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# SECURITIES AND
EXCHANGE COMMISSION

# WASHINGTON, D.C. 20549

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# FORM 10-K

|(Mark One)
[ X ] [    ] | ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2006
or
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|----------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

For the transition period from
      to      
Commission File Number:
1-13792

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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.)
|----------------------------------------------------------------------- | ------------------------------------------------

11 Harbor Park Drive 
Port Washington, New York 11050
(Address of principal executive offices, including 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 exchangeon which registered
New York Stock Exchange
|----------------------------------------------------------- | ----------------------------------------------------------------

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

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Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.
          
          Yes [  ]   No [X]

          
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act.
          
          Yes [  ]   No [X]

          
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. [  ] 

          
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the
Exchange Act).      Large Accelerated Filer [  ]      
Accelerated Filer [  ]      Non Accelerated Filer [X] 

          
Indicate by check mark whether the registrant is a shell company (as defined in
Exchange Act Rule 12b-2).       Yes [  ] No [X] 

          
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of June 30, 2006, which is the last business day of the
registrants most recently completed second fiscal quarter, was
approximately $73,985,207. 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 1, 2007 was 35,843,259 shares. 

          
Documents incorporated by reference:  Portions of the Proxy Statement
of Systemax Inc. relating to the 2007 annual meeting of stockholders are
incorporated by reference in Part III hereof.

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# TABLE OF CONTENTS

|Part I  
   Item 1. 
   Item 1A.
   Item 1B.
   Item 2. 
   Item 3. 
   Item 4. 
Part II 
   Item 5. 
   Item 6. 
   Item 7. 
   Item 7A.
   Item 8. 
   Item 9. 
   Item 9A.
   Item 9B.
Part III
   Item 10.
   Item 11.
   Item 12.
   Item 13.
   Item 14.
Part IV 
   Item 15. | Business
    General
    Products
    Sales and Marketing
    Customer Service, Order Fulfillment and Support
    Suppliers
    Competition and Other Market Factors
    Employees
    Environmental Matters
    Financial Information About Foreign and Domestic Operations
    Available Information
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Submission of Matters to a Vote of Security Holders
Market for Registrant's Common Equity and Related Stockholder Matters of Equity Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Exhibits and Financial Statement Schedules
Signatures | 2
2
3
3
5
5
5
6
6
7
7
8
14
14
15
16
16
17
18
28
28
28
29
30
31
31
31
31
31
31
35
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PART I

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

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 and Exchange Commission or
otherwise. Statements contained in this report that are not historical facts are
forward looking statements made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. 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, and 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 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 1A. Risk Factors, 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.

# Item 1.  Business.

# General

Systemax is a direct marketer of brand name and private label products. Our
operations are organized in three primary reportable business segments 
Technology Products, Industrial Products and Hosted Software. Hosted Software
became a reportable segment in 2006. Our Technology Products segment sells
computers, computer supplies and consumer electronics which are marketed in
North America and Europe. We assemble our own PCs and sell them under the
trademarks Systemax and Ultra. In addition, we market
and sell computers manufactured by other leading companies. Technology products
accounted for 92% of our net sales in 2006. Our Industrial Products segment
sells a wide array of material handling equipment, storage equipment and
consumable industrial items which are marketed in North America. Industrial
products accounted for 8% of our net sales in 2006. In both of these product
groups we offer our customers a broad selection of products, prompt order
fulfillment and extensive customer service. Our Hosted Software segment
participates in the emerging market for on-demand, web-based business software
applications through the marketing of our PCS ProfitCenter Software
of hosted software. See Note 12 to the consolidated financial statements
included in Item 15 of this Form 10-K for additional financial information about
our business segments as well as information about our geographic operations.

The Company was incorporated in Delaware in 1995. Certain predecessor businesses
which now constitute part of the Company have been in business since 1955. Our
headquarters office is located at 11 Harbor Park Drive, Port Washington, New
York.

# Products

We offer more than 100,000 brand name and private label products. We endeavor to
expand and keep current the breadth of our product offerings in order to fulfill
the increasingly wide range of product needs of our customers.

Our computer sales include Systemax and Ultra PCs as well as offerings of other
brand name PCs, servers and notebook computers. Computer supplies and consumer
electronics related products include supplies such as laser printer toner
cartridges and ink jet printer cartridges; media such as recordable 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; monitors; digital cameras; plasma and LCD TVs; MP3 and DVD players;
PDAs; and packaged software.

We assemble our Systemax and Ultra brand PCs in our 297,000 square foot,
ISO-9001-certified facility in Fletcher, Ohio. We purchase components and
subassemblies from suppliers in the United States as well as overseas. Certain
parts and components for our PCs are obtained from a limited group of suppliers.
We also utilize licensed technology and computer software in the assembly of our
PCs. For a discussion of risks associated with these licenses and suppliers, see
Item 1A, Risk Factors.

Our industrial products include storage equipment such as wire and metal
shelving, bins and lockers; light material handling equipment such as hand
carts, forklifts and hand trucks; ladders, furniture, small office machines and
related supplies; and consumable industrial products such as first aid items,
safety items, protective clothing and OSHA compliance items.

We began to market our PCS ProfitCenter Software suite of business
applications in 2004. PCS ProfitCenter Softwareis a web-based
application which is delivered as an on-demand service over the internet. The
product helps companies automate and manage their entire customer life-cycle
across multiple sales channels (internet, call centers, outside salespersons,
etc.). We have not recognized any significant revenues for this service to date.

# Sales and Marketing

We market our products to both business customers and individual consumers. Our
business customers include for-profit businesses educational organizations and
government entities. We have developed a proprietary customer and prospect
database. We consider our business customers to include the various individuals
who work within an organization rather than just the business itself.

We have established a three-pronged system of direct marketing to business
customers, consisting of relationship marketers, catalog mailings and propriety
internet web sites, the combination of which is designed to maximize sales. Our
relationship marketers focus their efforts on our business customers by
establishing a personal relationship between such customers and a Systemax
account manager. 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. With access to the records
we maintain of historical purchasing patterns, our relationship marketers are
prompted with product suggestions to expand customer order values. In the United
States, we also have 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 these
customers. Our relationship marketers efforts are supported by frequent
catalog mailings and e-mail campaigns both of which are designed to generate
inbound telephone sales, and our interactive websites, which allow customers to
purchase products directly over the Internet. We believe that the integration of
these three marketing methods enables us to more thoroughly penetrate our
business and government customer base. Increased internet exposure can lead to
more internet-related sales and can also generate more inbound telephone sales;
just as catalog mailings and email campaigns which feature our websites can
result in greater internet-related sales.

Our growth in net sales continues to be supported by strong growth in sales to
individual consumers, particularly through e-commerce means. To reach our
consumer audience, we use methods such as website campaigns, banner ads and
e-mail campaigns. We are able to monitor and evaluate the results of our various
advertising campaigns to enable us to execute them in a cost-effective manner.
As part of our marketing strategy we advertise manufacturers
mail-in-rebates on many products we sell and, in some cases, offer our own
rebates. We combine our use of e-commerce initiatives with catalog mailings,
which generate calls to inbound sales representatives. These sales
representatives use our information systems to fulfill orders and explore
additional customer product needs. Sales to consumers are generally fulfilled
from our own stock, requiring us to carry more inventory than we would for our
business customers. We also periodically take advantage of attractive product
pricing by making opportunistic bulk inventory purchases with the objective of
turning them quickly into sales. We have also successfully increased our sales
to individual consumers by using retail outlet stores. We currently have eight
such retail locations in North America and we have four in Europe, which are
located in or near one of our existing sales and distribution centers, thereby
minimizing our operating costs. We presently plan to add four more retail
locations in 2007.

E-commerce

The worldwide growth in active internet users has made e-commerce a significant
opportunity for sales growth. In 2006, we had approximately $819 million in
internet-related sales, an increase of $169 million, or 26%, from 2005.
E-commerce sales represented 34.9% of total revenue in 2006, compared to 30.7%
in 2005. The increase in our internet-related sales enables us to leverage our
advertising spending, allowing us to reduce our printed catalog costs while
maintaining customer contact.

We currently operate multiple e-commerce sites, including www.systemaxpc.com,
www.tigerdirect.com, www.tiger.ca, www.globalcomputer.com,
www.globalgoved.com, www.infotelusa.com, www.misco.co.uk,
www.misco.fr, www.misco.de, www.misco.se, www.misco.es,
www.misco.it, www.misco.nl, www.profitcenter.com and
www.globalindustrial.com, and we continually upgrade the capabilities and
performance of these web sites. Our internet sites feature on-line catalogs of
thousands of products, allowing us to offer a wider variety of computer and
industrial products than our printed catalogs. Our customers have
around-the-clock, on-line access to purchase products and we have the ability to
create targeted promotions for our customers interests. Many of our
internet sites also permit customers to purchase build to order PCs
configured to their own specifications.

In addition to our own e-commerce web sites, we have partnering agreements with
several of the largest internet shopping and search engine providers who feature
our products on their web sites or provide click-throughs from their
sites directly to ours. These arrangements allow us to expand our customer base
at an economical cost.

Catalogs

We currently produce a total of 19 full-line and targeted specialty catalogs in
North America and Europe under distinct titles. Our portfolio of catalogs
includes such established brand names as TigerDirect.com, Global
Computer Supplies, Misco®, HCS Misco,
Global Industrial, ArrowStar and 06.
Full-line computer product catalogs offer products such as PCs, notebooks,
peripherals, computer components, 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. We mail catalogs to both businesses and consumers. In the case of
business mailings, we mail our catalogs to many individuals at a single business
location, providing us with multiple points-of-entry. Our in-house staff designs
all of our catalogs. In-house catalog production helps reduce overall catalog
expense and shortens catalog production time. This allows us the flexibility to
alter our product offerings and pricing and to refine our catalog formats more
quickly. Our catalogs are printed by third parties under fixed pricing
arrangements. The commonality of certain core pages of our catalogs also allows
for economies in catalog production.

As noted above, the increase in our internet-related sales allowed us to reduce
the distribution of our catalogs to 59 million, which was 9.5% fewer than in the
prior year. We mailed approximately 41 million catalogs in North America, a 8%
reduction from last year and approximately 18 million catalogs, or 12% fewer
than 2005, were distributed in Europe.

# Customer Service, Order Fulfillment and Support

We generally provide toll-free telephone number access to our customers. Certain
of our domestic call centers are linked to provide telephone backup in the event
of a disruption in phone service. In addition to telephone orders, we also
receive orders by mail, fax, electronic data interchange and through the
internet.

A large number of our products are carried in stock, and orders for such
products are fulfilled on a timely basis directly from our distribution centers,
typically on the day the order is received. We operate out of multiple sales and
distribution facilities in North America and Europe. The locations of our
distribution centers enable us to provide our customers next day or second day
delivery. Orders are generally shipped by third-party delivery services in the
United States and in Europe. The locations of our distribution centers in Europe
have enabled us to market into four additional countries with limited
incremental investment. We maintain relationships with a number of large
distributors in North America and Europe that also deliver products directly to
our customers.

We provide extensive technical telephone support to our Systemax brand PC
customers. We maintain a database of commonly asked questions for our technical
support representatives, enabling them to respond quickly to similar questions.
We conduct regular on-site training seminars for our sales representatives to
help ensure that they are well trained and informed regarding our latest product
offerings.

# Suppliers

We purchase the majority of our products and components directly from
manufacturers and large wholesale distributors. For the year ended December 31,
2006, Ingram Micro accounted for 12.8% of our purchases. For the year ended
December 31, 2005, no vendor accounted for more than 10% of our purchases. For
the year ended December 31, 2004, Tech Data Corporation accounted for 12.2% and
Ingram Micro Inc. accounted for 10.4% of our purchases. The loss of either of
these vendors, or any other key vendors, could have an adverse effect on us.

Certain private label products are manufactured by third-parties to our
specifications. Many of these private label products have been designed or
developed by our in-house product design and development teams.

# Competition and Other Market Factors

Technology Products

The North American and European computer markets 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, mass merchants, over the internet and by computer and office
supply superstores.

Timely introduction of new products or product features are critical elements to
remaining competitive in the PC market. Other competitive factors include
product performance, quality and reliability, technical support and customer
service, marketing and distribution and price. Some of our competitors have
stronger brand-recognition, broader product lines and greater financial,
marketing, manufacturing and technological resources than us. Additionally, our
results could also be adversely affected should we be unable to maintain our
technological and marketing arrangements with other companies, such as
Microsoft®, Intel® and Advanced Micro Devices®.

The North American computer related products market is highly fragmented and
characterized by multiple channels of distribution including direct marketers,
local and national retail computer stores, computer resellers, mass merchants,
computer and office supply superstores and internet-based resellers.
In Europe, our major competitors are regional or country-specific retail and
direct-mail distribution companies and internet-based resellers.

With conditions in the market for computer related products remaining highly
competitive, continued reductions in retail prices may adversely affect our
revenues and profits. Additionally, we rely in part upon the introduction of new
technologies and products by other manufacturers in order to sustain long-term
sales growth and profitability. There is no assurance that the rapid rate of
such technological advances and product development will continue.

Industrial Products

The market for the sale of industrial products in North America is highly
fragmented and is characterized by multiple distribution channels such as retail
outlets, small dealerships, direct mail distribution, internet-based resellers
and large warehouse stores. We also face 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. In the industrial
products market, customer purchasing decisions are primarily based on price,
product selection, product availability, level of service and convenience. We
believe that direct marketing via catalog, the internet and sales
representatives is an effective and convenient distribution method to reach
mid-sized facilities that 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.

# Employees

As of December 31, 2006, we employed a total of 3,287 employees, including 2,961
full-time and 326 part-time employees, of whom 2,119 were in North America and
1,168 were in Europe.

# 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. We lease most of our
facilities. In connection with such leases, we could be held liable for the
costs of removal or remedial actions with respect to hazardous substances.
Although we have not been notified of, and are not otherwise aware of, any
material environmental liability, claim or non-compliance, there can be no
assurance that we 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

We conduct our business in North America (the United States and Canada) and
Europe. Approximately 37.5% of our net sales for the year ended December 31,
2006 were made by subsidiaries located outside of the United States. For
information pertaining to our international operations, see Note 12,
Segment and Related Information, to the consolidated financial
statements included in Item 15 of this Form 10-K. The following sets forth
selected information with respect to our operations in those two geographic
markets (in thousands):

|                              | Europe      | North America | Total       
|----------------------------- | ----------- | ------------- | ------------
|2006                          |             |               |             
|Net sales                     | $ 743,906   | $1,601,259    | $2,345,165  
|Income from operations        | $   16,459  | $     45,445  | $     61,904
|Identifiable assets           | $ 157,710   | $   426,451   | $   584,161 
|2005                          |             |               |             
|Net sales                     | $ 694,637   | $1,420,881    | $2,115,518  
|Income (loss) from operations | $   (4,603) | $     39,412  | $     34,809
|Identifiable assets           | $ 142,174   | $   362,370   | $   504,544 
|2004                          |             |               |             
|Net sales                     | $ 695,695   | $1,232,452    | $1,928,147  
|Income (loss) from operations | $ (12,376)  | $     31,375  | $     18,999
|Identifiable assets           | $ 169,912   | $   313,284   | $   483,196 

See Item 7, Managements Discussions and Analysis of Financial Condition and
Results of Operations, for further information with respect to our operations.

# Available Information

We maintain an internet web site at www.systemax.com. We file reports
with the Securities and Exchange Commission and make available free of charge on
or through this web site our annual reports on Form 10-K, quarterly reports on
Form 10-Q and current reports on Form 8-K, including all amendments to those
reports. These are available as soon as is reasonably practicable after they are
filed with the SEC. All reports mentioned above are also available from the
SECs web site (www.sec.gov). The information on our web site is not
part of this or any other report we file with, or furnish to, the SEC.

Our Board of Directors has adopted the following corporate governance documents
with respect to the Company (the Corporate Governance Documents):

| | 



 | Corporate Ethics Policy for officers, directors and employees
Charter for the Audit Committee of the Board of Directors
Charter for the Compensation Committee of the Board of Directors
Charter for the Nominating/Corporate Governance Committee of the Board of Directors
Corporate Governance Guidelines and Principles
| | --------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In accordance with the corporate governance rules of the New York Stock
Exchange, each of the Corporate Governance Documents is available on our Company
web site (www.systemax.com) or can be obtained by writing to Systemax
Inc., Attention: Board of Directors (Corporate Governance), 11 Harbor Park
Drive, Port Washington, NY 11050.

# Item 1A. Risk Factors.

There are a number of factors and variables described below that may affect our
future results of operations and financial condition. Other factors of which we
are currently not aware or that we currently deem immaterial may also affect our
results of operations and financial position.

# Risks Related to Our Industry

| |  | Economic conditions have affected and could continue to adversely affect our
revenues and profits.
| | - | --------------------------------------------------------------------------------------------------

| | Both we and our customers are subject to global political, economic and market
conditions, including inflation, interest rates, energy costs, the impact of
natural disasters, military action and the threat of terrorism. Our consolidated
results of operations are directly affected by economic conditions in North
America and Europe. We may experience a decline in sales as a result of poor
economic conditions and the lack of visibility relating to future orders. Our
results of operations depend upon, among other things, our ability to maintain
and increase sales volumes with existing customers, our ability to attract new
customers and the financial condition of our customers. A decline in the economy
that adversely affects our customers, causing them to limit or defer their
spending, would likely adversely affect us as well. We cannot predict with any
certainty whether we will be able to maintain or improve upon historical sales
volumes with existing customers, or whether we will be able to attract new
customers. 

In response to economic and market conditions, from time to time we have
undertaken initiatives to reduce our cost structure where appropriate. The
initiatives already implemented as well as any future workforce and facilities
reductions undertaken may not be sufficient to meet the changes in economic and
market conditions and to achieve future profitability. In addition, costs
actually incurred in connection with our restructuring actions may be higher
than our estimates of such costs and/or may not lead to the anticipated cost
savings.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Increased costs associated with corporate governance compliance may impact
our results of operations.
| | - | -----------------------------------------------------------------------------------------------------

| | As a public company, we incur significant legal, accounting and other expenses
that we would not incur as a private company. In addition, the Sarbanes-Oxley
Act of 2002, as well as rules subsequently implemented by the Securities and
Exchange Commission and listing requirements subsequently adopted by the New
York Stock Exchange in response to Sarbanes-Oxley, have required changes in
corporate governance practices of public companies. These developments have
already substantially increased our legal compliance, auditing and financial
reporting costs and made them more time consuming. We anticipate that the
Company will be subject to the requirements of Section 404 of the Sarbanes-Oxley
Act as of December 31, 2007, and that costs will further increase and make some
compliance activities more time consuming. These developments may make it more
difficult and more expensive for us to obtain directors and officers
liability insurance and we may be required to accept reduced coverage or incur
substantially higher costs to obtain coverage, possibly making it more difficult
for us to attract and retain qualified members of our board of directors,
particularly to serve on our audit committee. We presently cannot estimate the
timing or magnitude of additional costs we may incur as a result of the
implementation of Section 404 of the Sarbanes-Oxley Act; however, to the extent
these costs are significant, our general and administrative expenses are likely
to increase as a percentage of revenue and our results of operations will be
negatively impacted.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Competitive pressures could harm our revenue and gross margin.
| | - | --------------------------------------------------------------

| | We may not be able to compete effectively with current or future competitors.
The markets for our products and services are intensely competitive and subject
to constant technological change. We expect this competition to further
intensify in the future. Competitive factors include price, availability,
service and support. We compete with a wide variety of other resellers and
retailers, as well as manufacturers. Some of our competitors are larger
companies with greater financial, marketing and product development resources
than ours. In addition, new competitors may enter our markets. This may place us
at a disadvantage in responding to competitors pricing strategies,
technological advances and other initiatives, resulting in our inability to
increase our revenues or maintain our gross margins in the future. 

