SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

FORM 10-K/A

(Amendment No. 1)

|(Mark One)
[  X  ] | ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2003 | 
|------------------ | ------------------------------------------------------------------------------------------------------------------------------- | 

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

---

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
(Address of principal executive offices) | 11050
(Zip Code)
|--------------------------------------------------------------------------------------- | ----------------

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

---

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

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

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

---

Indicate by check mark
whether the registrant (1) has filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes [X] No [ ]
          Indicate by check mark if
disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best knowledge of the
registrant, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment of this Form 10-K. [X]
          
Indicate by check mark whether the registrant is an accelerated filer (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,
2003, which is the last business day of the registrants most recently
completed second fiscal quarter, was approximately $22,385,000. For purposes of
this computation, all executive officers and directors of the Registrant and all
parties to the Stockholders Agreement dated as of June 15, 1995 have been deemed
to be affiliates. Such determination should not be deemed to be an admission
that such persons are, in fact, affiliates of the Registrant.
          
The number of shares outstanding of the registrant's common stock as of March
15, 2004 was 34,343,786 shares.
          
Documents incorporated by reference: Portions of the definitive Proxy Statement
of Systemax Inc. relating to the 2004 annual meeting of stockholders are
incorporated by reference in Part III hereof.

EXPLANATORY NOTE

This Form 10-K/A is filed to
amend the Annual Report on Form 10-K of Systemax Inc. (the "Company")
for the year ended December 31, 2003 (the "Original Form 10-K") to
reflect the restatement of the Companys Consolidated Financial Statements
for the year ended December 31, 2003, and to make corresponding changes to Item
1 of Part I, Items 6, 7 and 9A of Part II and Item 15 of Part IV related to the
restatement. The restatement is described in Note 2 to the Consolidated
Financial Statements accompanying this amendment.

This report continues to
speak as of the date of the Original Form 10-K and we have not updated the
disclosures in this report to speak to any later date. While this report
primarily relates to the historical period covered, events may have taken place
since the date of the Original Form 10-K that might have been reflected in this
report if they had taken place prior to the filing of the Original Form 10-K.
All information contained in this report is subject to updating and
supplementing as provided in our periodic reports filed with the Securities and
Exchange Commission.

TABLE OF CONTENTS

Part I

|Item 1. | Business
General
Available Information
Recent Developments
Products
Sales and Marketing
Customer Service and Support
Sales and Distribution Centers
Suppliers
Research and Development
Competition and Other Market Factors
Employees
Environmental Matters
Financial Information About Foreign and Domestic Operations | 1
1
1
2
3
3 
5
5
6
6
6
7
7 
7
|------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -----------------------------

Part II

|Item 6. 
Item 7. 
Item 9A. | Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of Operations
Controls and Procedures | 8
10
24
|-------------------------- | ------------------------------------------------------------------------------------------------------------------------------------- | -------

Part IV

|Item 15. | Exhibits, Financial Statement Schedules and Reports on Form 8-K
Signatures | 25
28
|-------- | -------------------------------------------------------------------------- | -----

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 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," "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 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, including personal desktop
computers ("PCs"), notebook computers, computer related products and
industrial products, in North America and Europe. We assemble our own PCs and
sell them under the trademarks Systemax, Tiger® and
Ultra. In addition, we market and sell computers manufactured by
other leading companies. We offer our customers a broad selection of products,
prompt order fulfillment and extensive customer service. Computers and computer
related products accounted for 91% of our net sales in 2003.

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.

Available Information

We maintain an internet web
site at www.systemax.com. We file reports with the Securities and
Exchange Commission ("SEC") 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
| | ------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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.

Recent Developments

Profit Center Software Inc.

In September 2003 we formed
a new subsidiary company, Profit Center Software Inc., to market for general
commercial use a number of integrated computer software products we had created
initially as a customized software solution for our own business. Offered as
Profit Center Software , it is a suite of web-based business software
applications, including sales force automation, order processing and product
management applications, which assist companies in automating their business in
order to improve efficiencies and maximize profitability. PCS Inc. is actively
seeking customers, but is a new venture with all the attendant business risks
normally associated with any new business, including uncertainty of future
growth and profitability.

Amendments To Company's 1999 Long Term Stock Incentive Plan

On May 20, 2003 our Board
of Directors approved, subject to stockholder approval, amendments to the
Companys 1999 Long Term Stock Incentive Plan which, among other things,
(a) increased the number of Company shares with respect to which awards may be
granted under the plan to a total of 5 million shares, (b) increased the limit
on yearly award grants to individuals to 1,500,000 shares per type of award and
3,000,000 shares in total, and (c) extended the expiration date of the plan to
December 31, 2009. We intend to seek stockholder approval of the plan amendments
at our annual stockholders meeting, currently scheduled to be held on May 25,
2004. A copy of the amended plan is an Exhibit to this Annual Report. It will
also be annexed to the Companys proxy statement for the 2004 annual
stockholders meeting.

