net                                              (397)         (65)         (164)
                                                                     --------     --------     ---------
                                                                     $(24,483)    $ 24,511     $  25,824
                                                                     ========     ========     =========`

`2000        1999
                                                                                   -------     --------
           Current:
              Deductible assets....................................................$(5,030)    $ (5,380)
              Non-deductible accruals and reserves..................................12,416       10,129
              Non-deductible assets................................................. 1,430        1,692
              Other.................................................................   (35)         (72)
                                                                                    ------     --------
                  Current........................................................... 8,781        6,369
                                                                                    ------     --------

           Non-current:
              Foreign net operating loss carryforwards.............................. 4,280        5,642
              Accelerated depreciation..............................................(1,035)        (968)
              Basis differences from acquisitions...................................  (667)         792
              Valuation allowances..................................................(2,923)      (3,126)
                                                                                    ------     --------
                  Non-current.......................................................  (345)       2,340
                                                                                    ------     --------
                      Total.........................................................$8,436     $  8,709
                                                                                    ======     ========`

| | The
foreign net operating loss carryforwards generally expire at dates through 2007
except for carryforwards in the United Kingdom and Germany, which have no
expiration. In accordance with Statement of Financial Accounting Standard 109
"Accounting for Income Taxes", the Company maintains valuation
allowances against its foreign net operating loss carryforwards since, at this
time, the realizability of the related deferred tax benefits can not be
reasonably assured.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company has provided a full valuation allowance for certain state net operating
loss carryforwards as it is not likely they will be realized.
| | -------------------------------------------------------------------------------------------------------------------------------------------------

8.      
COMMITMENTS, CONTINGENCIES AND OTHER MATTERS

| | Leases- The Company is obligated under operating lease agreements for
the rental of certain office and warehouse facilities and equipment which expire
at various dates through December 2015. The Company currently has leases for two
facilities in New York with entities owned by the Company's three senior
executives, directors and principal stockholders.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | At December 31, 2000 future minimum annual lease payments for related and
third-party leases were as follows (in thousands):
| | ----------------------------------------------------------------------------------------------------------------------------

`Related Party         Third Party          Total
                                                   -------------         -----------         --------
             2001................................    $  1,224            $  5,019            $ 6,243
             2002................................       1,224               4,516              5,740
             2003................................       1,224               4,188              5,412
             2004................................       1,224               3,720              4,944
             2005................................       1,224               3,738              4,962
             2006-2010...........................       2,295              13,614             15,909
             2011-2015...........................                             583                583
                                                     --------            --------            -------

                                                     $  8,415            $ 35,378            $43,793
                                                     =========           ========            =======`

| | Annual
rent expense aggregated approximately $8,580,000, including $1,314,000 to
related parties, for 2000, $8,223,000, including $1,584,000 to related parties,
for 1999 and $7,665,000, including $1,584,000 to related parties, for 1998.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Guarantees - The Company has issued a guarantee to a U. K. financial institution
to secure a line of credit for its European subsidiaries.
| | ------------------------------------------------------------------------------------------------------------------------------------------

| | Litigation
 In December 1999 the Company settled its lawsuit with a bankrupt
former supplier and its lenders. After the payment of a cash settlement, the
Company's fourth quarter results of operations were positively impacted
($3.0 million net of tax) by the reversal of amounts previously reserved for in
connection with this lawsuit.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company has been named as a defendant in other lawsuits incidental to its
business. Management of the Company, based on discussions with legal counsel,
believes the ultimate resolution of these lawsuits will not have a material
effect on the Company's consolidated financial position or results of
operations.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Contingency
- The Company is required to collect sales tax on certain of its sales. In
accordance with current laws, approximately 13% of the Company's 2000
domestic sales were subject to sales tax. Changes in law could require the
Company to collect sales tax in additional states.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Employee
Benefit Plans -Certain of the U.S. subsidiaries participate in defined
contribution 401(k) plans covering eligible employees as defined by the plan
document. Contributions to the plans by the Company are determined as a
percentage of the employees' contributions. Aggregate expense to the
Company for contributions to such plans was approximately $514,000 in 2000,
$437,000 in 1999 and $397,000 in 1998.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Liabilities
accrued by certain foreign entities for employee termination indemnities,
determined in accordance with labor laws and labor agreements in effect in the
respective country, were not material.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Foreign
Exchange Risk Management -The Company has no involvement with
derivative financial instruments and does not use them for trading purposes. The
Company may enter into foreign currency options or forward exchange contracts to
hedge certain foreign currency transactions. The intent of this practice would
be to minimize the impact of foreign exchange rate movements on the Company's
operating results. As of December 31, 2000, the Company had no outstanding
forward exchange contracts.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Fair
Value of Financial Instruments - Financial instruments consist
primarily of investments in cash, trade account receivables, accounts payable
and debt obligations. The Company estimates the fair value of financial
instruments based on interest rates available to the Company and by comparison
to quoted market prices. At December 31, 2000 and 1999, the carrying amounts of
cash and cash equivalents, accounts receivable, income taxes receivable and
accounts payable are considered to be representative of their respective fair
values due to their short-term nature. The carrying amounts of the notes payable
to banks and long-term debt are considered to be representative of their
respective fair values as their interest rates are based on market rates.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Concentration
of Credit Risk Financial instruments that potentially subject the
Company to concentrations of credit risk consist of cash, cash equivalents and
accounts receivable. Concentrations of credit risk with respect to accounts
receivable are limited due to the large number of customers and their geographic
dispersion comprising the Company's customer base.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