In many cases our products compete directly with those offered by other
manufacturers and distributors. If any of our competitors were to develop
products or services that are more cost-effective or technically superior,
demand for our product offerings could decrease. 

Our gross margins are also dependent on the mix of products we sell and could be
adversely affected by a continuation of our customers shift to
lower-priced products. As do most other companies in the technology products
industry, we advertise manufacturers mail-in rebates on many products we
sell and, in some cases, offer our own rebates. We process these rebates through
third party vendors and in house. If we are unable to fulfill these rebates in a
timely and satisfactory manner, our reputation in the marketplace could be
negatively impacted.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | State and local sales tax collection may affect demand for our products.
| | - | ------------------------------------------------------------------------

| | Our United States subsidiaries collect and remit sales tax in states in which
the subsidiaries have physical presence or in which we believe nexus exists
which obligates us to collect sales tax. Other states may, from time to time,
claim that we have state-related activities constituting a sufficient nexus to
require such collection. Additionally, many other states seek to impose sales
tax collection obligations on companies that sell goods to customers in their
state, or directly to the state and its political subdivisions, even without a
physical presence. Such efforts by states have increased recently, as states
seek to raise revenues without increasing the tax burden on residents. We rely
on United States Supreme Court decisions which hold that, without Congressional
authority, a state may not enforce a sales tax collection obligation on a
company that has no physical presence in the state and whose only contacts with
the state are through the use of interstate commerce such as the mailing of
catalogs into the state and the delivery of goods by mail or common carrier. We
cannot predict whether the nature or level of contacts we have with a particular
state will be deemed enough to require us to collect sales tax in that state nor
can we be assured that Congress or individual states will not approve
legislation authorizing states to impose tax collection obligations on all
direct mail and/or e-commerce transactions. A successful assertion by one or
more states that we should collect sales tax on the sale of merchandise could
result in substantial tax liabilities related to past sales and would result in
considerable administrative burdens and costs for us and may reduce demand for
our products from customers in such states when we charge customers for such
taxes.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Business disruptions could adversely impact our revenue and financial
condition.
| | - | --------------------------------------------------------------------------------

| | We insure for certain property and casualty risks consisting primarily of
physical loss to property, business interruptions resulting from property
losses, workers compensation, comprehensive general liability, and auto
liability. Insurance coverage is obtained for catastrophic property and casualty
exposures as well as those risks required to be insured by law or contract.
Although we believe that our insurance coverage is reasonable, significant
events such as acts of war and terrorism, economic conditions, judicial
decisions, legislation, natural disasters and large losses could materially
affect our insurance obligations and future expense.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Changes in financial accounting standards may affect our results of
operations.
| | - | -------------------------------------------------------------------------------

| | A change in accounting standards or practices can have a significant effect on
our reported results of operations. New accounting pronouncements and
interpretations of existing accounting rules and practices have occurred and may
occur in the future. Changes to existing rules, such as the implementation of
Financial Accounting Standard Board Interpretation No. 48 (Fin 48)
Accounting for Uncertainty in Income Taxes (an interpretation of FASB
Statement No. 109)", may adversely affect our reported financial results.
Fin 48 which is effective for fiscal years beginning after December 15, 2006,
was issued to clarify the accounting for uncertainty in income taxes recognized
in the financial statements by prescribing a recognition threshold and
measurement attribute for the financial statement recognition and measurement of
a tax position taken or expected to be taken in a tax return. The Company is
currently evaluating the potential impact, if any, of this pronouncement.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Risks Related to Our
Company

| |  | We may not be able to comply with Section 404 of the Sarbanes-Oxley Act of
2002.
| | - | --------------------------------------------------------------------------------

| | For the year ended December 31, 2006, we were not subject to the internal
controls certification and attestation requirements of Section 404 of the
Sarbanes-Oxley Act of 2002 because we were not an accelerated filer as defined
by the SEC. For the year ended December 31, 2007, we will be subject to the
requirements of Section 404 that management provide an assessment of the
effectiveness of the Companys internal control over financial reporting
and the Companys independent registered public accounting firm will be
required to audit that assessment. 

We are working to achieve compliance with the requirements of Section 404. We
will be dedicating substantial time and resources to documentation and review of
our procedures and we will have to devote substantial time and resources to this
effort in 2007. We may also need to engage outside consultants to assist us. We
have not completed this process or its assessment, due to the complexities of
our decentralized structure, the number of accounting systems in use, and the
lack of qualified personnel to devote to the process. In addition to the
significant deficiencies reported as of December 31, 2006 discussed under the
caption Disclosure Controls and Procedures in Item 9A. Controls and
Procedures; we have identified numerous other internal control deficiencies that
may affect the timeliness and accuracy of recording transactions and which,
individually or in the aggregate, could become material weaknesses in future
periods if not remediated. If we are not successful in complying with Section
404 of the Sarbanes-Oxley Act of 2002, we could lose the confidence of our
investors.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | In the past we have been late filing our required financial reports. Any such delays in
the future could affect the trading of our stock.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------

| | We were late in the filing of our 2005 quarterly and annual reports and our 2006
quarterly reports required under the Securities Exchange Act of 1934. Failure to
file required reports on a timely basis could result in the de-listing of the
Companys common stock by the New York Stock Exchange. If we do not file
our required annual and quarterly financial statements in the prescribed time
frames we would also be ineligible to file certain registration statements and
could be subject to SEC enforcement action.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Our success is dependent upon the availability of credit and financing.
| | - | -----------------------------------------------------------------------

| | We require significant levels of capital in our business to finance accounts
receivable and inventory. We maintain credit facilities in the United States and
in Europe to finance increases in our working capital if available cash is
insufficient. The amount of credit available to us at any point in time may be
adversely affected by the quality or value of the assets collateralizing these
credit lines. In addition, if we are unable to renew or replace these facilities
at maturity our liquidity and capital resources may be adversely affected.
However, we currently have no reason to believe that we will not be able to
renew or replace our facilities when they reach maturity.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | We have substantial international operations and we are exposed to fluctuations in
currency exchange rates and political uncertainties.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------

| | We operate internationally and as a result, we are subject to risks associated
with doing business globally. Risks inherent to operating overseas include:
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------

| | 


 | Changes in a countrys economic or political conditions 
Changes in foreign currency exchange rates 
Difficulties with staffing and managing international operations 
Unexpected changes in regulatory requirements
| | ------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | For example, we currently have operations located in nine countries outside the
United States, and non-U.S. sales (Europe and Canada) accounted for 37.5% of our
revenue during 2006. To the extent the U.S. dollar strengthens against the Euro
and British pound, our European revenues and profits will be reduced when
translated into U.S. dollars.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Sales to individual consumers exposes us to credit card fraud, which could adversely
affect our business.
| | - | ---------------------------------------------------------------------------------------------------------

| | Failure to adequately control fraudulent credit card transactions could increase
our expenses. Increased sales to individual consumers, which are more likely to
be paid for using a credit card, increases our exposure to fraud. We employ
technology solutions to help us detect the fraudulent use of credit card
information. However, if we are unable to detect or control credit card fraud,
we may in the future suffer losses as a result of orders placed with fraudulent
credit card data, which could adversely affect our business.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | We are exposed to inventory risks.
| | - | ----------------------------------

| | A substantial portion of our inventory is subject to risk due to technological
change and changes in market demand for particular products. If we fail to
manage our inventory of older products we may have excess or obsolete inventory.
We may have limited rights to return purchases to certain suppliers and we may
not be able to obtain price protection on these items. The elimination of
purchase return privileges and lack of availability of price protection could
lower our gross margin or result in inventory write-downs. 

We also take advantage of attractive product pricing by making opportunistic
bulk inventory purchases; any resulting excess and/or obsolete inventory that we
are not able to re-sell could have an adverse impact on our results of
operations. Any inability to make such bulk inventory purchases may
significantly impact our sales and profitability.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Our income tax rate and the value of our deferred tax assets are subject to
change.
| | - | -----------------------------------------------------------------------------------

| | Changes in our income tax expense due to changes in the mix of U.S. and non-U.S.
revenues and profitability, changes in tax rates or exposure to additional
income tax liabilities could affect our profitability. We are subject to income
taxes in the United States and various foreign jurisdictions. Our effective tax
rate could be adversely affected by changes in the mix of earnings in countries
with differing statutory tax rates, changes in the valuation of deferred tax
assets and liabilities, changes in tax laws or by material audit assessments.
The carrying value of our deferred tax assets, which are primarily in the United
States and the United Kingdom, is dependent on our ability to generate future
taxable income in those jurisdictions. Our United Kingdom deferred tax assets
currently have a full valuation allowance. In addition, the amount of income
taxes we pay is subject to ongoing audits in various jurisdictions and a
material assessment by a tax authority could affect our profitability.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Our reliance on information and communications technology requires
significant expenditures and entails risk.
| | - | -------------------------------------------------------------------------------------------------------------

| | We rely on a variety of information and telecommunications systems in our
operations. Our success is dependent in large part on the accuracy and proper
use of our information systems, including our telecommunications systems. To
manage our growth, we continually evaluate the adequacy of our existing systems
and procedures. We anticipate that we will regularly need to make capital
expenditures to upgrade and modify our management information systems, including
software and hardware, as we grow and the needs of our business change. The
occurrence of a significant system failure, electrical or telecommunications
outages or our failure to expand or successfully implement new systems could
have a material adverse effect on our results of operations. 

Our information systems networks, including our web sites, and applications
could be adversely affected by viruses or worms and may be vulnerable to
malicious acts such as hacking. Although we take preventive measures, these
procedures may not be sufficient to avoid harm to our operations, which could
have an adverse effect on our results of operations.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | We are dependent on third-party suppliers.
| | - | ------------------------------------------

| | We purchase a significant portion of our computer products from major
distributors such as Tech Data Corporation and Ingram Micro Inc. and
directly from large manufacturers such as Hewlett Packard and Acer, who may
deliver those products directly to our customers. These relationships enable us
to make available to our customers a wide selection of products without having
to maintain large amounts of inventory. The termination or interruption of our
relationships with any of these suppliers could materially adversely affect our
business. 

Our PC products contain electronic components, subassemblies and software that
in some cases are supplied through sole or limited source third-party suppliers,
some of which are located outside of the U.S. Although we do not anticipate any
problems procuring supplies in the near-term, there can never be any assurance
that parts and supplies will be available in a timely manner and at reasonable
prices. Any loss of, or interruption of supply, from key suppliers may require
us to find new suppliers. This could result in production or development delays
while new suppliers are located, which could substantially impair operating
results. If the availability of these or other components used in the
manufacture of our products was to decrease, or if the prices for these
components were to increase significantly, operating costs and expenses could be
adversely affected. 

We purchase a number of our products from vendors outside of the United States.
Difficulties encountered by one or several of these suppliers could halt or
disrupt production and delay completion or cause the cancellation of our orders.
Delays or interruptions in the transportation network could result in loss or
delay of timely receipt of product required to fulfill customer orders.

Many product suppliers provide us with co-op advertising support in exchange for
featuring their products in our catalogs and on our internet sites. Certain
suppliers provide us with other incentives such as rebates, reimbursements,
payment discounts, price protection and other similar arrangements. These
incentives are offset against cost of goods sold or selling, general and
administrative expenses, as applicable. The level of co-op advertising support
and other incentives received from suppliers may decline in the future, which
could increase our cost of goods sold or selling, general and administrative
expenses and have an adverse effect on results of operations and cash flows.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | We may encounter risks in connection with sales of our web-hosted software
application.
| | - | ---------------------------------------------------------------------------------------

| | In 2004, we introduced our web-based and hosted, on-demand software suite of
products, marketed as PCS ProfitCenter Software. We have a limited
operating history with this type of product offering and may encounter risks
inherent in the software industry, including but not limited to:
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 







 | Failure to implement effective general and application controls 
Errors or security flaws in our product 
Technical difficulties which we can not resolve on a timely or cost-effective
basis, 
Inability to provide the level of service we commit to 
Inability to deliver product upgrades and enhancements 
Delays in development 
Inability to hire and retain qualified technical personnel 
Impact of privacy laws on the use of our product 
Exposure to claims of infringement of intellectual property rights
| | ----------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Restrictions and covenants in our credit facility may limit our ability to
enter into certain transactions.
| | - | -----------------------------------------------------------------------------------------------------------

| | Our United States/United Kingdom combined revolving credit agreement contains
covenants restricting or limiting our ability to, among other things:
| | ---------------------------------------------------------------------------------------------------------------------------------------------------

| | 


 | incur additional debt
create or permit liens on assets
make capital expenditures or investments
pay dividends
| | ------- | -------------------------------------------------------------------------------------------------------------

| | If we fail to comply with the covenants and other requirements set forth in the
agreement, we will have to negotiate a waiver agreement with the lenders.
Failure to enter into such a waiver agreement could adversely affect the
availability of financing to us which could materially impact our operations.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Other factors that may affect our future results of operations and financial
condition include, but are not limited to, unanticipated developments in any one
or more of the following areas, as well as other factors which may be detailed
from time to time in our Securities and Exchange Commission filings:

| |  | the effect on us of volatility in the price of paper and periodic increases in
postage rates
| | - | --------------------------------------------------------------------------------------------

| |  | significant changes in the computer products retail industry, especially
relating to the distribution and sale of such products
| | - | -------------------------------------------------------------------------------------------------------------------------------

| |  | timely availability of existing and new products
| | - | ------------------------------------------------

| |  | 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 us
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | risks associated with delivery of merchandise to customers by utilizing common
delivery services such as the United States Postal Service and United Parcel
Service, including possible strikes and contamination
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | borrowing costs or availability
| | - | -------------------------------

| |  | pending or threatened litigation and investigations
| | - | ---------------------------------------------------

| |  | the availability of key personnel
| | - | ---------------------------------

Readers are cautioned not to place undue reliance on any forward looking
statements contained in this report, which speak only as of the date of this
report. We undertake 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 1B.  Unresolved Staff Comments.

None.

# Item 2.  Properties.

Our primary facilities, which are leased except where otherwise indicated, are
as follows:

|Facility                                        | Location                     | Approximate Square Feet | Expiration of Lease
|----------------------------------------------- | ---------------------------- | ----------------------- | -------------------
|Headquarters, Sales and Distribution Center (1) | Port Washington, NY          | 86,000                  | 2007               
|Sales and Distribution Center                   | Buford, GA                   | 647,000                 | 2021               
|Sales and Distribution Center                   | Naperville, IL               | 330,000                 | 2026               
|PC Assembly, Sales and Distribution Center      | Fletcher, OH                 | 297,000                 | Owned              
|Sales and Administrative Center                 | Miami, FL                    | 80,000                  | 2010               
|Distribution Center                             | Las Vegas, NV                | 90,000                  | 2010               
|Sales Center                                    | Markham, Ontario             | 22,000                  | 2013               
|Sales and Distribution Center                   | Verrieres le Buisson, France | 48,000                  | 2010               
|Sales and Distribution Center                   | Frankfurt, Germany           | 92,000                  | 2013               
|Sales and Distribution Center                   | Madrid, Spain                | 38,000                  | (2)                
|Sales and Distribution Center                   | Milan, Italy                 | 102,000                 | 2009               
|Sales and Distribution Center                   | Greenock, Scotland           | 78,000                  | Owned              
|European Headquarters and Sales Center          | Wellingborough, England      | 75,000                  | Owned              
|Sales Center                                    | Amstelveen, Netherlands      | 21,000                  | 2007               
|Sales and Distribution Center                   | Lidkoping, Sweden            | 20,000                  | 2008               
|                                               

|(1)(2) |  | For information about this facility, leased from related parties, see Item 13
 Certain Relationships and Related Transactions
Terminable upon two months prior written notice.
|------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We also lease space for other smaller offices and retail stores in the United
States, Canada and Europe and certain additional facilities leased by the
Company are subleased to others.

For further information regarding our lease obligations, see Note 11 to the
Consolidated Financial Statements.

# Item 3.  Legal Proceedings.

Systemax is a party to various pending legal proceedings and disputes arising in
the normal course of business, including those involving commercial, employment,
tax and intellectual property related claims, none of which, in
managements opinion, is anticipated to have a material adverse effect on
our consolidated financial statements.

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

None.

# PART II

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

Systemax 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 our common stock as reported on the New York
Stock Exchange for the periods indicated.

|2006           | High     | Low    
|-------------- | -------- | -------
|First quarter  | $   7.33 | $  6.23
|Second quarter | 7.99     | 5.87   
|Third quarter  | 16.02    | 7.25   
|Fourth quarter | 18.80    | 9.93   

|2005           | High    | Low    
|-------------- | ------- | -------
|First quarter  | $  7.60 | $  5.16
|Second quarter | 7.68    | 5.58   
|Third quarter  | 7.40    | 6.51   
|Fourth quarter | 7.35    | 5.65   

On December 31, 2006, the last reported sale price of our common stock on the
New York Stock Exchange was $17.45 per share. As of December 31, 2006, we had
235 shareholders of record.

On March 14, 2007, the Companys Board of Directors declared a special
dividend of $1.00 per share payable on April 12, 2007 to shareholders of record
on April 2, 2007. This special dividend will be the first dividend we have paid
since our initial public offering. Depending in part upon profitability, the
strength of our balance sheet, our cash position and the need to retain cash for
the development and expansion of our business, we may decide to pay a special
dividend in the future, but we have no present plans of doing so.

# 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 statement of operations data for the
years ended December 31, 2006, 2005 and 2004 and the selected balance sheet data
as of December 31, 2006 and 2005 are derived from the audited consolidated
financial statements which are included elsewhere in this report. The selected
balance sheet data as of December 31, 2004, 2003 and 2002 and the selected
statement of operations data for the years ended December 31, 2003 and 2002 are
derived from the audited consolidated financial statements of the Company which
are not included in this report.