2004 Streamlining Plan

In February 2004 we
announced a plan to streamline the back office and warehouse operations of our
computer businesses in the United States. We anticipate that the streamlining
will result in the elimination of approximately 200 jobs and, in conjunction
with a January 2004 consolidation of United Kingdom sales offices which resulted
in the elimination of 50 jobs, will result in approximately $3 million (pre-tax)
of severance and other restructuring costs, which will be reflected in our first
quarter 2004 results. We expect that this plan will result in annual savings of
approximately $8 million, excluding the severance and other restructuring costs
to be recognized in fiscal 2004.

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.

Computer sales include
Systemax PCs complemented by offerings of other brand name PCs and notebook
computers. Our computer 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; ergonomic accessories such as adjustable monitor support
arms and anti-glare screens; and packaged software.

We
assemble our Systemax-brand PCs in our 297,000 square foot, ISO-9000-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. Systemax PCs sold in
Europe are assembled by third parties. 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 7,
"Managements Discussion and Analysis of Financial Condition and
Results of Operations  Factors That May Affect Future Results and
Financial Condition."

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

The
table below summarizes our mix of sales by product category:

Product Type - Years Ended December 31 (Percentage of net sales)

`2003     2002       2001
                                                                         ----     ----       ----
      Computer and Computer Related Products  ........................    91%       90%       89%
      Industrial Products ............................................     9        10        11
                                                                           -        --        --
      Total  .........................................................   100%      100%      100%
                                                                         ====      ====      ====`

Sales and Marketing

We market our products to
both business customers and individual consumers. Our business customers include
large businesses (customers with more than 1,000 employees), small and mid-sized
businesses (customers with 20 to 1,000 employees), educational organizations and
government entities. We have invested consistently and aggressively in
developing a proprietary customer and prospect database. This database includes
more than 50 million names. We consider our business customers to be the various
individuals who work within an organization rather than the business location
itself. The business customer and prospect database includes detailed
information, including company size, number of employees, industry, various
demographic and geographic characteristics and purchasing history.

We have established an
integrated three-pronged system of direct marketing to business customers,
consisting of relationship marketers, catalog mailings and propriety internet
web sites, 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 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 which feature
our websites can result in greater internet-related sales.

We successfully increased
our sales to individual consumers through our Tiger Direct subsidiary, using a
combination of e-commerce initiatives and catalog mailings. 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.
Our catalogs 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 with the addition of a number of
retail outlet stores. These stores are located in or near one of our existing
sales and distribution centers, thereby minimizing our operating costs. We
presently have four such retail locations in North America and plan to add
several more in 2004.

Catalogs

We currently produce a
total of 30 full-line and targeted specialty catalogs under distinct titles. Our
portfolio of catalogs includes such established brand names as Global
Computer Supplies, TigerDirect.com, Misco®, HCS Misco,
Global Industrial, ArrowStar, Dartek.com 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.

During 2003, we distributed
approximately 97 million catalogs, of which approximately 62 million catalogs
were mailed in North America and approximately 35 million catalogs were
distributed in Europe. This total was approximately 9% fewer than in the prior
year as we were able to leverage our advertising spending as a result of
increased internet sales.

E-commerce

We continually upgrade the
capabilities and performance of our internet web sites. We currently have
twenty-two e-commerce sites, including www.systemaxpc.com,
www.globalcomputer.com, www.tigerdirect.com,
www.dartek.com, www.misco.co.uk,
www.simply.co.uk, www.hcsmisco.fr, www.misco.de and
www.globalindustrial.com, offering a wide variety of
computer and industrial products and allowing customers around-the-clock,
on-line access to purchase products. Our internet sites feature on-line catalogs
of thousands of products. Many of these sites also permit customers to purchase
"build to order" PCs configured to their own specifications. In 2003
we had over $384 million in internet-related sales, representing 23.2% of total
revenues, an increase of $126 million from 2002.

Customer Service 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 on the internet.

Orders are fulfilled on a
timely basis and are generally shipped by United Parcel Service in the United
States and by similar national small package delivery services in Europe, as
well as by various freight lines and local carriers. Most customers receive
their orders (other than custom items, large furniture and large industrial
items shipped directly by the vendor) within one or two business days of the
order date as a result of the regional locations of our distribution centers.

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.