9.      SEGMENT AND
RELATED INFORMATION

| | Pursuant
to SFAS No. 131 "Disclosure About Segments of an Enterprise and Related
Information", the Company determined that it is engaged in a single
reportable segment which markets and sells various business products. The
Company's product offerings include personal computers (PC's),
computer related products, industrial products and office products and are
monitored for sales trends and profitability in these sub-categories. Products
are marketed through an integrated system of direct mail catalogs, a network of
major account sales representatives and proprietary e-commerce Internet
web-sites.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Financial information relating to the Company's operations by geographic area
was as follows (in thousands):
| | ------------------------------------------------------------------------------------------------------------

`Net Sales
                             -------------------------------------------
                                2000             1999              1998
                             -------------------------------------------
     North America           $1,138,006       $1,263,401       $1,121,250
     Europe                     548,097          491,071          314,404
                             ----------       ----------        ---------
     Consolidated            $1,686,103       $1,754,472       $1,435,654
                             ==========       ==========       ==========`

| | Revenues are attributed to countries based on location of selling subsidiary.
| | -----------------------------------------------------------------------------

`Long-Lived Assets
                               --------------------------------------------
                                 2000             1999              1998
                               --------------------------------------------

     North America             $116,363          $ 91,590          $79,254
     Europe                      29,058            28,933           11,346
                               --------          --------          -------
     Consolidated              $145,421          $ 120,523         $90,600
                               ========          =========         =======`

10.       QUARTERLY FINANCIAL DATA
(UNAUDITED)

| | Quarterly financial data is as follows (in thousands, except for per share amounts):
| | ------------------------------------------------------------------------------------

`First        Second           Third       Fourth
     2000                                 Quarter       Quarter         Quarter      Quarter
     ----                                 -------       -------         -------      -------

     Net sales.........................$ 448,870      $ 405,972         $ 409,795    $ 421,466
     Gross profit......................$  68,169      $  44,348         $  47,777    $  49,561
     Net loss   .......................$  (2,552)     $ (14,531)        $ (14,236)   $  (9,452)
     Net loss per common share:
              Basic and diluted........   ($ .07)       ($  .43)          ($  .42)      ($ .28)

                                            First        Second           Third      Fourth
     1999                                 Quarter        Quarter         Quarter     Quarter
     ----                                 -------        -------         -------     -------

     Net sales.........................$ 421,651      $ 413,800         $ 440,659    $ 478,362
     Gross profit......................$  79,312      $  76,222         $  77,697    $  81,294
     Net income........................$  10,763      $   5,230         $   9,314    $  10,705
     Net income per common share:
              Basic and diluted........$     .30      $     .15         $     .26    $     .30`

* * * * * * *

EXHIBIT INDEX

|10.17 | Second Amendment, dated as of March 16, 2001 to Revolving Credit Agreement among
the Company, certain subsidiaries of the Company, The Chase Manhattan Bank, as
Agent, and The Bank of New York, as Documentation Agent, dated November 30, 2000
|----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|21 | Subsidiaries of the Registrant
|-- | ------------------------------

|23 | Consent of Independent Public Accountants
|-- | -----------------------------------------