`Years Ended December 31 
                                                                                         -----------------------
                                                                                 (In millions, except per common share data
                                                                                        and number of catalog titles)
                                                                        -------------------------------------------------------------
                                                                             2006         2005        2004*        2003*       2002*
                                                                        -------------------------------------------------------------
Statement of Operations Data:
----------------------------

Net sales                                                                $2,345.2     $2,115.5     $1,928.1     $1,655.7    $1,551.9
Gross profit                                                               $342.9       $307.3       $286.5       $264.9      $266.3
Selling, general & administrative expenses                                 $281.0       $268.3       $260.1       $251.5      $256.1
Restructuring and other charges                                                 -         $4.2         $7.4         $1.7       $17.3
Income (loss) from operations                                               $61.9        $34.8        $19.0         $9.2      $(7.0)

Provision (benefit) for income taxes                                        $24.5        $21.4         $6.4         $4.4      $(0.8)
Income (loss) before cumulative effect of change in accounting
   principle, net of tax                                                    $45.1        $11.4        $10.2         $3.2      $(7.4)
Cumulative effect of change in accounting principle, net of tax                 -            -            -            -     $(51.0)
Net income (loss)                                                           $45.1        $11.4        $10.2         $3.2     $(58.4)

Per Share Amounts:
-----------------
Income (loss) before cumulative effect of change in accounting
   principle, net of tax, basic                                             $1.29         $.33         $.30         $.09      $(.21)
Cumulative effect of change in accounting principle, net of tax, basic          -            -            -            -     $(1.50)
Net income (loss), basic                                                    $1.29         $.33         $.30         $.09     $(1.71)
Income (loss) before cumulative effect of change in accounting
   principle, net of tax, diluted                                           $1.22         $.31         $.29         $.09      $(.21)
Cumulative effect of change in accounting principle, net of tax, diluted        -            -            -            -     $(1.50)
Net income (loss), diluted                                                  $1.22         $.31         $.29         $.09     $(1.71)
Weighted average common shares outstanding:
Basic                                                                        35.0         34.6         34.4         34.2        34.1
Diluted                                                                      36.9         36.5         35.5         34.9        34.1

Selected Operating Data:
-----------------------
Orders entered                                                                7.2          6.2          5.2          4.4         4.0
Number of catalogs distributed                                                 59           66           88           97         106
Number of catalog titles                                                       19           22           22           30          37

Balance Sheet Data:
------------------
Working capital                                                            $229.4       $169.8       $148.0       $144.1      $132.0
Total assets                                                               $584.1       $504.5       $483.2       $445.3      $436.6
Short-term debt                                                             $12.8        $26.8        $25.0        $20.8       $21.2
Long-term debt, excluding current portion                                     $.5         $8.0         $8.6        $18.4       $17.5
Shareholders' equity                                                       $289.5       $232.8       $222.6       $208.6      $200.6`

* As previously restated
 see Note 2 to the consolidated financial statements.

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

# Overview

We are a direct marketer of brand name and private label products. Our
operations are organized in two primary reportable segments  Technology
Products and Industrial Products. Our Technology Products segment markets
personal desktop computers, notebook computers and computer supplies and
consumer electronics related products in North America and Europe. We assemble
our own PCs and sell them under our own trademarks, which we believe gives us a
competitive advantage. We also sell personal computers manufactured by other
leading companies. Our Industrial Products segment markets material handling
equipment, storage equipment and consumable industrial items in North America.
We offer more than 100,000 products and continuously update our product
offerings to address the needs of our customers, which include large, mid-sized
and small businesses, educational and government entities as well as individual
consumers. We reach customers by multiple channels, utilizing relationship
marketers, e-commerce web sites, mailed catalogues and retail outlet stores. We
also participate in the emerging market for on-demand, web-based software
applications through the marketing of our PCS ProfitCenter Software
suite of hosted software, which we began during 2004, and in which we have not
yet recognized significant revenues and have incurred considerable losses to
date. Technology Products related products account for 92% of our net sales,
and, as a result, we are dependent on the general demand for information
technology products and consumer electronics.

The market for computer products is subject to intense price competition and is
characterized by narrow gross profit margins. The North American industrial
products market is highly fragmented and we compete against multiple
distribution channels. Distribution of information technology and our industrial
products is working capital intensive, requiring us to incur significant costs
associated with the warehousing of many products, including the costs of leasing
warehouse space, maintaining inventory and inventory management systems, and
employing personnel to perform the associated tasks. We supplement our on-hand
product availability by maintaining relationships with major distributors and
manufacturers, utilizing a combination of stocking and drop-shipment
fulfillment.

The primary component of our operating expenses historically has been employee
related costs, which includes items such as wages, commissions, bonuses, and
employee benefits. We have made substantial reductions in our workforce and
closed or consolidated several facilities over the past several years. In
response to poor economic conditions in the United States, we implemented a plan
in the first quarter of 2004 to streamline our United States computer business.
This plan consolidated duplicative back office and warehouse operations, which
resulted in annual savings of approximately $8 million excluding severance and
other restructuring costs of approximately $3 million, which were recognized in
fiscal 2004. With evidence of a prolonged economic downturn in Europe, we took
measures to align our cost structure with expected potentially lower revenues
and decreasing gross margins, initiating several cost reduction plans there
during 2004 and 2005. Actions taken in 2005 to increase efficiency and
profitability in our European operations resulted in the elimination of
approximately 240 positions, and resulted in approximately $6.0 million in
annual savings excluding severance and restructuring costs of approximately $3.7
million, which were recognized in fiscal 2005. Our restructuring actions and
other cost savings measures implemented over the last several years resulted in
reducing our consolidated selling, general and administrative expenses from
16.5% of net sales in 2002 to 12.0% of net sales in 2006. We will continue to
monitor our costs and evaluate the need for additional actions.

# Critical Accounting Policies and Estimates

Our significant accounting policies are described in Note 1 to the consolidated
financial statements. The policies below have been identified as critical to our
business operations and understanding the results of operations. Certain
accounting policies require the application of significant judgment by
management in selecting the appropriate assumptions for calculating financial
estimates. By their nature, these judgments are subject to an inherent degree of
uncertainty, and as a result, actual results could differ from those estimates.
These judgments are based on historical experience,observation of trends
in the industry, information provided by customers and information available
from other outside sources, as appropriate. Management believes that full
consideration has been given to all relevant circumstances that we may be
subject to, and the consolidated financial statements of the Company accurately
reflect managements best estimate of the consolidated results of
operations, financial position and cash flows of the Company for the years
presented. Actual results may differ from these estimates under different
conditions or assumptions.

Revenue Recognition.  
We recognize product sales when persuasive evidence of an order arrangement
exists, delivery has occurred, the sales price is fixed or determinable and
collectibility is reasonably assured. Generally, these criteria are met at the
time of receipt by customers when title and risk of loss both are transferred.
Sales are shown net of returns and allowances, rebates and sales incentives.
Reserves for estimated returns and allowances are provided when sales are
recorded, based on historical experience and current trends.

Accounts Receivable and
Allowance for Doubtful Accounts.  We record an allowance for doubtful
accounts to reflect our estimate of the collectibility of our trade accounts
receivable. We evaluate the collectibility of accounts receivable based on a
combination of factors, including an analysis of the age of customer accounts
and our historical experience with accounts receivable write-offs. The analysis
also includes the financial condition of a specific customer or industry, and
general economic conditions. In circumstances where we are aware of customer
charge-backs or a specific customers inability to meet its financial
obligations, a specific reserve for bad debts applicable to amounts due to
reduce the net recognized receivable to the amount management reasonably
believes will be collected is recorded. In those situations with ongoing
discussions, the amount of bad debt recognized is based on the status of the
discussions. While bad debt allowances have been within expectations and the
provisions established, there can be no guarantee that we will continue to
experience the same allowance rate we have in the past.

Inventories.
   We value our inventories at the lower of cost or
market, cost being determined on the first-in, first-out method. Reserves for
excess and obsolete or unmarketable merchandise are provided based on historical
experience, assumptions about future product demand and market conditions. If
market conditions are less favorable than projected or if technological
developments result in accelerated obsolescence, additional write-downs may be
required. While obsolescence and resultant markdowns have been within
expectations, there can be no guarantee that we will continue to experience the
same level of markdowns we have in the past.

Long-lived Assets.  
Management exercises judgment in evaluating our long-lived assets for
impairment. We believe we will generate sufficient undiscounted cash flow to
more than recover the investments made in property, plant and equipment. Our
estimates of future cash flows involve assumptions concerning future operating
performance and economic conditions. While we believe that our estimates of
future cash flows are reasonable, different assumptions regarding such cash
flows could materially affect our evaluations.

Accruals.  
Management exercises judgment in estimating various period end liabilities such
as costs related to vendor drop shipments, sales returns and allowances,
cooperative advertising and customer rebate reserves, and other vendor and
employee related costs. While we believe that these estimates are reasonable,
any significant deviation of actual costs as compared to these estimates could
have a material impact on the Companys financial statements.

Income Taxes.  
We are subject to taxation from federal, state and foreign jurisdictions and the
determination of our tax provision is complex and requires significant
management judgment. Management judgment is also applied in the determination of
deferred tax assets and liabilities and any valuation allowances that might be
required in connection with our ability to realize deferred tax assets.

Since we conduct operations
in numerous US states and internationally, our effective tax rate has and will
continue to depend upon the geographic distribution of our pre-tax income or
losses among locations with varying tax rates and rules. As the geographic mix
of our pre-tax results among various tax jurisdictions changes, the effective
tax rate may vary from period to period. We are also subject to periodic
examination from domestic and foreign tax authorities regarding the amount of
taxes due. These examinations include questions regarding the timing and amount
of deductions and the allocation of income among various tax jurisdictions. We
have established, and periodically reevaluate, an estimated income tax reserve
on our consolidated balance sheet to provide for the possibility of adverse
outcomes in income tax proceedings. While management believes that we have
identified all reasonably identifiable exposures and that the reserve we have
established for identifiable exposures is appropriate under the circumstances,
it is possible that additional exposures exist and that exposures may be settled
at amounts different than the amounts reserved.

We recognize deferred tax
assets and liabilities for the effect of temporary differences between the book
and tax bases of recorded assets and liabilities and for tax loss carry
forwards. The realization of net deferred tax assets is dependent upon our
ability to generate sufficient future taxable income. Where it is more likely
than not that some portion or all of the deferred tax asset will not be
realized, we have provided a valuation allowance. If the realization of those
deferred tax assets in the future is considered more likely than not, an
adjustment to the deferred tax assets would increase net income in the period
such determination is made. In the event that actual results differ from these
estimates or we adjust these estimates in future periods, an adjustment to the
valuation allowance may be required, which could materially affect our
consolidated financial position and results of operations.

Restructuring charges.  
We have taken restructuring actions, and may commence further restructuring
activities which result in recognition of restructuring charges. These actions
require management to make judgments and utilize significant estimates regarding
the nature, timing and amounts of costs associated with the activity. When we
incur a liability related to a restructuring action, we estimate and record all
appropriate expenses, including expenses for severance and other employee
separation costs, facility consolidation costs (including estimates of sublease
income), lease cancellations, asset impairments and any other exit costs. Should
the actual amounts differ from our estimates, the amount of the restructuring
charges could be impacted, which could materially affect our consolidated
financial position and results of operations.

# Recently
Adopted and Newly Issued Accounting Pronouncements

Effective January 1, 2006,
the Company adopted the provisions of SFAS 123(R), using the
modified-prospective-transition method. Under that transition method,
compensation cost recognized for the year ended December 31, 2006 includes: (a)
compensation cost for all share-based payments granted prior to, but not yet
vested as of January 1, 2006, based on the grant-date fair value estimated in
accordance with the original provisions of SFAS 123, and (b) compensation cost
for the vested portion of share-based payments granted subsequent to January 1,
2006, based on the grant-date fair value estimated in accordance with the
provisions of SFAS 123(R). Results for prior periods have not been restated.

The fair value of employee
share options is recognized in expense over the vesting period of the options,
using the graded attribution method. The fair value of employee share options is
determined on the date of grant using the Black-Scholes option pricing model.
The Company has used historical volatility in its estimate of expected
volatility. The expected life represents the period of time (in years) for which
the options granted are expected to be outstanding. The Company used the
simplified method for determining expected life as permitted in SEC Staff
Accounting Bulletin 107 for options qualifying for such treatment
(plain-vanilla options) due to the limited history the Company
currently has with option exercise activity. The risk-free interest rate is
based on the U.S. Treasury yield curve.

In June 2006, the FASB
ratified the consensus reached by the EITF on Issue No. 06-3, How Taxes
Collected from Customers and Remitted to Governmental Authorities Should Be
Presented in the Income Statement (That Is, Gross versus Net
Presentation). The consensus requires disclosure of either the gross or
net presentation, and any such taxes reported on a gross basis should be
disclosed in the interim and annual financial statements. This Issue is
effective for financial reporting periods beginning after December 15, 2006. The
Company does not expect to change its presentation of such taxes, as its sales
are currently recorded net of tax.

In June 2006, the Financial
Accounting Standards Board (FASB) issued FASB Interpretation No. 48
Accounting for Uncertainty in Income Taxes (an interpretation of FASB
Statement No. 109)", which is effective for fiscal years beginning after
December 15, 2006. This interpretation was issued to clarify the accounting for
uncertainty in income taxes recognized in the financial statements by
prescribing a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be
taken in a tax return. The Company is currently evaluating the potential impact,
if any, of this pronouncement.

In September 2006, the SEC
issued Staff Accounting Bulletin No. 108 (SAB 108) Considering
the Effects of Prior Year Misstatements when Quantifying Misstatements in
Current Year Financial Statements. SAB 108 provides interpretative
guidance on how the effects of the carryover or reversal of prior year
misstatements should be considered in quantifying a current year misstatement.
The SEC staff believes that registrants should quantify errors using both a
balance sheet and an income statement approach and evaluate whether either
approach results in quantifying a misstatement that, when all relevant
quantitative and qualitative factors are considered, is material. This
pronouncement is effective for fiscal years ending after November 15, 2006. This
pronouncement had no impact on the Companys consolidated financial
statements for the year ended December 31. 2006.

# Highlights from 2006

The discussion of our results of operations and financial condition that follows
will provide information that will assist in understanding our financial
statements and information about how certain accounting principles and estimates
affect the consolidated financial statements. This discussion should be read in
conjunction with the consolidated financial statements included herein.

| |  | Sales increase of 10.9% to $2.3 billion in 2006 from $2.1 billion in 2005
| | - | -------------------------------------------------------------------------

| |  | Continued growth (26.0%) in e-commerce sales to $819 million in 2006 from $650 million in 2005
| | - | ----------------------------------------------------------------------------------------------

| |  | Decrease of selling, general and administrative expense to 12.0% of net sales in 2006 from 12.7% of net sales in 2005
| | - | ---------------------------------------------------------------------------------------------------------------------

| |  | Increase in income from operations in 2006 of $27 million or 78%
| | - | ----------------------------------------------------------------

| |  | Net Income: 45.1 million, up 295% from 2005
| | - | -------------------------------------------

| |  | Diluted Earnings Per Share: $1.22 up 294% from 2005
| | - | ---------------------------------------------------

# Results of Operations

We had net income of $45.1 million for the year ended December 31, 2006, $11.4
million for the year ended December 31, 2005 and $10.2 million for the year
ended December 31, 2004.

The following table represents our
consolidated statement of operations data expressed as a percentage of net sales for our
three most recent fiscal years:

|                                             | 2006  | 2005   | 2004  
|-------------------------------------------- | ----- | ------ | ------
|Net sales                                    | 100%  | 100.0% | 100.0%
|Gross profit                                 | 14.6% | 14.5%  | 14.9% 
|Selling, general and administrative expenses | 12.0% | 12.7%  | 13.5% 
|Restructuring and other charges              |      | 0.2%   | 0.4%  
|Income from operations                       | 2.6%  | 1.6%   | 1.0%  
|Interest expense                             | 0.1%  | 0.1%   | 0.2%  
|Provision for income taxes                   | 1.1%  | 1.0%   | 0.3%  
|Net income                                   | 1.9%  | 0.5%   | 0.5%  

NET SALES

Net sales were $2.35 billion for the year ended December 31, 2006, an increase
of 10.9% from $2.12 billion for the year ended December 31, 2005. Net sales in
2006 included approximately $819 million of internet-related sales, an increase
of $169 million, or 26%, from 2005. North American sales increased to $1.6
billion, a 12.7% increase from $1.42 billion in 2005. The increase in North
American sales resulted primarily from growth in both our Technology Products
and our Industrial Products segments. Sales in our Technology Products segment
increased 12.8% to $1.40 billion from $1.25 billion in 2005. This increase was
largely a result of our successful internet-based marketing initiatives directed
primarily at our consumer customers as reflected by an increase in our
internet-related sales of approximately $169 million as well as an expansion of
product offerings including private label products. Although our
internet-related sales are not exclusively made to consumers, we believe that a
large majority of these sales are made to consumers. We continued to see strong
growth in our industrial product sales in 2006. Sales of industrial products
increased 12.8% to $196.9 million from $174.6 million last year, representing
12.2% of the overall increase in North American sales. European sales, stated in
US dollars, increased 7.1% to $743.9 million for 2006 (representing 31.7% of
worldwide sales) compared to $694.6 million (representing 32.8% of worldwide
sales) in the year-ago period. Movements in foreign exchange rates negatively
impacted European sales for 2006 by approximately $.4 million. Sales in our
Hosted Software segment were not material in 2006.

European economies began to recover during 2006 and we saw our sales improve in
those markets as measured in local currencies. The table below reflects European
sales for the three years as reported in this report at then-current exchange
rates and at constant (2004) exchange rates (in millions):

|                                      | 2006   | 2005   | 2004  
|------------------------------------- | ------ | ------ | ------
|European sales as reported            | $743.9 | $694.6 | $695.7
|European sales at 2004 exchange rates | $738.1 | $688.8 | $695.7

Net sales were $2.12 billion for the year ended December 31, 2005, an increase
of 9.7% from $1.93 billion for the year ended December 31, 2004. Net sales in
2005 included approximately $650 million of internet-related sales, an increase
of $135 million, or 26%, from 2004. North American sales increased to $1.42
billion in 2005, a 15.3% increase from 2004s $1.23 billion. The increase
in North American sales resulted primarily from growth in both our Technology
Products and our Industrial Products segments. Sales in our Technology Products
segment increased 15.3% to $1.25 billion from $1.08 billion in 2004. This
increase was largely a result of our successful internet-based marketing
initiatives directed primarily at our consumer customers as reflected by an
increase in our internet-related sales of approximately $100 million. Although
our internet-related sales are not exclusively made to consumers, we believe
that a large majority of these sales are made to consumers. We continued to see
strong growth in our industrial product sales in 2005. Sales of industrial
products increased 15.2% to $174.6 million from $151.6 million in 2004,
representing 12% of the overall increase in North American sales. European
sales, stated in US dollars, decreased 0.2% to $694.6 million for 2005
(representing 32.8% of worldwide sales) compared to $695.7 million (representing
36.1% of worldwide sales) in 2004. Movements in foreign exchange rates
positively impacted European sales for 2005 by approximately $5.8 million. If
currency exchange rates for 2004 had prevailed in 2005, however, European sales
would have decreased 1.0% from the prior year. Continued weakness in demand for
information technology products from business customers in Europe and the effect
of exchange rate movements on product pricing in certain European markets for
products whose cost is U.S. dollar based, resulted in decreased local currency
denominated sales. Sales in our Hosted Software segment were not material in
2005 and 2004.

GROSS PROFIT

Gross profit, which consists of net sales less product cost, shipping, assembly
and certain distribution center costs, was $342.9 million, or 14.6% of net
sales, for the year ended December 31, 2006, compared to $307.3 million or 14.5%
of net sales in 2005. In the fourth quarter of 2006 the Companys gross
margin was 12.9% compared to 14.7% in the fourth quarter of 2005. The decrease
in gross margin was primarily attributable to price discounting for technology
products.

Gross profit was $307.3 million, or 14.5% of net sales, for the year ended
December 31, 2005, compared to $286.5 million or 14.9% of net sales in 2004. Our
gross profit ratio declined in 2005 primarily as a result of approximately $7
million of increased costs for warehouse staff and supplies related to increased
activity levels from the prior year. These increased costs were partially offset
by favorable changes in product mix. Improvement in our gross profit ratio in
North America was partially offset by a continued decline in our gross profit
ratio in Europe.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses totaled $281.0 million, or 12.0% of
net sales, for the year ended December 31, 2006, $268.3 million, or 12.7% of net
sales, for 2005, and $260.1 million, or 13.5% of net sales, in 2004. Selling,
general and administrative expenses increased $12.7 million, or 4.7%, in 2006
from a year ago. Significant expense changes include $3.1 million of increased
credit card fees, a $4.0 million increase in sales salaries related to the
increased sales volume, an increase in other salaries and related costs of
approximately $10.0 million due to increased staff in areas such as marketing
and information technology as well as $1.8 million of salary expense related to
stock compensation expense recorded as the result of the adoption of SFAS
123(R). Rent expense increased $2.3 million due to the companys expansion.
These increases were partially offset by a decrease of approximately $6.1
million of bad debt expense and a positive impact of foreign exchange of
approximately $3.5 million.