Sales and Distribution Centers

A large number of our products
are carried in stock, and orders for such products are fulfilled directly from
our distribution centers, typically on the day the order is received. The
strategic locations of our distribution centers allow next day or second day
delivery via low cost ground carriers throughout most of the United States,
Canada and Western Europe. We maintain relationships with a number of large
distributors in the United States and Europe that deliver products directly to
our customers.

North America

We operate out of multiple
sales and distribution facilities in North America. Certain of these facilities
are linked by a wide area network management information system. In the event of
adverse delivery conditions, such as bad weather at a location, we can shift
inbound calls and/or order fulfillment and shipping to an alternate location. We
believe this provides us with important operating flexibility and protection
from possible sales interruptions for our North American businesses.

Europe

We have sales and/or
distribution facilities in eight European countries and a central office in the
United Kingdom to direct their activities. The central office is responsible for
marketing support, financial reporting, logistics and computer website and
programming support. The locations of our distribution centers in Europe have
enabled us to market into four additional countries with limited incremental
investment.

Suppliers

We purchase the majority of our products and components directly from
manufacturers and large wholesale distributors. For the year ended December 31,
2003, Tech Data Corporation accounted for 14.7% and Ingram Micro Inc. accounted
for 10.3% of our purchases. For the year ended December 31, 2002, Tech Data
Corporation accounted for 14.7% of our purchases. For the year ended December
31, 2001, Tech Data Corporation accounted for 15.1% and Hewlett Packard Company
accounted for 10.5% of our purchases. The loss of any 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 research and development teams. See "Research and
Development."

Research and Development

Our research and
development teams design and develop products for our private label offerings.
The individuals responsible for research and development have backgrounds in
engineering and industrial design.

This in-house capability
provides important support to the private label offerings. Products designed
include PCs, servers, furniture, ergonomic monitor support arms, printer and
monitor stands, wrist rests and other durable computer related products, storage
racks and shelving systems, various stock and storage carts, work benches,
plastic bins and shop furniture. We own the tooling for many of these products,
including plastic bins, computer accessories, furniture and metal alloy monitor
arms. See "Research and Development Costs" in Footnote 1 to the
Consolidated Financial Statements for further information.

Competition and Other Market Factors

Personal Computers

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.
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®.

While economic conditions
in the United States have recently begun to improve after several years of
adverse conditions, economic conditions in Europe continue to be unsettled, and,
on balance, PC sales continue to be slow. This continued slowness has resulted
in lower selling prices among our competitors, creating an extremely competitive
environment that has affected, and may continue to affect, profitability over
the short-term. Our long-term view of the PC market, however, remains
optimistic, assuming that the strengthening of U.S. economic conditions
continues and conditions in Europe improve.

Computer Related Products

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 that carry computer supplies, 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.

As with PCs, the continued
slowness of the global economy means the environment remains highly competitive,
resulting in the continued reduction in retail prices for computer related
products, which may continue to 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. We sell a minor amount of industrial products in Europe.

Employees

As
of December 31, 2003, we employed a total of 3,130 employees, including 3,040
full-time and 90 part-time employees, of whom 1,826 were in North America and
1,304 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. The following sets
forth our operations in those two geographic markets (in thousands):

`2003                                          Europe                   North America          TOTAL
     ----                                        ------------            -----------------     -------------
     Net sales..............................      $631,545                  $1,026,233         $  1,657,778
     Income (loss) from operations..........       $(5,243)                    $14,530               $9,287
     Identifiable assets....................      $140,126                    $306,593             $446,719

     2002                                          Europe                   North America          TOTAL
     ----                                        ------------            -----------------     -------------
     Net sales..............................      $587,712                    $963,805         $  1,551,517
     Income (loss) from operations..........        $7,823                    $(15,604)             $(7,781)
     Identifiable assets....................      $130,651                    $307,253             $437,904

     2001                                          Europe                   North America          TOTAL
     ----                                        ------------            -----------------     -------------
     Net sales..............................      $564,360                    $982,615         $  1,546,975
     Income (loss) from operations..........       $18,229                    $(15,699)             $ 2,530
     Identifiable assets....................      $121,717                    $332,730             $454,447`

PART II

Item 6. Selected Financial Data.