Selling, general and administrative expenses totaled $268.3 million, or 12.7% of
net sales, for the year ended December 31, 2005 as compared to $260.1 million or
13.5% of net sales for 2004. Selling, general and administrative expenses
increased $8.2 million, or 3.2%, in 2005 from 2004 as a result of $3.8 million
of increased credit card fees related to the increased sales volume, increased
legal and professional fees of $2.0 million related to the restatement of the
2004 and 2003 financial statements and $3.8 million of increased foreign
exchange expenses. These increases were partially offset by increased funding of
advertising expenses from vendors.

RESTRUCTURING AND OTHER CHARGES

During the year ended December 31, 2005, we incurred $4.2 million of
restructuring and other charges. These costs were primarily related to further
restructuring actions undertaken in Europe during the year as a result of
continuing decline in profitability. The costs were comprised primarily of staff
severance expense related to the elimination of approximately 240 positions,
which resulted in approximately $6.0 million in annual savings.

We incurred $7.4 million of restructuring and other charges in 2004. In the
first quarter of 2004 we implemented a plan to streamline the activities of our
United States computer businesses back office and warehouse operations,
resulting in the elimination of approximately 200 jobs. We incurred $3.7 million
of restructuring costs associated with this plan, including $3.2 million for
staff severance and benefits for terminated employees and $0.5 million of
non-cash costs for impairment of the carrying value of fixed assets. We recorded
$0.6 million of additional costs in 2004 related to facility exit costs for our
2003 plan to consolidate United States warehouse locations. We also implemented
several cost reduction plans in Europe during 2004, including a consolidation of
United Kingdom sales offices which resulted in the elimination of 50 jobs. We
incurred $2.5 million of restructuring charges for facility exit costs and
workforce reductions in connection with these actions and $0.5 million of
additional costs resulting from adjustments to our estimates of lease and
contract termination costs for our 2002 plan to consolidate our United Kingdom
operations.

INCOME FROM OPERATIONS

We had income from operations of $61.9 million in 2006, $34.8 million in 2005
and $19.0 million in 2004. Income from operations for the year ended December
31, 2005 included restructuring and other charges of $4.2 million. For the year
ended December 31, 2004, restructuring charges of $7.4 million were included in
income from operations.

Income
from operations in North America was $45.4 million for the year ended December 31, 2006,
$39.4 million in 2005 and $31.4 million in 2004. Declining gross profit margin and
increased selling, general and administrative expenses resulted in our implementation of
the previously described restructuring activities in Europe in 2005 and 2004.

INTEREST AND OTHER INCOME AND INTEREST EXPENSE

Interest expense was $1.7 million in 2006, $2.7 million in 2005 and $3.1 million
in 2004. Interest expense decreased in 2006 as a result of decreased short-term
borrowings in the United Kingdom as well as the extinguishment of mortgage debt
related to our Georgia warehouse sale in the first quarter of 2006. The
increased expense in 2004 resulted from increased short-term borrowings under
our United Kingdom facility. Interest and other income, net was $9.5 million in
2006, $0.7 million in 2005 and $0.6 million in 2004. The increase in other
income in 2006 mainly resulted from the gain on sale of the Georgia location.

INCOME TAXES

Our income tax provisions were $24.5 million for the year ended December 31,
2006, $21.4 million for the year ended December 31, 2005 and $6.4 million for
2004. The effective rates were 35.2% in 2006, 65.2% in 2005, and 38.5% in 2004.
The high effective tax rate in 2005 was a result of our establishing valuation
allowances of approximately $10.2 million for deferred tax assets in the United
Kingdom in 2005. The Companys United Kingdom subsidiary had recorded
historical losses and had been affected by restructuring and other charges in
recent years. These losses represented evidence for management to estimate that
a full valuation allowance for the net deferred tax asset was necessary in 2005.
In 2006 the United Kingdom subsidiary recorded a profit and the Companys
effective tax rate benefited by approximately 3.2% or $2.3 million.. The
effective rate in 2005 also was unfavorably impacted by increased state and
local taxes and losses in other foreign jurisdictions for which no tax benefit
has been recognized. These increases were partially offset by an income tax
benefit of $2.7 million we recorded in the fourth quarter of 2005 resulting from
a favorable decision we received for a petition submitted in connection with
audit assessments made in 2002 and 2004 in a foreign jurisdiction. The tax rate
in 2004 was higher than the United States statutory rate of 35% primarily due to
losses in foreign jurisdictions for which we recognized no tax benefit and
losses in a foreign jurisdiction where the benefit rate is lower than the rate
in the United States.

For the years ended December 31, 2006, 2005 and 2004, we have not recognized
certain foreign tax credits, certain state deferred tax assets in the United
States and certain benefits on losses in foreign tax jurisdictions due to our
inability to carry such credits and losses back to prior years and our
determination that it was more likely than not that we would not generate
sufficient future taxable income to realize these assets. Accordingly, valuation
allowances were recorded against the deferred tax assets associated with those
items. If we are able to realize all or part of these deferred tax assets in
future periods, it will reduce our provision for income taxes by a release of
the corresponding valuation allowance.

NET INCOME

Net income was $45.1 million, or $1.29 per basic share and $1.22 per diluted
share, for the year ended December 31, 2006, $11.4 million, or $.33 per basic
share and $.31 per diluted share, for the year ended December 31, 2005 and $10.2
million, or $.30 per basic share and $.29 per diluted share, for the year ended
December 31, 2004.

# Seasonality

Net sales have historically been modestly weaker during the second and third
quarters as a result of lower business activity during those months. The
following table sets forth the net sales, gross profit and income from
operations for each of the quarters since January 1, 2004 (amounts in
millions).

`March 31       June 30      September 30     December 31
                                       --------       -------      ------------     -----------
     2006
     ----
     Net sales                           $575           $547           $575            $648
     Percentage of year's net sales     24.5%          23.3%          24.5%           27.6%
     Gross profit                         $90            $77            $92             $83
     Income from Operations               $21            $11            $19             $11

     2005
     ----
     Net sales                           $538           $506           $489            $583
     Percentage of year's net sales     25.4%          23.9%          23.1%           27.6%
     Gross profit                         $80            $71            $70             $86
     Income from operations                $5             $3             $8             $18

     2004
     ----
     Net sales                           $485           $433           $458            $552
     Percentage of year's net sales     25.1%          22.5%          23.8%           28.6%
     Gross profit                         $76            $68            $71             $71
     Income from operations                $7             $2             $4              $6`

# Financial Condition, Liquidity and Capital Resources

Our primary liquidity needs are to support working capital requirements in our
business, to fund capital expenditures and minimal acquisitions and fund the
special dividend declared by our Board in March 2007. We rely principally upon
operating cash flow and borrowings under our credit facilities to meet these
needs. We believe that cash flow available from these sources will be sufficient
to meet our working capital requirements, projected capital expenditures and
interest and debt repayments in the foreseeable future.

Our working capital was $229.4 million at December 31, 2006, an increase of
$59.6 million from $169.8 million at the end of 2005. This was the result of a
$23.7 million increase in cash, a $14.0 million increase in accounts receivable,
a $41.0 million increase in inventories, a $11.0 million increase in prepaid
expenses and other current assets and a decrease in short term borrowings of
$14.0 million offset by a $29.8 million increase in accounts payable, and a
$12.8 million increase in accrued expense and other current liabilities, and a
$1.5 million decrease in deferred tax assets. The $41.0 million increase in our
inventories was principally in our domestic US locations. Inventory turnover
increased slightly from 9.3 to 10 times in 2006. The increase in accounts
receivable occurred in Europe, resulting from our increased sales. This also
increased our days of sales outstanding from 22 in 2005 to 23 in 2006.We expect
that future accounts receivable and inventory balances will fluctuate with the
mix of our net sales between consumer and business customers, as well as
geographic regions.

We maintain our cash and cash equivalents primarily in money market funds or
their equivalent. As of December 31, 2006, all of our investments mature in less
than three months. Accordingly, we do not believe that our investments have
significant exposure to interest rate risk.

Net cash provided by operating activities was $34.3 million for the year ended
December 31, 2006, $27.3 million for the year ended December 31, 2005 and $12.8
million for the year ended December 31,2004. The increase in cash provided by
operating activities in 2006 of $7.0 million as compared to 2005 resulted from a
$14.1 million increase in net income adjusted by other non-cash items, such as
depreciation expense, and a decrease of $7.1 million in cash used for changes in
our working capital accounts. The $14.6 million increase in cash provided by
operating activities in 2005 as compared to 2004 resulted from an increase in
cash provided by net income adjusted by other non-cash items, such as
depreciation expense, and a decrease in cash used for changes in our working
capital accounts. Cash provided by net income and other non-cash items was $37.6
million in 2005, an increase of $10.4 million, compared to $27.2 million in
2004, and was primarily attributable to the $8.6 million increase in the
provision for deferred income taxes. The cash used for changes in our working
capital accounts was $10.2 million in 2005 compared to $14.5 million in 2004.

Net cash of $12.2 million was provided by investing activities for the year
ended December 31, 2006. Proceeds from disposals of property and equipment was
$18.9 million primarily the result of the sale of our distribution facility in
Suwanee, Georgia. We used cash of $6.7 million during 2006, $5.8 million during
2005 and $8.3 million during 2004 in investing activities, principally for the
purchase of property, plant and equipment. Capital expenditures in both 2006,
2005 and 2004 included upgrades and enhancements to our information and
communications systems hardware and facilities costs for the opening of
additional retail outlet stores in North America.

Net cash of $22.1 million was used in financing activities for the year ended
December 31, 2006. Repayment of short and long-term borrowings used
approximately $24.7 million of cash and proceeds from stock option exercises and
excess tax benefits from stock option exercises provided approximately $2.6
million of cash. Net cash of $4.7 million was provided by financing activities
in 2005, primarily as a result of an increase in our short-term borrowings in
Europe. Net cash of $6.8 million was used in financing activities in 2004,
primarily for the repayment of short and long-term borrowings.

We amended our $70 million secured United States revolving credit agreement in
October 2005 to increase the amount available to $120 million (which may be
increased by up to an additional $30 million, subject to certain conditions),
increase the number of lenders participating and to provide for borrowings by
both our United States and United Kingdom businesses. The upgraded facility
expires in October 2010. Borrowings under the agreement are subject to borrowing
base limitations of up to 85% of eligible accounts receivable and 40% of
qualified inventories and are secured by accounts receivable, inventories and
certain other assets. The undrawn availability under the facility may not be
less than $15 million until the last day of any month in which the availability
net of outstanding borrowings is at least $70 million. The revolving credit
agreement requires that we maintain a minimum level of availability. If such
availability is not maintained, we will then be required to maintain a fixed
charge coverage ratio (as defined). The agreement contains certain other
covenants, including restrictions on capital expenditures and payments of
dividends. We were in compliance with all of the covenants as of December 31,
2006, except for the required timely submission of certain financial statements,
for which we have obtained a waiver. As of December 31, 2006, eligible
collateral under the facility was $104.1 million, there were outstanding
advances of $9.3 million (all in the United Kingdom), outstanding letters of
credit of $11.0 million and total availability of $83.8 million.

In connection with the amendment to our revolving credit agreement in October
2005, we terminated our £15 million multi-currency credit facility with a
financial institution in the United Kingdom, which was available to our United
Kingdom subsidiaries. We also paid off the remaining £4.7 million balance
on our United Kingdom term loan, which we had entered into in 2002 to finance
the construction of our United Kingdom headquarters.

Our Netherlands subsidiary has a 5 million ($6.6 million at the December
31, 2006 exchange rate, which exchange rate applies to all other Euro
denominated amounts below) credit facility. Borrowings under the facility are
secured by the subsidiarys accounts receivable and are subject to a
borrowing base limitation of 85% of the eligible accounts. At December 31, 2006
there were 2.2 million ($3.0 million) of borrowings outstanding under this
line with interest payable at a rate of 5.0%. The facility expires in August
2007.

In April 2002, we entered into a ten year, $8.4 million mortgage loan on our
Suwanee, Georgia distribution facility. The mortgage had monthly principal and
interest payments of $62,000 payable through May 2012, with a final additional
principal payment of $6.4 million at maturity in May 2012. The mortgage loan
bore interest at 7.04% and was collateralized by the underlying land and
building. During the first quarter of fiscal 2006, we sold this facility and
repaid the remaining balance on the loan. The facility was replaced by a larger,
leased distribution center in a nearby area.

We are obligated under non-cancelable operating leases for the rental of most of
our facilities and certain of our equipment which expire at various dates
through 2026. We currently lease our New York facility from an entity owned by
Richard Leeds, Robert Leeds and Bruce Leeds, the Companys three principal
shareholders and senior executive officers. The annual rental totals $612,000
and the lease expires in 2007. We have sublease agreements for unused space we
lease in Compton, California and Wellingborough, England. In the event a
sublessee is unable to fulfill its obligations, we would be responsible for rent
due under the lease. However, we expect the sublessees will fulfill their
obligations under the leases.

Following is a summary of our contractual obligations for future principal
payments on our debt, minimum rental payments on our non-cancelable operating
leases and minimum payments on our other purchase obligations at December 31,
2006 (in thousands):

`After
                                         2007       2008       2009       2010       2011       2011
                                         ----       ----       ----       ----       -----     -----
  Contractual Obligations:
  Payments on capital lease
      obligations                        $573       $402        $81        $11        $10

  Payments on non-cancelable
      operating leases, net of
      subleases                        10,255     10,033      9,568      7,358      6,170    $51,719

  Dividends payable                    35,800
                                       ------
  Purchase and other obligations        3,936      1,733      1,191      1,169        900      2,836
                                        -----      -----      -----      -----        ---      -----
  Total contractual obligations       $50,564    $12,168    $10,840     $8,538     $7,080    $54,555
                                      =======    =======    =======     ======     ======    =======`

Our purchase and other obligations consist primarily of certain employment
agreements and service agreements.

In addition to the contractual obligations noted above, we had $11.0 million of
standby letters of credit outstanding as of December 31, 2006.

Our operating results have generated cash flow which, together with borrowings
under our debt agreements, has provided sufficient capital resources to finance
working capital and cash operating requirements, fund capital expenditures, and
fund the payment of interest on outstanding debt. Our primary ongoing cash
requirements will be to finance working capital, provide payment of the special
shareholder dividend of approximately $35 million declared in the first quarter
of 2007, fund the payment of principal and interest on indebtedness, fund
capital expenditures, fund minimal acquisitions and fund any future special
shareholder dividends that may be declared. We believe future cash flows from
operations and availability of borrowings under our lines of credit will be
sufficient to fund ongoing cash requirements for at least the next twelve
months.

We are party to certain litigation, the outcome of which we believe, based on
discussions with legal counsel, will not have a material adverse effect on our
consolidated financial statements.

# Off-Balance Sheet Arrangements

We have not created, and are not party to, any special-purpose or off-balance
sheet entities for the purpose of raising capital, incurring debt or operating
our business. We do not have any arrangements or relationships with entities
that are not consolidated into the financial statements that are reasonably
likely to materially affect our liquidity or the availability of capital
resources.

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

We are exposed to market risks, which include changes in U.S. and international
interest rates as well as changes in currency exchange rates (principally Pounds
Sterling, Euros and Canadian Dollars) as measured against the U.S. Dollar and
each other.

The translation of the financial statements of our operations located outside of
the United States is impacted by movements in foreign currency exchange rates.
Changes in currency exchange rates as measured against the U.S. dollar may
positively or negatively affect sales, gross margins, operating expenses and
retained earnings as expressed in U.S. dollars. Sales would have fluctuated by
approximately $80 million and income from operations would have fluctuated by
approximately $1.4 million if average foreign exchange rates changed by 10% in
2006. We have limited involvement with derivative financial instruments and do
not use them for trading purposes. We may enter into foreign currency options or
forward exchange contracts aimed at limiting in part the impact of certain
currency fluctuations, but as of December 31, 2006 we had no outstanding forward
exchange contracts.

Our exposure to market risk for changes in interest rates relates primarily to
our variable rate debt. Our variable rate debt consists of short-term borrowings
under our credit facilities. As of December 31, 2006, the balance outstanding on
our variable rate debt was approximately $12.3 million. A hypothetical change in
average interest rates of one percentage point is not expected to have a
material effect on our financial position, results of operations or cash flows
over the next fiscal year.

# 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 15 of Part IV.

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

None.

# Item 9A.  Controls and Procedures.

Disclosure Controls and Procedures

The Company establishes and maintains disclosure controls and procedures that
are designed to provide reasonable assurance that information required to be
disclosed by the Company in the reports it files under the Securities Exchange
Act of 1934 is recorded, processed, summarized and reported within the time
periods specified in the SECs rules and forms. Disclosure controls are
also designed to provide reasonable assurance that such information is
accumulated and reported to management, including the Chief Executive Officer
and the Chief Financial Officer, to allow timely decisions regarding required
disclosure.

Our management, including our CEO and CFO, does not expect that our disclosure
controls and procedures will prevent all errors and all fraud. A control system,
no matter how well designed and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are met. Further,
the design of a control system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered relative to their
costs. Because of the inherent limitations in control systems, misstatements due
to error or fraud may occur and not be detected. These limitations include the
circumstances that breakdowns can occur as a result of error or mistake, the
exercise of judgment by individuals or that controls can be circumvented by acts
of misconduct. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.

As of the end of the period covered by this report, we carried out an
evaluation, under the supervision and with the participation of our management,
including the Chief Executive Officer and the Chief Financial Officer, of the
effectiveness of the design and the operation of our disclosure controls and
procedures pursuant to Exchange Act Rules 13a-15 and 15d-15 of the Securities
Exchange Act of 1934. As part of this evaluation we identified certain
significant deficiencies in our internal controls over financial reporting as of
December 31, 2006. These significant deficiencies are:

| |  | The Company has internal control deficiencies in its information technology area
including the lack of adequate general controls. The Company lacks program
change and project management controls, has inadequate segregation of duties
between information technology department development and production functions,
needs formal information technology strategic planning, need formal
documentation of information security procedures, needs security around user
rights to certain application systems and needs to implement formal help desk
procedures.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | The Company has disparate operating and financial information systems at certain
of the Companys locations that have inherent limitations resulting in a
control environment heavily reliant upon manual review procedures and
adjustments. These deficiencies include inadequate or lack of systems interfaces
and the preparation of numerous manual journal entries. In addition, there are
additional adjustments entered into the general ledger from subsidiaries after
submission by the subsidiary.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | The Company has not developed adequate estimation processes to appropriately
calculate fairly stated vendor drop shipments, sales returns and allowances,
cooperative advertising and customer rebate reserves, and other vendor and
employee related costs.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | The Company has a manual process for estimating certain amounts for inventory in
transit. There is inadequate review of the manual process to determine if the
amounts are complete and properly valued.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | The Company needs to increase headcount of adequately trained financial
personnel to assist in executing timely financial closings, addressing
non-routine accounting issues that arise in the normal course of business and
ensure timely and accurate preparation of interim and annual financial
statements.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Although these significant deficiencies do not, in our judgment, rise to the
level of a material weakness in internal controls over financial reporting, the
Chief Executive Officer and the Chief Financial Officer have concluded, based on
our evaluation as of December 31, 2006, that our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended) were not effective to ensure that the
information required to be disclosed by us in this annual report on Form 10-K
was recorded, processed, summarized and reported within the time periods
specified in the SECs rules and forms.

As a result of this determination and as part of the work undertaken in
connection with this report, we have applied compensating procedures and
processes as necessary to ensure the reliability of our financial reporting.
Accordingly, management believes, based on its knowledge, that (i) this report
does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the
circumstances under which they were made, not misleading with respect to the
period covered by this report and (ii) the financial statements, and other
financial information included in this report, fairly reflect the form and
substance of transactions and fairly present in all material respects our
financial condition, results of operations and cash flows as at, and for, the
periods presented in this report.

Section 404 of the Sarbanes-Oxley Act

For the year ended December
31, 2006, we were not subject to the internal controls certification and
attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002
because we were not an accelerated filer as defined by the SEC. For the year
ended December 31, 2007, we will be subject to the requirements of Section 404
that management provide an assessment of the effectiveness of the Companys
internal control over financial reporting and the Companys independent
registered public accounting firm will be required to audit that assessment.

We are working to achieve
compliance with the requirements of Section 404. We will be dedicating
substantial time and resources to documentation and review of our procedures in
2007. We may also need to engage outside consultants to assist us. We have not
completed this process or its assessment, due to the complexities of our
decentralized structure, the number of accounting systems in use and the lack of
qualified personnel to devote to the process. In addition to the weaknesses
reported as of December 31, 2006 discussed under the caption Disclosure
Controls and Procedures, we have identified numerous other internal
control deficiencies that may affect the timeliness and accuracy of recording
transactions and which, individually or in the aggregate, could become material
weaknesses in future periods if not remediated.

We have a significant
amount of work to do to remediate the items we have identified. In the course of
completing our evaluation and testing we may identify further deficiencies and
weaknesses that will need to be addressed and will require remediation. We may
not be able to correct all such internal control deficiencies in a timely manner
and may find that a material weakness or weaknesses exist. As a result,
management may not be able to issue an unqualified opinion on the effectiveness
of the Companys internal control over financial reporting as of December
31, 2007.

# Item 9B.  Other Information.

None.

# PART III

# Item 10. Directors,
Executive Officers and Corporate Governance.

The information required by
Item 10 of Part III is hereby incorporated by reference from the Companys
Proxy Statement for the 2007 Annual Meeting of Stockholders which we anticipate
filing April 30, 2007 (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 and Related Stockholder
Matters.

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 10 of Part III is
hereby incorporated by reference from the Proxy Statement.

# Item 14. Principal
Accounting Fees and Services.

The information required by Item 14 of Part III is hereby incorporated by
reference from the Proxy Statement.

# PART IV

# Item 15. Exhibits and
Financial Statement Schedules.

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

| | Report of Ernst & Young, LLP, Independent
   Registered Public Accounting Firm | 36
| | ------------------------------------------------------------------------------ | --

| | Report of Deloitte & Touche, LLP, Independent
   Registered Public Accounting Firm | 37
| | ---------------------------------------------------------------------------------- | --

| | Consolidated Balance Sheets as of December 31, 2006 and
   December 31, 2005 | 38
| | ---------------------------------------------------------------------------- | --

| | Consolidated Statements of Operations for the years ended
   December 31, 2006, 2005 and 2004 
   (as previously restated) | 39
| | -------------------------------------------------------------------------------------------------------------------------- | --

| | Consolidated Statements of Shareholders' Equity for the
   Years ended December 31, 2006, 2005 (as previously
   restated) | 40
| | -------------------------------------------------------------------------------------------------------------------------- | --

| | Consolidated Statements of Cash Flows for the years ended
   December 31, 2006, 2005 and 2004 (as previously
   restated) | 41
| | ------------------------------------------------------------------------------------------------------------------------- | --

| | Notes to Consolidated Financial Statements | 42
| | ------------------------------------------ | --

2.   
          Financial Statement Schedules:

| | The following financial statement schedule is filed as part of this report and
should be read together with our consolidated financial statements:
| | --------------------------------------------------------------------------------------------------------------------------------------------------

Schedule II - Valuation and Qualifying Accounts
          
          
          
          
            
          
          
60

| | 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.

| | Exhibit
No. | Description
| | ----------- | -----------

| | 3.1 | Composite Certificate of Incorporation of Registrant, as amended (incorporated
by reference to the Companys annual report on Form 10-K for the year ended
December 31, 2001)
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3.2 | By-laws of Registrant (incorporated by reference to the Company's registration
statement on Form S-1) (Registration No. 33-92052)
| | --- | ---------------------------------------------------------------------------------------------------------------------------------

| | 4.1 | Stockholders Agreement (incorporated by reference to the Company's quarterly
report on Form 10-Q for the quarterly period ended September 30, 1995)
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.1 | Form of 1995 Long-Term Stock Incentive Plan* (incorporated by
reference to the Companys registration statement on Form S-1)
(Registration No. 333-1852)
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.2 | Form of 1999 Long-Term Stock Incentive Plan as amended*
(incorporated by reference to the Companys report on Form 8-K dated
May 20, 2003)
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------

| | 10.3 | Lease Agreement dated September 20, 1988 between the Company and Addwin
Realty Associates (Port Washington facility) (incorporated by reference to the
Companys registration statement on Form S-1) (Registration No. 33-92052)
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.4 | Amendment to Lease Agreement dated September 29, 1998 between the Company
and Addwin Realty Associates (Port Washington facility)(incorporated
by reference to the Companys annual report on Form 10-K for the year ended
December 31, 1998)
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.5 | Lease Agreement dated as of July 17, 1997 between the Company and South Bay
Industrials Company (Compton facility)(incorporated by reference to
the Companys annual report on Form 10-K for the year ended December 31,
1997)
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.6 | Build-to-Suit Lease Agreement dated April, 1995 among the Company,
American National Bank and Trust Company of Chicago (Trustee for the original
landlord) and Walsh, Higgins & Company (Contractor) (Naperville
Illinois Facility Lease) (incorporated by reference to the Companys
registration statement on Form S-1) (Registration No. 33-92052)
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.7 | Lease Agreement dated September 17, 1998 between Tiger Direct, Inc. and Keystone
Miami Property Holding Corp. (Miami facility) (incorporated by reference to the
Company's quarterly report on Form 10-Q for the quarterly period ended September 30, 1998)
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.8 | Royalty Agreement dated June 30, 1986 between the Company and Richard
Leeds, Bruce Leeds and Robert Leeds, and Addendum thereto(incorporated by
reference to the Companys registration statement on Form S-1)
(Registration No. 33-92052)
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.9 | Form of 1995 Stock Plan for Non-Employee Directors* (incorporated by
reference to the Companys registration statement on Form S-1)
(Registration No. 333-1852)
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.10 | Employment Agreement dated as of December 12, 1997 between the Company and
Steven M. Goldschein* (incorporated by reference to the Companys annual
report on Form 10-K for the year ended December 31, 1997. See exhibit 10.19 for
Amendment.)
| | ----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.11 | Employment Agreement entered into on October 12, 2004 but effective as of
June 1, 2004 between the Company and Gilbert Fiorentino* (incorporated by
reference to the Companys report on Form 8-K dated October 12, 2004)
| | ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.12 | Restricted Stock Unit Agreement entered into on October 12, 2004 but
effective as of June 1, 2004 between the Company and Gilbert Fiorentino*
(incorporated by reference to the Companys report on Form 8-K dated
October 12, 2004)
| | ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.13 | Amended and Restated Credit Agreement, dated as of October 27, 2005,
between JP Morgan Chase Bank, N.A. and affiliates, General Electric Capital
Corporation, and GMAC Commercial Finance LLC (as Lenders) with the Company and
certain subsidiaries of the Company (as Borrowers) (the Amended and
Restated JP Morgan Chase Loan Agreement) (incorporated by reference to the
Companys report on Form 8-K dated October 27, 2005)
| | ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.14 | Amendment No. 1, dated as of December 19, 2005, to the Amended and
Restated JP Morgan Chase Loan Agreement* (incorporated by reference to the
Company's annual report on Form 10K for the year ended December 31, 2005)
| | ----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.15 | Lease agreement, dated December 8, 2005, between the Company and Hamilton
Business Center, LLC (Buford, Georgia facility) *(incorporated by reference to
the Companys annual report on Form 10K for the year ended December 31,
2005)
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.16 | First Amendment, dated as of June 12, 2006, to the Lease Agreement between
the Company and Hamilton Business Center, LLC (Buford, Georgia facility) *
(incorporated by reference to the Companys annual report on Form 10K for
the year ended December 31, 2005)
| | ----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.17 | First Amendment, dated as of February 1, 2006, to the Naperville Illinois
Facility Lease between the Company and Ambassador Drive LLC (current landlord)
*(incorporated by reference to the Companys annual report on Form 10K for
the year ended December 31, 2005)
| | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.18 | Agreement of Purchase and Sale, dated December 9, 2005, between the
Company (as Seller) and Hewlett Packard Company (as Buyer) (Suwanee, Georgia
facility) * (incorporated by reference to the Companys annual report on
Form 10K for the year ended December 31, 2005)
| | ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.19 | Amendment No. 1 dated January 17, 2007, to Employment Agreement
dated as December 12, 1997 between the Company and Stephen M. Goldschein* (filed
herewith)
| | ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.20 | Employment Agreement, dated as of January 17, 2007, between the
Company and Lawrence P. Reinhold.* (filed herewith)
| | ----- | -------------------------------------------------------------------------------------------------------------------

| | 10.21 | Form of 2006 Stock Incentive Plan for Non-Employee Directors*
(filed herewith).
| | ----- | -------------------------------------------------------------------------------

| | 10.22 | Form of 2005 Employee Stock Purchase Plan* (filed herewith).
| | ----- | ------------------------------------------------------------

| | 14 | Corporate Ethics Policy for Officers, Directors and Employees (revised as of
March 30, 2005) (incorporated by reference to the Companys report on Form
8-K dated March 30, 2005)
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 21 | Subsidiaries of the Registrant (filed herewith)
| | -- | -----------------------------------------------

| | 23 | Consent of experts and counsel: Consent of Independent Registered Public
Accountants (filed herewith)
| | -- | -----------------------------------------------------------------------------------------------------

| | 31.1 | Certification of the Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (filed herewith)
| | ---- | -----------------------------------------------------------------------------------------------------------------------

| | 31.2 | Certification of the Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (filed herewith)
| | ---- | -----------------------------------------------------------------------------------------------------------------------

| | 32.1 | Certification of the Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (filed herewith)
| | ---- | -----------------------------------------------------------------------------------------------------------------------

| | 32.2 | Certification of the Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (filed herewith)
| | ---- | -----------------------------------------------------------------------------------------------------------------------

| | 99.1 | Charter of the Audit Committee of the Companys Board of Directors, as
revised August 29, 2006 (incorporated by reference to the Companys report
on Form 8-K dated August 29, 2006)
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 99.2 | Charter of the Compensation Committee of the Companys Board of
Directors, as revised August 29, 2006 (incorporated by reference to the
Companys report on Form 8-K dated August 29, 2006)
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 99.3 | Charter of the Nominating/Corporate Governance Committee of the
Companys Board of Directors, as revised August 29, 2006 (incorporated by
reference to the Companys report on Form 8-K dated August 29, 2006)
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

*   Management contract or compensatory plan or arrangement

# 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.

| | SYSTEMAX INC.By: /s/ RICHARD LEEDS
Richard Leeds
Chairman and Chief Executive Officer
Date: March 30, 2007
| | ----------------------------------------------------------------------------------------------------------

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        | Chairman and Chief Executive Officer                 | March 30, 2007
|Richard Leeds            | (Principal Executive Officer)                       
|                        
|/s/ BRUCE LEEDS          | Vice Chairman                                        | March 30, 2007
|Bruce Leeds             
|                        
|/s/ ROBERT LEEDS         | Vice Chairman                                        | March 30, 2007
|Robert Leeds            
|                        
|/s/ LAWRENCE P. REINHOLD | Executive Vice President and Chief Financial Officer | March 30, 2007
|Lawrence P. Reinhold    
|                        
|/s/ THOMAS AXMACHER      | Vice President and Controller                        | March 30, 2007
|Thomas Axmacher          | (Principal Accounting Officer)                      
|                        
|/s/ GILBERT FIORENTINO   | Director                                             | March 30, 2007
|Gilbert Fiorentino      
|                        
|/s/ ROBERT D. ROSENTHAL  | Director                                             | March 30, 2007
|Robert D. Rosenthal     
|                        
|/s/ STACY DICK           | Director                                             | March 30, 2007
|Stacy Dick              
|                        
|/s/ ANN R. LEVEN         | Director                                             | March 30, 2007
|Ann R. Leven            

# REPORT OF ERNST &
YOUNG LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Shareholders and Board of Directors
of Systemax Inc.:

We have audited the
accompanying consolidated balance sheets of Systemax Inc. as of December 31,
2006 and 2005, and the related consolidated statements of operations, cash
flows, and shareholders equity for each of the two years in the period
ended December 31, 2006. Our audit also included the 2006 and 2005 financial
statement schedules listed in the accompanying index in Item 15. These financial
statements and schedules are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.

We conducted our audits in
accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. We were not engaged to perform an audit of the
Companys internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the
Companys internal control over financial reporting. Accordingly, we
express no such opinion. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, 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, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of Systemax Inc. at December 31, 2006 and
2005, and the consolidated results of its operations and its cash flows each of
the two years in the period ended December 31, 2006, in conformity with U.S.
generally accepted accounting principles. Also, in our opinion, the related 2006
and 2005 financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.

As discussed in Note 1 to
the consolidated financial statements, the Company adopted Statement of
Financial Accounting Standards No. 123(R), Share-Based Payment,
effective January 1, 2006.

ERNST & YOUNG LLP

New York, New York
March 27, 2007

# REPORT OF DELOITTE
& TOUCHE, LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of
Directors of Systemax Inc.:

We have audited the
accompanying consolidated statements of operations, shareholders equity,
and cash flows of Systemax Inc. and subsidiaries (the "Company") for the year
ended December 31, 2004. Our audits also included the financial statement
schedule listed in the Index at Item 15 for the period ended December 31,
2004.  These financial statements and financial statement schedule are the
responsibility of the Companys management.  Our responsibility is to
express an opinion on the financial statements and financial statement schedule
based on our audits.

We conducted our audits in
accordance with the standards of the Public Company Accounting Oversight Board
(United States).  Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement.  The Company is not required to have, nor
were we engaged to perform, an audit of its internal control over financial
reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances but not for the purpose of expressing an opinion on the
effectiveness of the Companys internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, 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 results of operations and cash flows of Systemax Inc. and
subsidiaries for the year ended December 31, 2004, in conformity with accounting
principles generally accepted in the United States of America.  Also, in
our opinion, such financial statement schedule for year ended December 31, 2004,
when considered in relation to the basic consolidated financial statements taken
as a whole, presents fairly, in all material respects, the information set forth
therein.

As discussed in Note 2 to
the consolidated financial statements, the accompanying consolidated financial
statements had been restated.

DELOITTE & TOUCHE LLP
New York, New York
April 13, 2005 (November 17, 2005 as to the effects of the restatement discussed in Note 2)

# SYSTEMAX INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2006 AND 2005
(IN THOUSANDS, except for share data)

`2006         2005
                                                                                               ----         ----
         ASSETS:
            Current assets:
               Cash and cash equivalents                                                      $86,964      $63,291
               Accounts receivable, net of allowances of $11,370 (2006) and $12,508 (2005)    164,615      150,635
               Inventories, net                                                               233,136      192,102
               Prepaid expenses and other current assets                                       26,919       15,877
              Deferred income tax assets, net                                                   7,727        9,227
                                                                                             --------      -------
                    Total current assets                                                      519,361      431,132

            Property, plant and equipment, net                                                 48,586       57,259
            Deferred income tax assets, net                                                    14,041       14,100
            Other assets                                                                        2,173        2,053
                                                                                             --------      -------

                         Total assets                                                        $584,161     $504,544
                                                                                             ========     ========

         LIABILITIES AND SHAREHOLDERS' EQUITY:
            Current liabilities:
               Short-term borrowings, including current portions of long-term debt            $12,788      $26,773
                Accounts payable                                                              201,486      171,667
                Accrued expenses and other current liabilities                                 75,688       62,888
                                                                                             --------      -------
                   Total current liabilities                                                  289,962      261,328
                                                                                             --------      -------

            Long-term debt                                                                        483        8,028
            Other liabilities                                                                   4,226        2,346

            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 38,331,990 shares; outstanding 35,341,377 (2006) issued 38,231,990
                shares; outstanding 34,761,174 (2005) shares                                      383          382
                 Additional paid-in capital                                                   172,983      177,574
                 Accumulated other comprehensive income, net of tax                             7,181          893
                 Retained earnings                                                            144,074       98,927
                 Common stock in treasury at cost - 2,990,613 (2006) and 3,470,816 (2005)     (35,131)
                shares                                                                                     (40,772)
                 Unearned restricted stock compensation                                                     (4,162)
                                                                                             --------      -------
                                 Total shareholders' equity                                   289,490      232,842
                                                                                             --------      -------

                         Total liabilities and shareholders' equity                          $584,161     $504,544
                                                                                             ========      =======

                See notes to consolidated financial statements.`

# SYSTEMAX INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED
DECEMBER 31, 2006, 2005 AND 2004
(IN THOUSANDS, except per common share amounts)

`2006              2005            2004*
                                                                               ----              ----            ----
Net sales                                                                $2,345,165        $2,115,518       $1,928,147
Cost of sales                                                             2,002,246         1,808,231        1,641,681
                                                                  ------------------ -----------------   --------------
Gross profit                                                                342,919           307,287          286,466
Selling, general and administrative expenses                                281,015           268,327          260,111
Restructuring and other charges                                                   -             4,151            7,356
                                                                  ------------------ -----------------   --------------
Income from operations                                                       61,904            34,809           18,999
Interest and other income, net                                              (9,475)             (735)            (630)
Interest expense                                                              1,684             2,670            3,073
                                                                  ------------------ -----------------   --------------
Income before income taxes                                                   69,695            32,874           16,556
Provision for income taxes                                                   24,548            21,433            6,368
                                                                  ------------------ -----------------   --------------
Net income                                                                  $45,147           $11,441          $10,188
                                                                  ================== =================   ==============


Net income per common share, basic:                                           $1.29              $.33             $.30
Net income per common share, diluted:                                         $1.22              $.31             $.29

Weighted average common and common equivalent shares:
   Basic                                                                     34,960            34,646           34,373
   Diluted                                                                   36,881            36,488           35,489`

* As previously restated  see
Note 2.

See notes to consolidated financial statements.

# SYSTEMAX INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(IN THOUSANDS)

`Common                                          Accumulated
                          Number                                             Other                      Unearned
                         of Shares              Additional               Comprehensive     Treasury    Restricted
                           Out-       Stock       Paid-in     Retained   Income (Loss),     Stock,        Stock     Comprehensive
                         Standing     Amount      Capital     Earnings     Net of Tax      At Cost     Compensation Income (Loss)
                        ------------ ---------- ------------ ----------- --------------- ------------- ------------ --------------

Balances, January
  1, 2004*                $34,288       $382     $175,343     $77,298        $1,933       $(46,330)      $-             $-
                         --------       ----     --------     -------        ------       ---------      --------      ------
Change in cumulative
  translation
  adjustment                                                                  1,987                                     1,987
Exercise of stock
  options                     145                    (631)                                   1,700
Tax benefit of employee
    stock plans                                       188
Grant of restricted
    stock units                                     5,740                                                  (5,740)
Amortization of unearned
    restricted stock
    compensation                                                                                              574
Net income*                                                    10,188                                                  10,188
                         --------       ----     --------     -------        ------       ---------      --------      ------
Total comprehensive
    income*                                                                                                            12,175
Balances, December 31,
    2004*                  34,433        382      180,640      87,486         3,920        (44,630)        (5,166)
Change in cumulative
    translation                                                              (3,027)                                   (3,027)
    adjustment
Exercise of stock options     328                  (3,078)                                   3,858
Tax benefit of employee
    stock plans                                        12
Amortization of unearned
    restricted stock
    compensation                                                                                            1,004
Net income                                                     11,441                                                  11,441
                         --------       ----     --------     -------        ------       ---------      --------      ------
Total comprehensive
    income                                                                                                             $8,414
Balances, December 31,
    2005                   34,761        382      177,574      98,927           893        (40,772)        (4,162)
Reversal of unamortized
  unearned restricted
  stock compensation
   - Note 2                                        (4,162)                                                  4,162
Stock-based compensation
  expense                                           2,330
Issuance of restricted        100          1
  stock
Exercise of stock options     480                  (4,039)                                   5,641
Income tax benefit on
  stock-based
  compensation                                      1,280
Change in cumulative
  translation adjustment
                                                                              6,288                                     6,288

Net income                                                     45,147                                                  45,147
                         --------       ----     --------     -------        ------       ---------      --------      ------
Total comprehensive
    income                                                                                                            $51,435
                                                                                                                      --------
Balances, December 31,
2006                       35,341       $383     $172,983    $144,074        $7,181       ($35,131)        $-
                         ========       ====     ========     =======        ======       =========      ========

* As previously restated - see Note 2.

See notes to consolidated financial statements.`

# SYSTEMAX INC.

# CONSOLIDATED
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(IN THOUSANDS)

`2006           2005           2004*
                                                                                  ----           ----           ----
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
   Net income                                                                  $45,147        $11,441         $10,188
   Adjustments to reconcile net income to net cash provided by operating
   activities:
       Depreciation and amortization, net                                        8,185          9,994          11,314
       (Gain) loss on dispositions and abandonment                             (7,721)          1,279           1,444
       Provision (benefit) for deferred income taxes                             2,254          6,228         (2,377)
       Provision for returns and doubtful accounts                               1,503          7,620           5,079
       Compensation expense related to equity compensation plans                 2,330          1,004           1,374
       Tax benefit of employee stock plans                                           -             12             188
   Changes in operating assets and liabilities:
       Accounts receivable                                                     (3,917)       (31,722)         (1,982)
       Inventories                                                            (36,216)        (3,457)        (40,872)
       Prepaid expenses and other current assets                              (10,060)          3,989           5,300
       Income taxes payable/receivable                                         (4,234)            527           6,335
       Accounts payable, accrued expenses and other current liabilities         37,055         20,430          16,767
                                                                          ------------   ------------    ------------
           Net cash provided by operating activities                            34,326         27,345          12,758
                                                                          ------------   ------------    ------------

CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
   Investments in property, plant and equipment                                (6,701)        (5,896)         (8,583)
   Proceeds from disposals of property, plant and equipment                     18,938            103             247
                                                                          ------------   ------------    ------------
           Net cash provided by (used in) investing activities                  12,237        (5,793)         (8,336)
                                                                          ------------   ------------    ------------

CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
   (Repayments) proceeds of borrowings from banks                             (16,473)         13,889         (5,254)
   Repayments of long-term debt and capital lease obligations                  (8,305)        (9,978)         (1,768)
   Proceeds from issuance of common stock                                        1,602            780             269
   Excess tax benefit from exercises of stock options                            1,030              -               -
                                                                          ------------   ------------    ------------
                  Net cash provided by (used in) financing activities          (22,146)         4,691          (6,753)
                                                                          ------------   ------------    ------------

EFFECTS OF EXCHANGE RATES ON CASH                                                (744)            791           (114)
                                                                          ------------   -------------   ------------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                            23,673         27,034         (2,445)
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR                                   63,291         36,257          38,702
                                                                          ------------   ------------    ------------
CASH AND CASH EQUIVALENTS - END OF YEAR                                        $86,964        $63,291         $36,257
                                                                          ============   ============    ============

Supplemental disclosures:
       Interest paid                                                            $1,861         $2,498          $3,385
       Income taxes paid                                                       $26,465        $15,522          $4,676
Supplemental disclosures of non-cash investing and financing activities:
       Acquisitions of equipment through capital leases                           $776              -               -
       Deferred stock-based compensation related to restricted unit stock            -
       granted                                                                                      -          $5,740`

* As previously restated
 see Note 2.

See notes to consolidated
financial statements

# SYSTEMAX INC.

# NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004

|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. Certain prior year balance sheet amounts have been reclassified
to conform to current year presentation.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Use of Estimates In Financial Statements  The preparation of
financial statements in conformity with accounting principles generally accepted
in the United States of America 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.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Fiscal Year  The Companys fiscal year ends on
December 31. The Companys North American computer business follows a
fiscal year that ends on the last Saturday of the calendar year. Normally each
fiscal year consists of 52 weeks, but every five or six years, their fiscal year
consists of 53 weeks, which was the case in 2005. The sales recorded in the
additional week of 2005 represented less than one percent of the years
sales. Fiscal years 2006 and 2004 consisted of 52 weeks for this business.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Foreign Currency Translation  The financial
statements of the Companys foreign entities are translated into U.S.
dollars, the reporting currency, using year-end exchange rates for assets and
liabilities, average exchange rates for the statement of operations items and
historical rates for equity accounts. The translation differences are recorded
as a separate component of shareholders equity.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Cash
and Cash Equivalents  The Company considers amounts held in money
market accounts and other short-term investments, including overnight bank deposits, with
an original maturity date of three months or less to be cash equivalents.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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.
Allowances are maintained for obsolete, slow-moving and non-saleable inventory.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Property,
Plant and Equipment  Property, plant and equipment is stated at cost.
Depreciation of furniture, fixtures and equipment, including equipment under capital
leases, 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 lesser of the useful lives or 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.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Evaluation
of Long-lived Assets  Long-lived assets are evaluated for
recoverability in accordance with SFAS 144, Accounting for the Impairment or
Disposal of Long-lived Assets, 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.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Accruals-
Management makes estimates and assumptions that affect amounts reported in the
consolidated financial statements and accompanying notes. These estimates are based upon
various factors such as the number of units sold, historical and anticipated results and
data received from third party vendors. Actual results could differ from these estimates.
Our most significant estimates include those related to the costs of vendor drop
shipments, sales returns and allowances, cooperative advertising and customer rebate
reserves, and other vendor and employee related costs.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Product
Warranties  Provisions for estimated future expenses relating to
product warranties for the Companys assembled PCs are recorded as cost of sales when
revenue is recognized. Liability estimates are determined based on management judgment
considering such factors as the number of units sold, historical and anticipated rates of
warranty claims and the likely current cost of corrective action. The changes in accrue
product warranties were as follows:
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

`Years ended December 31,
                                         2006       2005     2004
                                         ----       ----     ----
       Balance, beginning of year      $1,316     $2,011    $2,642
       Charged to expense               1,556         21       168
       Deductions                      (1,811)      (716)     (799)
                                       ------    -------    ------
       Balance, end of year            $1,061     $1,316    $2,011`

| | Income
Taxes  Deferred tax assets and liabilities are recognized for the
effect of temporary differences between the book and tax bases of recorded assets and
liabilities and for tax loss carry forwards. The realization of net deferred tax assets is
dependent upon our ability to generate sufficient future taxable income. Where it is more
likely than not that some portion or all of the deferred tax asset will not be realized,
we have provided a valuation allowance. If the realization of those deferred tax assets in
the future is considered more likely than not, an adjustment to the deferred tax assets
would increase net income in the period such determination is made.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Revenue
Recognition and Accounts Receivable  The Company recognizes sales of
products, including shipping revenue, when persuasive evidence of an order arrangement
exists, delivery has occurred, the sales price is fixed or determinable and collectibility
is reasonably assured. Generally, these criteria are met at the time the product is
received by the customers when title and risk of loss have transferred. Allowances for
estimated subsequent customer returns, rebates and sales incentives are provided when
revenues are recorded. Costs incurred for the shipping and handling of its products are
recorded as cost of sales. Revenue from extended warranty and support contracts on the
Companys assembled PCs is deferred and recognized over the contract period.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Accounts
receivable are shown in the consolidated balance sheets net of allowances for doubtful
collections and subsequent customer returns.
| | --------------------------------------------------------------------------------------------------------------------------------------------

| | Advertising
Costs  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, generally one to six months.
Expenditures relating to television and local radio advertising are expensed in the period
the advertising takes place.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Net
advertising expenses of $21.4 million in 2006, $39.4 million in 2005 and $43.8 million in
2004 are included in the accompanying Consolidated Statements of Operations. The Company
utilizes advertising programs to support vendors, including catalogs, internet and
magazine advertising, and receives payments and credits from vendors, including
consideration pursuant to volume incentive programs and cooperative marketing programs.
The Company accounts for consideration from vendors as a reduction of cost of sales unless
certain conditions are met showing that the funds are used for specific, incremental,
identifiable costs, in which case the consideration is accounted for as a reduction in the
related expense category, such as advertising expense. The amount of vendor consideration
recorded as a reduction of selling, general and administrative expenses totaled $39.6
million for the year ended December 31, 2006, $39.1 million for the year ended December
31, 2005 and $34.1 million for the year ended December 31, 2004.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Prepaid
expenses at December 31, 2006 and 2005 include deferred advertising costs of $3.5 million
and $5.0 million, respectively, which are reflected as an expense during the periods
benefited, typically the subsequent fiscal quarter.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Software
Development Costs  Software development costs are expensed as
incurred unless they meet GAAP criteria for deferral and amortization. Software
development costs incurred prior to the establishment of technological feasibility do not
meet these criteria. No costs were deferred during 2006, 2005 or 2004 because either no
projects met the criteria for deferral or, if met, the period between achieving
technological feasibility and the general availability of the product was short, rendering
the associated costs immaterial.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Derivative
Financial Instruments  In accordance with the provisions of SFAS 133,
Accounting for Derivative Instruments and Hedging Activities, as amended, all
of the Companys derivative financial instruments are recognized as either assets or
liabilities in the consolidated balance sheets based on their fair values. Changes in the
fair values are reported in earnings or other comprehensive income depending on the use of
the derivative and whether it qualifies for hedge accounting. Derivative instruments are
designated and accounted for as either a hedge of a recognized asset or liability (fair
value hedge) or a hedge of a forecasted transaction (cash flow hedge). For derivatives
designated as effective cash flow hedges, changes in fair values are recognized in other
comprehensive income. Changes in fair values related to fair value hedges as well as the
ineffective portion of cash flow hedges are recognized in earnings. The Company had no
derivative instruments as of December 31, 2006 and 2005.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company does not use derivative instruments for speculative or trading purposes.
Derivative instruments may be used to manage exposures related to changes in foreign
currency exchange rates and interest rate risk on variable rate indebtedness.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Net
Income Per Common Share  Net income per common share-basic is
calculated based upon the weighted average number of common shares outstanding during the
respective periods presented. Net income per common share-diluted is calculated based upon
the weighted average number of common shares outstanding and included the equivalent
shares for dilutive securities outstanding during the respective periods, where the effect
is anti-dilutive. The dilutive effect of outstanding options issued by the Company is
reflected in net income per share  diluted using the treasury stock method.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Under
the treasury stock method, options will only have a dilutive effect when the average
market price of common stock during the period exceeds the exercise price of the options.
Equivalent common shares of 989,000 in 2006, 842,000 in 2005 and 1,116,000 in 2004 were
included for the diluted calculation. The weighted average number of stock options
outstanding excluded from the computation of diluted earnings per share was 36,000 in
2006, 503,000 in 2005 and 587,000 in 2004 due to their antidilutive effect.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Comprehensive
Income  Comprehensive income consists of net income and foreign
currency translation adjustments and is included in the Consolidated Statements of
Shareholders Equity. Comprehensive income was $51,435,000 in 2006, $8,414,000 in
2005 and $12,175,000 in 2004.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Adoption
of New Accounting Standard  Effective January 1, 2006, the Company
adopted the provisions of SFAS 123(R), using the modified-prospective-transition method.
Under that transition method, compensation cost recognized for the year ended December 31,
2006 includes: (a) compensation cost for all share-based payments granted prior to, but
not yet vested as of, January 1, 2006, based on the grant-date fair value estimated in
accordance with the original provisions of SFAS 123, and (b) compensation cost for the
vested portion of share-based payments granted subsequent to January 1, 2006, based on the
grant-date fair value estimated in accordance with the provisions of SFAS 123(R). Results
for prior periods have not been restated.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The fair value of employee share options is recognized in expense over the
vesting period of the options, using the graded attribution method. The fair
value of employee share options is determined on the date of grant using the
Black-Scholes option pricing model. The Company has used historical volatility
in its estimate of expected volatility. The expected life represents the period
of time (in years) for which the options granted are expected to be outstanding.
The Company used the simplified method for determining expected life as
permitted in SEC Staff Accounting Bulletin 107 for options qualifying for such
treatment (plain-vanilla options) due to the limited history the
Company currently has with option exercise activity. The risk-free interest rate
is based on the U.S. Treasury yield curve.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
periods prior to 2006, the Company followed the accounting provisions of
Accounting Principles Board (APB) Opinion 25, Accounting for
Stock Issued to Employees for stock-based compensation and provided the
pro forma disclosures required under SFAS 148, Accounting for Stock-based
Compensation  Transition and Disclosure. No stock-based employee
compensation was reflected in net income (loss), as all options granted under
the plans had an exercise price equal to the market value of the underlying
stock on the date of grant (See Note 8).
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Recent Accounting Pronouncements
| | --------------------------------

| | In June 2006, the FASB ratified the consensus reached by the EITF on Issue No.
06-3, How Taxes Collected from Customers and Remitted to Governmental
Authorities Should Be Presented in the Income Statement (That Is, Gross versus
Net Presentation). The consensus requires disclosure of either the gross
or net presentation, and any such taxes reported on a gross basis should be
disclosed in the interim and annual financial statements. This Issue is
effective for financial reporting periods beginning after December 15, 2006. The
Company does not expect to change its presentation of such taxes, as its sales
are currently recorded net of tax.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In June 2006,
the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 48 Accounting for Uncertainty in Income Taxes (an
interpretation of FASB Statement No. 109)", which is effective for fiscal
years beginning after December 15, 2006. This interpretation was issued to
clarify the accounting for uncertainty in income taxes recognized in the
financial statements by prescribing a recognition threshold and measurement
attribute for the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. The Company is currently
evaluating the potential impact, if any, of this pronouncement.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In September 2006, the SEC issued Staff Accounting Bulletin No. 108 (SAB
108) Considering the Effects of Prior Year Misstatements when
Quantifying Misstatements in Current Year Financial Statements. SAB 108
provides interpretative guidance on how the effects of the carryover or reversal
of prior year misstatements should be considered in quantifying a current year
misstatement. The SEC staff believes that registrants should quantify errors
using both a balance sheet and an income statement approach and evaluate whether
either approach results in quantifying a misstatement that, when all relevant
quantitative and qualitative factors are considered, is material. This
pronouncement is effective for fiscal years ending after November 15, 2006. This
pronouncement had no impact on the Companys consolidated financial
statements for the year ended December 31. 2006.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2. | RESTATEMENT OF PREVIOUSLY FILED FINANCIAL STATEMENTS
|-- | ----------------------------------------------------

| | Subsequent to the issuance of the Companys consolidated financial
statements in its Form 10-K for the year ended December 31, 2004, the Company
discovered errors related to accounting for inventory at its Tiger Direct, Inc.
subsidiary. These errors had the effect of misstating the value of inventory and
certain vendor-related liabilities as of December 31, 2004 and overstating net
income for the year ended December 31, 2004. Such errors did not have any impact
on the consolidated financial statements for any previous years. For the year
ended December 31, 2004, an error was also corrected in the presentation of the
Consolidated Statement of Cash Flows related to activity in the allowances for
doubtful accounts and subsequent customer returns. The restatement affected cash
flows provided by operations but did not affect previously reported net cash
flows for the restated period or future periods.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The restated results also include
changes resulting from a correction in the application of the Companys
revenue recognition policy. The Company determined during its internal review of
2004 results that a change in its revenue recognition policy for sales of
product was required in order to comply with Staff Accounting Bulletin No. 104
Revenue Recognition (SAB 104), as interpreted by the SEC Staff.
Based on the Companys practices with respect to its terms of shipment,
revenue that had been recognized at time of shipment based upon FOB shipping
point terms should have been recognized at time of receipt by customers, when
title and risk of loss both transferred. The effect of this change resulted in a
restatement of the results of operations for the years ended December 31, 2004.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As a result, the accompanying financial statements for the year ended December
31, 2004 have been restated from the amounts previously reported to properly
reflect these items. These restated financial statements were filed with the SEC
in November 2005. A summary of the significant effects of the restatement is as
follows (in thousands, except per share data):
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

`Years ended December 31:                                                        2004
                                                                                     ----

                                                                        As previously
                                                                        -------------
                                                                             reported              As restated
                                                                             --------              -----------
     Net sales                                                              $1,927,835              $1,928,147
     Cost of sales                                                           1,637,452               1,641,681
     Gross profit                                                              290,383                 286,466
     Income from operations                                                     22,916                  18,999
     Income before income taxes                                                 20,473                  16,556
     Provision for income taxes                                                  7,923                   6,368
     Net income                                                                 12,550                  10,188

     Net income per common share, basic:                                          $.37                    $.30
     Net income per common share, diluted:                                        $.35                    $.29
     The Company also previously restated its segment disclosures for the year ended
     December 31, 2004 - see Note 12.`

|3. | PROPERTY, PLANT AND EQUIPMENT
|-- | -----------------------------

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

                                                                                      2006              2005
                                                                                      ----              ----
     Land and buildings                                                            $33,525           $42,585
     Furniture and  fixtures,  office,  computer and other  equipment and           77,478            71,719
     software
     Leasehold improvements                                                         12,762            11,328
                                                                                   123,765           125,632
     Less accumulated depreciation and amortization                                 75,179            68,373
                                                                                    ------            ------
     Property, plant and equipment, net                                            $48,586           $57,259
                                                                                   =======           =======

     Included in property, plant and equipment are assets under capital leases, as follows (in thousands):

                                                                                      2006              2005
                                                                                      ----              ----
     Furniture and fixtures, office, computer and other equipment                   $2,358            $1,582
     Less: Accumulated amortization                                                  1,270               754
                                                                                     -----               ---
                                                                                    $1,088             $ 828
                                                                                    ------             -----`

|4. | RELATED PARTY TRANSACTIONS
|-- | --------------------------

| | The Company leased its headquarters office/warehouse facility from affiliates
during the years ended December 31, 2006, December 31, 2005 and December 31,
2004 (see Note 11). Rent expense under the lease aggregated $612,000 in each of
those years. The Company believes that these payments were no higher than would
be paid to an unrelated lessor for comparable space.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|5. | CREDIT FACILITIES
|-- | -----------------

| | In October 2005, the Company amended and restated its $70,000,000 revolving
credit agreement with a group of financial institutions to increase the amount
available to $120,000,000 (which may be increased by up to $30 million, subject
to certain conditions) and to provide for borrowings by the Companys
United States and United Kingdom subsidiaries. The borrowings are secured by all
of the domestic and United Kingdom accounts receivable, the domestic inventories
of the Company, the Companys United Kingdom headquarters building and the
Companys shares of stock in its domestic and United Kingdom subsidiaries.
The credit facility expires and outstanding borrowings thereunder are due on
October 26, 2010. The borrowings under the agreement are subject to borrowing
base limitations of up to 85% of eligible accounts receivable and up to 40% of
qualified inventories. The interest on outstanding advances is payable monthly,
at the Companys option, at the agent banks base rate (at December
31, 2006) plus 0.25% or the banks daily LIBOR rate (at December 31, 2006)
plus 1.25% to 2.25%. The undrawn availability under the facility may not be less
than $15 million until the last day of any month in which the availability net
of outstanding borrowings is at least $70 million. The facility also calls for a
commitment fee payable quarterly in arrears of 0.375% of the average daily
unused portions of the facility. The revolving credit agreement requires that a
minimum level of availability be maintained. If such availability is not
maintained, the Company will be required to maintain a fixed charge coverage
ratio (as defined). The agreement contains certain other covenants, including
restrictions on capital expenditures and payments of dividends. We were in
compliance with all of the covenants as of December 31, 2006, except for the
required timely submission of certain financial statements, for which we have
obtained a waiver. The Company was not in compliance with the financial
reporting requirement regarding timely submission of the Companys
forecasted financial statements under the agreement for periods subsequent to
December 31, 2006 for which the lenders have approved a waiver. As of December
31, 2006, eligible collateral under the agreement was $104.1 million and total
availability was $83.8 million. There were outstanding advances of $9.3 million
(all in the United Kingdom) and outstanding letters of credit of $11 million.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In connection with the amendment to its revolving credit agreement, the Company
terminated its £15,000,000 multi-currency credit facility with a United
Kingdom financial institution in October 2005. The facility was available to the
Companys United Kingdom subsidiaries and at December 31, 2004 there were
£5.3 million ($10.0 million at the December 31, 2004 exchange rate) of
borrowings outstanding under this line with interest payable at a rate of 5.87%.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The Companys Netherlands subsidiary maintains a 5 million ($6.6
million at the December 31, 2006 exchange rate) credit facility with a local
financial institution. Borrowings under the facility are secured by the
subsidiarys accounts receivable and are subject to a borrowing base
limitation of 85% of the eligible accounts. At December 31, 2006 there were
2.2 million ($3.0 million) of borrowings outstanding under the line with
interest payable at a rate of 5%. At December 31, 2005 there were 3.8
million ($4.4 million) of borrowings outstanding under this line with interest
payable at a rate of 5.0%. At December 31, 2004 there were 3.5 million
($4.8 million at the December 31, 2004 exchange rate) of borrowings outstanding
under this line with interest payable at a rate of 5.0%. The facility expires in
August 2007.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The weighted average interest rate on short-term borrowings was
7.8% in 2006, 6.4% in 2005, and 6.0% in 2004.
| | -------------------------------------------------------------------------------------------------------------

|6. | ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
|-- | ----------------------------------------------

| | Accrued expenses and other current liabilities consist of the
following (in thousands):
| | ---------------------------------------------------------------------------------------

`2006              2005
                                            ----              ----

 Payroll and employee benefits           $17,151           $13,262
 Income taxes payable                      2,327             6,819
 Other                                    56,210            42,807
                                          ------            ------
                                         $75,688           $62,888
                                         =======           =======`

|7. | LONG-TERM DEBT
|-- | --------------

| | Long-term debt consists of (in thousands):
| | ------------------------------------------

`2006              2005
                                                 ----              ----

  Mortgage note payable (a)                        --           $ 7,803
  Term loan payable                                --                --
  Capitalized equipment lease obligations       1,031               799
                                                -----               ---
                                                1,031             8,602
  Less: current portion                           548               574
                                                  ---               ---
                                                 $483           $ 8,028
                                                 ====           =======`

| | (a) | Mortgage note payable. The Company had a ten year, $8.4 million mortgage loan on
               its Georgia distribution facility. The mortgage had monthly principal and
               interest payments of $62,000 through May 2012, with a final additional principal
               payment of $6.4 million at maturity in May 2012. The mortgage bore interest at
               7.04% and was collateralized by the underlying land and building. In March 2006,
               the Company sold its Georgia distribution facility and repaid the remaining
               balance on the mortgage (see Note 14).
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The aggregate maturities of long-term debt outstanding at December
31, 2006 are as follows (in thousands):
| | ----------------------------------------------------------------------------------------------------------

`2007         2008         2009         2010         2011
                            ----         ----         ----         ----         ----
           Maturities       $548         $385          $78          $10          $10`

|8. | STOCK-BASED COMPENSATION PLANS
|-- | ------------------------------

| | The
Company currently has four equity compensation 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, adopted in 1995,
allowed 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. The ability to grant new awards under this plan ended
on December 31, 2005 but awards granted prior to such date continue until their
expiration. A total of 1,102,955 options were outstanding under this plan as of December
31, 2006. The 1995 Stock Option Plan for Non-Employee Directors
 This plan, adopted in 1995, 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. The ability to grant new awards under this plan ended on October 12, 2006
but awards granted prior to such date continue until their expiration. A total of 39,000
options were outstanding under this plan as of December 31, 2006.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The1999 Long-term Stock Incentive Plan, as amended (1999 Plan) 
This plan was adopted on October 25, 1999 with substantially the same terms and provisions
as the 1995 Long-term Stock Incentive Plan. A maximum of 5.0 million shares may be granted
under this plan. The maximum number of shares granted per type of award to any individual
may not exceed 1,500,000 in any calendar year and 3,000,000 in total. No award shall be
granted under this plan after December 31, 2009. Restricted stock grants and common stock
awards reduce stock options otherwise available for future grant. A total of 1,472,121
options and 900,000 restricted stock units were outstanding under this plan as of December
31, 2006.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
2006 Stock Incentive Plan For Non-Employee Directors This plan,
adopted by the Companys stockholders on October 11, 2006, replaces the
1995 Stock Option Plan for Non-Employee Directors. The Company adopted the plan
so that it could offer directors of the Company who are not employees of the
Company or of any entity in which the Company has more than a 50% equity
interest (independent directors) an opportunity to participate in
the ownership of the Company by receiving options to purchase shares of common
stock at a price equal to the fair market value at the date of grant of the
option and restricted stock awards. Awards for a maximum of 200,000 shares may
be granted under this plan. A total of 15,000 options were outstanding under
this plan as of December 31, 2006.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Shares
issued under our share-based compensation plans are usually issued from shares of our
common stock held in the treasury.
| | -------------------------------------------------------------------------------------------------------------------------------

| | Adoption of SFAS 123(R)
| | -----------------------

| | Effective
January 1, 2006, the Company adopted the provisions of SFAS 123(R), using the
modified-prospective-transition method. Under that transition method, compensation cost
recognized for the year ended December 31, 2006 includes: (a) compensation cost for all
share-based payments granted prior to, but not yet vested as of January 1, 2006, based on
the grant-date fair value estimated in accordance with the original provisions of SFAS
123, and (b) compensation cost for the vested portion of share-based payments granted
subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance
with the provisions of SFAS 123(R). Results for prior periods have not been restated.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
fair value of employee share options is recognized in expense over the vesting period of
the options, using the graded attribution method. The fair value of employee share options
is determined on the date of grant using the Black-Scholes option pricing model. The
Company has used historical volatility in its estimate of expected volatility. The
expected life represents the period of time (in years) for which the options granted are
expected to be outstanding. The Company used the simplified method for determining
expected life as permitted in SEC Staff Accounting Bulletin 107 for options qualifying for
such treatment (plain-vanilla options) due to the limited history the Company
currently has with option exercise activity. The risk-free interest rate is based on the
U.S. Treasury yield curve.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company receives an income tax deduction for stock options exercised by employees in the
United States equal to the excess of the market value of our common stock on the date of
exercise over the option price. Prior to the adoption of SFAS 123(R), the income tax
benefit from the exercise of stock options was presented as a component of cash flow from
operating activities. SFAS 123(R) requires the excess tax benefits (tax benefits resulting
from tax deductions in excess of compensation cost recognized) to be classified as a cash
flow provided by financing activities.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Compensation
cost related to non-qualified stock options recognized in operating results (selling,
general and administrative expense) was $1,756,000 for the year ended December 31, 2006.
The related future income tax benefits recognized were $599,000 for the year ended
December 31, 2006.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Stock options
| | -------------

| | The
following table presents the weighted-average fair value and the weighted-average
assumptions used to estimate the fair value of options granted in 2006:
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------

`2006
                                                                 ----
                   Fair value                                   $5.64

                   Expected annual dividend yield                  0%
                   Risk-free interest rate                      4.76%
                   Expected volatility                          78.2%
                   Expected life in years                         6.0`

| | The following table summarizes information for the three years
ended December 31, 2006 concerning outstanding and exercisable options:
| | --------------------------------------------------------------------------------------------------------------------------------------

`2006                          2005                         2004
                                                   ----                          ----                         ----
                                             Weighted-Average               Weighted Average              Weighted Average
                                            Shares    Exercise Price      Shares  Exercise Price        Shares    Exercise Price
                                            ------    --------------      ------  --------------        ------    --------------
     Outstanding at beginning of year     2,657,419         $3.93      3,241,251    $3.96              2,821,302     $3.70
     Granted                                479,334         $8.01         75,000    $6.25                780,267     $5.38
     Exercised                             (480,203)        $3.33       (328,374)   $2.37               (144,168)    $2.28
     Cancelled                              (27,474)       $12.84       (330,458)   $6.35               (216,150)    $6.82
                                            -------                     --------                        --------
     Outstanding at end of year           2,629,076        $ 4.69      2,657,419    $3.93              3,241,251     $3.96
                                          =========                    =========                       =========

     Options exercisable at year end      1,891,426                    1,891,155                       1,756,517
     Weighted average fair value per
        option granted during the year        $4.24                        $4.21                          $1.61`

| | We received cash from option exercises for the years ended December 31, 2006,
2005 and 2004 of $1,602,000, $779,000 and $56,000, respectively. The federal tax
benefits realized for the deductions from option exercises totaled approximately
$1,225,000, $238,000 and $181,000, respectively, for the years ended December
31, 2006, 2005 and 2004.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The following table summarizes information about options
outstanding at December 31, 2006:
| | ------------------------------------------------------------------------------------------

`Weighted     Weighted Average     Aggregate
                                                     --------     ----------------     ---------
                                           Number     Average        Remaining         Intrinsic
                                          -------     -------        ---------         ---------
                                      Outstanding     Exercise     Contractual Life    Value (in
                                      -----------     --------     ----------------    ---------
  Range of Exercise Prices            At 12/31/06      Price                           thousands)
  ------------------------            -----------      -----                           ---------
  $ 1.76   to  $  5.00                  1,176,935         $2.10              5.56          18,063
  $ 5.01   to  $ 15.00                  1,400,316         $6.45              7.26          15,441
  $ 15.01  to  $ 18.41                     51,825        $15.72              7.81              60
                                           ------                                             --
  $ 1.76   to  $ 18.41                  2,629,076         $4.69              6.51         $33,564
                                        =========                                         =======`

| | The following table summarizes information about options vested
and exercisable at December 31, 2006:
| | -----------------------------------------------------------------------------------------------------

`Weighted     Weighted Average     Aggregate
                                                     --------     ----------------     ---------
                                           Number     Average        Remaining         Intrinsic
                                          -------     -------        ---------         ---------
                                      Outstanding     Exercise     Contractual Life    Value (in
                                      -----------     --------     ----------------    ---------
  Range of Exercise Prices            At 12/31/06      Price                           thousands)
  ------------------------            -----------      -----                           ---------

  $  1.76   to  $  5.00                 1,016,935          $2.15             5.47          15,557
  $  5.01  to   $ 15.00                   847,666          $6.36             6.37           9,435
  $ 15.01  to   $ 18.41                    26,825         $16.36             5.97
                                           -----
  $  1.76  to   $ 18.41                 1,891,426          $4.24              5.88        $24,992
                                        =========                                         =======`

| | The
following table summarizes information about options vested and exercisable or nonvested
that are expected to vest (nonvested outstanding less expected forfeitures) at December
31, 2006:
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

`Weighted     Weighted Average    Aggregate
                                                --------     ----------------    ---------
                                     Number     Average         Remaining        Intrinsic
                                     ------     -------         ---------        ---------
                                 Exercisable    Exercise     Contractual Life    Value (in
                                 -----------    --------     ----------------    ---------
   Range of Exercise Prices      At 12/31/06      Price                          thousands)
   ------------------------      -----------      -----                          ---------

   $  1.76  to   $  5.00          1,176,935          $2.10        5.56             $18,063
   $  5.01  to   $ 15.00          1,383,616          $6.45        7.26              15,238
   $ 15.01  to   $ 18.41             51,825         $15.72        7.81                  60
                                     ------                                             --
   $ 1.76   to   $ 18.41          2,612,376          $4.69        6.51             $33,361
                                  =========                                        =======`

| | The aggregate intrinsic value in the tables above represents the total pretax
intrinsic value (the difference between the closing stock price on the last day
of trading in the year December 31, 2006 and the exercise price) that would have
been received by the option holders had all options been exercised on December
31, 2006. This value will change based on the fair market value of the
Companys common stock.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The total intrinsic value of options exercised in 2006 was $3,501,000. Total
intrinsic value for options exercised in 2005 and 2004 was $679,000 and
$516,000, respectively.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The following table reflects the activity for all unvested stock options during
the year ended December 31, 2006:
| | -----------------------------------------------------------------------------------------------------------------

`Weighted Average
                                                                 ----------------
                                               For Shares     Grant-Date Fair Value
                                               ----------     ---------------------

  Unvested at January 1, 2006                     840,189           $1.84
  Granted                                         479,334           $5.64
  Vested                                        (577,875)           $2.60
  Forfeited                                       (3,998)           $2.25
                                                  ------
  Unvested at December 31, 2006                   737,650           $3.71
                                                  =======`

| | At December 31, 2006, there was approximately $1,600,000 of unrecognized
compensation costs related to unvested stock options, which is expected to be
recognized over a weighted average period of 1.6 years. The total fair value of
stock options vested during the year ended December 31, 2006 was approximately
$1,502,000. The total fair value of options vested during the years ended
December 31, 2005 and 2004 was $761,000 and $334,000, respectively.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Restricted Stock and Restricted Stock Units
| | -------------------------------------------

| | In October 2004, the Company granted 1,000,000 restricted stock units under the
1999 Plan to a key employee who is also a Company director. A restricted stock
unit represents the right to receive a share of the Companys common stock.
The restricted stock units have none of the rights as other shares of common
stock until common stock is distributed, other than rights to cash dividends.
The restricted stock unit award was a non-performance award which vests at the
rate of 20% on May 31, 2005 and 10% per year on April 1, 2006 and each year
thereafter. The share-based expense for restricted stock awards was determined
based on the market price of the Companys stock at the date of the award.
Compensation expense related to the restricted stock award was approximately
$574,000 for the year ended December 31, 2006, $1,005,000 in 2005 and $574,000
in 2004.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Under
the provisions of SFAS 123(R), the balance sheet recognition of unearned compensation is
no longer allowed. As of January 1, 2006, the balance of Unearned Restricted Stock
Compensation was reversed into Additional Paid-in Capital on the Companys balance
sheet. As of December 31, 2006, there was unrecognized stock-based compensation of $3.6
million related to the restricted stock award, which is expected to be recognized over a
weighted-average period of 6.0 years.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The impact of
SFAS 123 (R) with respect to stock options for the year ended December 31, 2006
was as follows (in thousands except per share amounts):
| | -----------------------------------------------------------------------------------------------------------------------------------------------------

`2006
                                                            ----
      Stock based compensation expense                     $ 1,756
      Tax effect on share based compensation                  (599)
                                                           -------
      Net effect on net income                             $ 1,157
                                                           -------
      Tax effect on cash flows from financing activities   $ 1,030
                                                           -------
      Effect on net income per common share, basic            $.03
                                                              ====
      Effect on net income per common share, diluted          $.03
                                                              ====`

| | Prior to the Adoption of SFAS 123(R)
| | ------------------------------------

| | Prior to 2006, the Company elected to follow the accounting provisions of APB
Opinion 25 for stock-based compensation and to provide the pro forma disclosures
required under SFAS 148, Accounting for Stock-Based Compensation 
Transition and Disclosure. Accordingly, the Company did not recognize
compensation expense for stock option grants made at an exercise price equal to
or in excess of the market value of the underlying stock on the date of grant
for periods prior to January 1, 2006. The following table illustrates the effect
on net income per share had compensation costs of the plans been determined
under a fair value alternative method as stated in SFAS 123, Accounting
for Stock-Based Compensation (in thousands, except per share data):
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

`2005        2004
                                                                        ----        ----
     Net income - as reported                                        $11,441     $10,188
     Add: Stock-based employee compensation expense included in
         reported net income, net of related tax effects                 647         886
     Deduct: Stock-based employee compensation expense
         determined under fair value based method, net of
         related tax effects                                             915       1,295
                                                                         ---       -----
     Pro forma net income                                            $11,173      $9,779
                                                                     =======      ======

     Basic net income per common share:
     Net income - as reported                                           $.33       $ .30
                                                                        ====       =====
     Net income - pro forma                                             $.32       $ .28
                                                                        ====       =====

     Diluted net income per common share:
     Net income - as reported                                           $.31       $ .29
                                                                        ====       =====
     Net income - pro forma                                             $.31       $ .28
                                                                        ====       =====`

| | The
fair value of options granted was estimated on the date of grant using the Black-Scholes
option-pricing model with the following assumptions:
| | -------------------------------------------------------------------------------------------------------------------------------------------------

`2005           2004
                                                                ----           ----
                  Expected dividend yield                         0%             0%
                  Risk-free interest rate                       4.5%           5.5%
                  Expected volatility                          79.0%          46.0%
                  Expected life in years                        5.20           2.36`

| | The weighted average remaining contractual life of the stock options outstanding
was 6.7 years at December 31, 2005 and 7.4 years at December 31, 2004.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------

|9. | RESTRUCTURING AND OTHER CHARGES
|-- | -------------------------------

| | The Company periodically assesses its operations to ensure that they are
efficient, aligned with market conditions and responsive to customer needs.
During the years ended December 31, 2005, and 2004, management approved and
implemented restructuring actions which included workforce reductions and
facility consolidations. The following table summarizes the amounts recognized
by the Company as restructuring and other charges for the periods presented (in
thousands):
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

`Years ended December 31,                                         2005          2004
       ------------------------                                         ----          ----
       2004 United States streamlining plan                               $-        $3,743
       2003 United States warehouse consolidation plan                   122           642
       2002 United Kingdom consolidation plan                           (93)           467
       Litigation settlements (recoveries)                               300
       Other severance and exit costs                                  3,822         2,504
                                                                       -----         -----
       Total restructuring and other charges                          $4,151        $7,356
                                                                      ======        ======`

| | 2004 United States Streamlining Plan
| | ------------------------------------

| | In the first quarter of 2004, the Company implemented a plan to streamline the
back office and warehousing operations in its United States computer businesses.
The Company recorded $3.8 million of costs related to this plan, including $3.2
million for severance and benefits for approximately 200 terminated employees
and $483,000 of non-cash costs for impairment of the carrying value of fixed
assets.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2003 United States Warehouse Consolidation Plan
| | -----------------------------------------------

| | In
the fourth quarter of 2003, the Company implemented a plan to consolidate the warehousing
facilities in its United States computer supplies business. The Company recorded $122,000
of additional severance costs in 2005 and $642,000 of additional exit costs in 2004
related to this plan.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2002 United Kingdom Consolidation Plan
| | --------------------------------------

| | In 2002 the Company implemented a restructuring plan to consolidate the
activities of three United Kingdom locations into a new facility constructed for
the Company. During the year ended December 31, 2004, the Company recorded
$467,000 of additional exit costs related to this plan.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Litigation Settlements
| | ----------------------

| | In May 2006, the Company entered into a stipulation of settlement with all of
the plaintiffs who had filed derivative complaints in 2005 alleging misconduct
in connection with the Companys restatement of its 2004 financial results
(see Note 11).
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Other Severance and Exit Costs
| | ------------------------------

| | The Company recorded restructuring costs of $3.8 million during 2005 and $2.5
million during 2004 in Europe in connection with workforce reductions and
facility exit costs. In 2005, these costs were comprised of employee severance
costs. In 2004, these costs were comprised of $1.8 million of employee severance
costs and $0.7 million of other exit costs, primarily asset write-downs.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The following table summarizes the components of the accrued restructuring
charges and the movements within these components during the years ended
December 31, 2006 and 2005 (in thousands). The balance of the restructuring
reserves is included in the Consolidated Balance Sheets within accrued expenses
and other current liabilities.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

`Severance and        Other
                                              Personnel Costs     Exit Costs    Total
                                              ---------------     ----------    -----
       Balance as of January 1, 2005                 $633         $1,396       $2,029
       Charged to expense in 2005                   3,945            (93)       3,852
       Amounts utilized                            (4,325)        (1,038)      (5,363)
                                                   ------         ------       ------
       Balance at December 31, 2005                   253            265          518
                                                      ---            ---          ---
       Amounts utilized                              (253)          (176)        (429)
                                                     ----           ----         ----
       Balance at December 31, 2006                    $0            $89          $89
                                                       ==            ===          ===`

|10. | INCOME TAXES
|--- | ------------

| | The components of income (loss) before income taxes are as follows
(in thousands):
| | ----------------------------------------------------------------------------------

`Years Ended December 31            2006                2005             2004
   -----------------------            ----                ----             ----
   United States                   $53,587             $38,912          $33,268
   Foreign                         $16,108              (6,038)         (16,712)
                                   -------             -------          -------
   Total                           $69,695             $32,874          $16,556
                                   =======             =======          =======`

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

`Years Ended December 31               2006                2005             2004
  -----------------------               ----                ----             ----
  Current:

       Federal                       $15,437             $10,499           $8,622

       State                           3,179               3,146              565

       Foreign                         3,678               1,560             (442)
                                       -----               -----             ----

       Total current                  22,294              15,205            8,745
                                      ======              ======            =====

  Deferred:

       Federal                         1,235               (265)              725

       State                             511               (490)             (899)

       Foreign                           508               6,983           (2,203)
                                         ---               -----           ------

       Total deferred                  2,254               6,228           (2,377)
                                       -----               -----           ------

  TOTAL                              $24,548             $21,433           $6,368
                                     =======             =======           ======`

| | 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):
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

`Years Ended December 31                                  2006        2005        2004
 -----------------------                                  ----        ----        ----
Income tax at Federal statutory rate                   $24,407     $11,506      $5,795
State and local income taxes (benefits) and
  changes in valuation allowances, net of
  federal tax benefit                                    2,577       1,311        (172)
Foreign taxes at rates different from the U.S. rate      1,199       1,703       2,375
Changes in valuation allowances for foreign
  deferred tax assets                                   (2,260)     10,194        --
Tax credits                                               (718)       (197)       (599)
Adjustment for prior year taxes                           (760)     (3,205)       (588)
Other items, net                                           103         121        (443)
                                                           ---         ---        ----
                                                       $24,548     $21,433      $6,368
                                                       =======     =======      ======`

| | The deferred tax assets (liabilities) are comprised of the
following (in thousands):
| | ------------------------------------------------------------------------------------

`2006            2005
                                                               ----            ----
   Current:
         Deductible assets                                   $ (876)        $(1,197)
         Accrued expenses and other liabilities               8,063           9,875
         Inventory                                            1,596           1,201
         Other                                                 (318)           (125)
         Valuation allowances                                  (738)           (527)
                                                               ----            ----
             Total current                                    7,727           9,227
                                                              -----           -----

   Non-current:
         Net operating loss and credit carryforwards         15,881          14,543
         Foreign currency translation adjustments                -            (511)
         Accelerated depreciation                             3,520           3,059
         Intangible and other assets                          8,453          10,031
         Other                                                3,328           1,757
         Valuation allowances                               (17,141)        (14,779)
                                                            -------         -------
             Total non-current                               14,041          14,100
                                                            -------         -------

   TOTAL                                                    $21,768         $23,327
                                                            =======         =======`

| | The
Company has not provided for federal income taxes applicable to the undistributed earnings
of its foreign subsidiaries of approximately $21.8 million as of December 31, 2006, since
these earnings are indefinitely reinvested. The Company has foreign net operating loss
carryforwards which expire from 2006 through 2020 except for carryforwards in the United
Kingdom and the Netherlands, which have no expiration. The Company records these benefits
as assets to the extent that utilization of such assets is more likely than not;
otherwise, a valuation allowance has been recorded. The Company has also provided
valuation allowances for certain state deferred tax assets and net operating loss
carryforwards where it is not likely they will be realized.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
the fourth quarter of 2005, the Company recorded a valuation allowance of $10.2 million
related to carryforward losses and deferred tax assets in the United Kingdom. The
Companys United Kingdom subsidiary had recorded losses and has been affected by
restructuring activities in recent years. These losses and the loss incurred for the year
ended December 31, 2005 represented evidence for management to estimate that a full
valuation allowance for the net deferred tax assets was necessary. In the fourth quarter
of 2005, the Company also recorded an income tax benefit of $2.7 million as a result of a
favorable decision received in connection with a petition submitted in connection with
audit assessments made in 2002 and 2004 in a foreign jurisdiction.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
of December 31, 2006, the valuation allowances of $17.9 million included $11.4 million
related to net operating loss carryforwards and $3.2 million for other deductible
temporary differences in foreign jurisdictions, $3.0 million for state net operating loss
carryforwards and $0.3 million for other state deductible temporary differences. During
the year ended December 31, 2006, valuation allowances increased $2.6 million as a result
of additional losses incurred in certain state jurisdictions and adjustments of prior
years allowances in foreign jurisdictions. Valuation allowances decreased $2.3 million in
2006 for carryforward losses utilized for which valuation allowances had been previously
provided. As of December 31, 2005, the valuation allowances of $15.3 million included
$11.1 million related to net operating loss carryforwards and $2.3 million for other
deductible temporary differences in foreign jurisdictions and $1.5 million for state net
operating loss carryforwards and $0.4 million for other state deductible temporary
differences. During the year ended December 31, 2005, valuation allowances increased $5.6
million as a result of additional losses incurred in foreign and state jurisdictions, net
of reductions resulting from changes in deferred tax assets due to changes in tax laws.
Valuation allowances decreased $1,301,000 in 2005 for carryforward losses utilized for
which valuation allowances had been previously provided.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company is routinely audited by federal, state and foreign tax authorities with respect to
its income taxes. The Company regularly reviews and evaluates the likelihood of audit
assessments and believes it has adequately accrued for exposures for tax liabilities
resulting from future tax audits. To the extent the Company would be required to pay
amounts in excess of reserves or prevail on matters for which accruals have been
established, the Companys effective tax rate in a given period may be materially
impacted. The Companys federal income tax returns for fiscal years 2000 through 2004
are currently being audited by the Internal Revenue Service. Although proposed adjustments
have not been received for these years and the outcome of in-progress tax audits is always
uncertain, management believes the ultimate outcome of the audit will not have a material
adverse impact on the Companys consolidated financial statements.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|11. | 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 September 2026. The Company
currently leases one facility in New York from an entity owned by the
Companys three principal shareholders and senior executive officers (see
Note 4). The Company also acquires certain computer and communications equipment
pursuant to capital lease obligations.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | At December 31, 2006, the future minimum annual lease payments for capital
leases and related and third-party operating leases were as follows (in
thousands):
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------

`Related
                                                                  Third Party      Party
                                                    Capital        Operating      Operating
                                                     Leases         Leases          Lease         Total
                                                    -------       -----------     ----------      -----
  2007                                                 $573          $11,083           $612       $12,268
  2008                                                  402           10,369                       10,771
  2009                                                   81            9,871                        9,952
  2010                                                   11            7,662                        7,673
  2011                                                   10            6,473                        6,483
  2012-2016                                                                                        24,635
                                                                      24,635
  2017-2021                                                           18,808                       18,808
  Thereafter                                                           8,807                        8,807
                                                     ------          -------          ----        -------

  Total minimum lease payments                        1,077           97,708            612       99,397
  Less: sublease rental income                                         2,605                       2,605
                                                     ------          -------          ----       -------
  Lease obligation net of subleases                   1,077          $95,103          $612       $96,792
                                                                     =======          ====       =======
  Less amount representing interest                      46
                                                     ------
  Present value of minimum capital lease
    payments (including current portion of $548)     $1,031
                                                     ======`

| | Annual
rent expense aggregated approximately $13,198,000, including $612,000 to related parties,
for 2006, $10,272,000, including $612,000 to related parties, for 2005 and $7,887,000,
including $612,000 to related parties, for 2004. Rent expense for 2006 is net of sublease
income of $937,000.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Litigation
 Beginning on May 24, 2005, three shareholder derivative lawsuits were filed, one in
the United States District Court for the Eastern District of New York and two in the
Supreme Court of New York, County of Nassau, against various officers and directors of the
Company and naming the Company as a nominal defendant in connection with the
Companys restatements of its fiscal year 2003 and 2004 financial statements. The
defendants and the Company denied all of the allegations of wrongdoing contained in the
complaints. On May 16, 2006, the parties entered into a stipulation of settlement of this
case. By order dated July 6, 2006 the United States District Court for the Eastern
District of New York approved the settlement and dismissed the federal complaint with
prejudice. Pursuant to the settlement the defendants are released from liability and the
Company adopted certain corporate governance principles including the appointment of a
lead independent director to, among other things, assist the Board of Directors in
assuring compliance with and implementation of the Companys corporate governance
policies and paid $300,000 of the legal fees of the plaintiffs. The State court actions
were dismissed.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company has also been named as a defendant in other lawsuits in the normal course of its
business, including those involving commercial, tax, employment and intellectual property
related claims. Based on discussions with legal counsel, management believes the ultimate
resolution of these lawsuits will not have a material effect on the Companys
consolidated financial statements.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Contingency
 The Company is required to collect sales tax on certain of its sales. In
accordance with current laws, approximately 17.9% of the Companys 2006 domestic
sales, 17% of the Companys 2005 domestic sales and 17% of the 2004 domestic sales
were subject to sales tax. Changes in law could require the Company to collect sales tax
in additional states and subject the Company to liabilities related to past sales.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Employee
Benefit Plans The Companys U.S. subsidiaries participate in a defined
contribution 401(k) plan covering substantially all U.S. employees. Employees may invest
a percentage of their eligible compensation, limited to maximum amounts as determined by the
Internal Revenue Service. The Company provides a matching contribution to the plan,
determined as a percentage of the employees contributions. Aggregate expense to the
Company for contributions to such plans was approximately $514,000 in 2006, $455,000 in
2005 and $436,000 in 2004.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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, 2006, the Company had no outstanding forward exchange contracts.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Fair Value of Financial Instruments  Financial instruments
consist primarily of investments in cash and cash equivalents, trade accounts
receivable, 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, 2006, 2005
and 2004, the carrying amounts of cash and cash equivalents, accounts
receivable, income taxes receivable and payable 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 the
term loan payable are considered to be representative of their respective fair
values as their interest rates are based on market rates. The estimated fair
value of the Companys mortgage loan payable was $8.8 million at December
31, 2005.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Concentration of Credit Risk Financial instruments that
potentially subject the Company to concentrations of credit risk consist of
cash, cash equivalents and accounts receivable. The Companys excess cash
balances are invested with high credit quality issuers. 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. The Company also performs on-going credit evaluations and maintains
allowances for potential losses as warranted.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|12. | SEGMENT AND RELATED INFORMATION
|--- | -------------------------------

| | The Company operates in one primary business as a reseller of business products
to commercial and consumer users. The Company operates and is internally managed
in three operating segments, Technology Products, Industrial Products and Hosted
Software. The Companys chief operating decision-maker is the
Companys Chief Executive Officer. The Company evaluates segment
performance based on income from operations before net interest, foreign
exchange gains and losses, restructuring and other charges and income taxes.
Corporate costs not identified with the disclosed segments and restructuring and
other charges are grouped as Corporate and other expenses. The chief
operating decision-maker reviews assets and makes significant capital
expenditure decisions for the Company on a consolidated basis only. The
accounting policies of the segments are the same as those of the Company
described in Note 1.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Financial information relating to the Companys operations by reportable
segment was as follows (in thousands):
| | ---------------------------------------------------------------------------------------------------------------

`Year Ended December 31,
                                                        ----------------------
                                              2006            2005            2004*
                                              ----            ----            ----
  Net Sales:
  ---------
  Technology Products                   $2,148,104      $1,940,902       $1,776,444
  Industrial products                      196,860         174,616          151,630
  Hosted Software                              201               -               73
                                               ---                               --
      Consolidated                      $2,345,165      $2,115,518       $1,928,147
                                        ==========      ==========       ==========

  Depreciation Expense:
  --------------------
  Technology Products                       $6,395          $7,341           $9,081
  Industrial products                        1,040           1,995            1,789
  Hosted Software                              683             403              178
  Corporate                                     67             255              266
                                                --             ---              ---
      Consolidated                          $8,185          $9,994          $11,314
                                            ======          ======          =======

  Income (Loss) from Operations:
  -----------------------------
  Technology Products                      $59,374         $41,521          $16,873
  Industrial products                       13,957           7,591           10,782
  Hosted Software                           (9,600)         (6,803)          (4,954)
  Corporate and other expenses              (1,827)         (7,500)          (3,702)
                                            ------          ------           ------
      Consolidated                         $61,904         $34,809          $18,999
                                           =======         =======          =======

  Total Assets
  Technology Products                     $230,512        $172,534
  Industrial products                       59,239          51,031
  Hosted Software                            3,068           1,819
  Corporate and other                      291,342         279,160
                                           -------         -------
      Consolidated                         584,161        $504,544
                                           =======        ========`

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

`Year Ended December 31,
                                                          ----------------------
                                                    2006                2005            2004*
                                                    ----                ----            ----
  Net Sales:
  United States:
      Industrial products                         $196,860            $174,616         $151,630
      Technology Products                        1,268,780           1,147,230        1,011,118
                                                 ---------           ---------        ---------
  United States total                            1,465,640           1,321,846        1,162,748
  Other North America                              135,619              99,035           69,704
  Europe                                           743,906             694,637          695,695
                                                   -------             -------          -------
      Consolidated                               2,345,165          $2,115,518       $1,928,147
                                                 =========          ==========       ==========

                                              Dec 31, 2006        Dec 31, 2005
                                              ------------        ------------
  Long-lived Assets:
  North America - principally United States        $21,347             $31,435
  Europe                                            27,239              25,824
                                                    ------              ------
      Consolidated                                 $48,586             $57,259
                                                   =======             =======
         Net sales are attributed to countries based on location of selling subsidiary.

* As previously restated  see Note 2.`

|13. | SUBSEQUENT EVENTS
|--- | -----------------

| | On March 14, 2007, the Companys Board of Directors declared a special
dividend of $1.00 per share payable on April 12, 2007 to shareholders of record
on April 2, 2007. The Company expects to use approximately $35.8 million in cash
to satisfy this dividend obligation.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|14. | QUARTERLY FINANCIAL DATA (UNAUDITED)
|--- | ------------------------------------

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

`First Quarter    Second Quarter    Third Quarter  Fourth Quarter
     2006:
     Net sales                                $574,908          $547,242       $575,041          $647,974
     Gross profit                              $90,763           $77,370        $91,514           $83,272
     Net income                                $17,557            $7,106        $12,541            $8,033
     Net income per common share:
           Basic                                  $.51              $.20           $.36              $.23
           Diluted                                $.48              $.19           $.33              $.22

     2005:
     Net sales                                $537,908          $506,142         $488,502        $582,966
     Gross profit                              $79,775           $71,365        $70,480           $85,667
     Net income                                 $2,638            $1,522         $3,875            $3,406
     Net income per common share:
           Basic                                  $.08              $.04           $.11              $.10
           Diluted                                $.07              $.04           $.11              $.09`

# SYSTEMAX INC.

SCHEDULE II 
VALUATION AND QUALIFYING ACCOUNTS

For the years ended
December 31:
(in thousands)

`Balance at
                                             Beginning of     Charged to                                 Balance at
Description                                     Period         Expenses      Write-offs     Other       End of Period
                                                -------        --------      ----------     -----       -------------
Allowance for sales returns and doubtful
accounts
2006                                               $12,508          $1,503       $(2,641)                     $11,370
2005                                               $11,318          $7,316       $(6,126)                     $12,508
2004                                               $10,000          $5,079       $(3,761)                     $11,318

Allowance for deferred tax assets
2006
   Current                                            $527            $136                         $75           $738
   Noncurrent (1)                                  $14,779          $2,743       $(2,260)       $1,879        $17,141
2005
   Current                                            $413            $114                                       $527
   Noncurrent                                      $10,643          $5,828       $(1,301)       $(391)        $14,779
2004
   Current                                            $698                         $(285)                        $413
   Noncurrent                                      $12,953          $1,147       $(3,683)         $226        $10,643`

|(1) | Charges to expense are net of reductions resulting from changes in
deferred tax assets due to changes in tax laws.
|--- | ------------------------------------------------------------------------------------------------------------------

EXHIBIT INDEX

| | 10.19 | Amendment No. 1 dated January 17, 2007, to Employment Agreement
dated as December 12, 1997 between the Company and Stephen M. Goldschein.
| | ----- | -----------------------------------------------------------------------------------------------------------------------------------------

| | 10.20 | Employment Agreement, dated as of January 17, 2007, between the
Company and Lawrence P. Reinhold.
| | ----- | -------------------------------------------------------------------------------------------------

| | 10.21 | Form of 2006 Stock Incentive Plan for Non-Employee Directors.
| | ----- | -------------------------------------------------------------

| | 10.22 | Form of 2005 Employee Stock Purchase Plan.
| | ----- | ------------------------------------------

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

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

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

| | 31.2 | Certification of the Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
| | ---- | ------------------------------------------------------------------------------------------------------

| | 32.1 | Certification of the Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
| | ---- | ------------------------------------------------------------------------------------------------------

| | 32.2 | Certification of the Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
| | ---- | ------------------------------------------------------------------------------------------------------