The following selected
financial information is qualified by reference to, and should be read in
conjunction with, the Company's Consolidated Financial Statements and the notes
thereto, and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" contained elsewhere in this report. The selected
income statement data for the years ended December 31, 2003, 2002 and 2001 and
the selected balance sheet data as of December 31, 2003 and 2002 is derived from
the audited consolidated financial statements which are included elsewhere in
this report. The selected balance sheet data as of December 31, 2001, 2000 and
1999 and the selected statement of operations data for the years ended December
31, 2000 and 1999 is derived from the audited 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)
                                                   --------------------------------------------------------------------------
                                                              2003(1)        2002         2001        2000         1999
                                                   --------------------------------------------------------------------------
Statement of Operations Data:
-----------------------------
Net sales                                                      $1,657.8     $1,551.5     $1,547.0    $1,686.1     $1,754.5
Gross profit                                                     $265.0       $265.6       $276.9      $209.9       $314.5
Selling, general & administrative expenses                       $251.5       $256.1       $271.6      $270.9       $254.7
Restructuring and other charges                                    $1.7        $17.3         $2.8
Income (loss) from operations                                      $9.3        $(7.8)        $2.5      $(61.0)        $59.8
Provision (benefit) for income taxes                               $4.4        $(1.0)         $.4      $(24.5)        $24.5
Income (loss) before cumulative effect of change in
   accounting principle, net of tax                                $3.3        $(8.0)         $.7      $(40.8)        $36.0
Cumulative effect of change in accounting principle, net
   of tax                                                                     $(51.0)
Net income (loss)                                                  $3.3       $(58.9)         $.7      $(40.8)        $36.0
Net income (loss) per common share, basic and diluted:
Income (loss) before cumulative effect of change in
   accounting principle, net of tax                                $.10        $(.23)        $.02      $(1.19)        $1.01
Cumulative effect of change in accounting principle, net
   of tax                                                                     $(1.50)
Net income (loss) per common share, basic and diluted              $.10       $(1.73)        $.02      $(1.19)        $1.01
Weighted average common shares outstanding:
Basic                                                              34.2         34.1         34.1        34.3         35.8
Diluted                                                            34.9         34.1         34.1        34.3         35.8

Selected Operating Data:
Orders entered                                                      4.4          4.0          4.0         3.9          4.4
Number of catalogs distributed                                       97          106          126         157          171
Number of catalog titles                                             30           37           38          37           37

Balance Sheet Data:
Working capital                                                  $145.5       $133.3       $103.3      $106.7       $186.9
Total assets                                                     $446.7       $437.9       $454.4      $538.0       $551.8
Short-term debt                                                   $20.8        $21.2         $2.8       $48.6         $9.0
Long-term debt, excluding current portion                         $18.4        $17.5                                  $1.7
Shareholders' equity                                             $210.1       $201.9       $254.9      $255.7       $310.2`

(1) As restated, see Note 2 to the Consolidated Financial
Statements included in Item 15.

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

Restatement of Previously Issued Financial
Statements

On
February 21, 2005 we announced that we would restate our previously issued
financial statements for the year ended December 31, 2003 and the first three
quarters of fiscal 2004 as a result of errors discovered in the accounting for
inventory at our United Kingdom subsidiary. This discussion and analysis of our
results of operations and financial condition gives effect to the restatement
described in Note 2 to the consolidated financial statements.

Overview

We
are a direct marketer of brand name and private label products, including
personal desktop computers, notebook computers, computer related products and
industrial 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 computers manufactured by other leading companies, such
as IBM and Hewlett Packard. 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. Computers and computer related
products account for more than 90% of our net sales, and, as a result, we are
dependent on the general demand for information technology products.

The
market for computer products is subject to intense price competition and is
characterized by narrow gross profit margins. Distribution of information
technology 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 tracking
systems, and employing personnel to perform the associated tasks. We supplement
our product availability by maintaining relationships with major distributors,
utilizing a combination of stocking and drop-ship fulfillment.

During fiscal 2002 and 2003, our performance and that of the industry as a whole
was impacted negatively by the global economic downturn and cautious information
technology spending. As it became evident that the industry was experiencing a
prolonged economic downturn, we took measures to align our cost structure with
lower revenues and decreasing gross margins. The primary component of our
operating expenses historically has been employee related costs, which includes
items such as wages, commissions, bonuses, and benefits.We have recently
made substantial reductions in our workforce and closed or consolidated several
facilities. We have reduced selling, general and administrative expenses from
17.6% of net sales in 2001 to 14.3% (on a comparable basis) of net sales in
2003. In the first quarter of 2004 we announced and began the implementation of
a plan to streamline our United States computer business. This plan will
consolidate duplicative back office and warehouse operations, which we expect to
result in annual savings of approximately $8 million excluding severance and
other restructuring costs of approximately $3 million to be recognized in fiscal
2004.

The
discussion of our results of operations and financial condition that follows
will provide information that will assist in understanding our financial
statements, the factors that we believe may affect our future results and
financial condition as well as information about how certain accounting
principles and estimates affect the financial statements.

Results of Operations

We
had net income for the year ended December 31, 2003 of $3.3 million. For the
year ended December 31, 2002, we had a net loss of $58.9 million, after
recording a cumulative effect of a change in accounting principle of $51
million, net of tax, to reflect the impairment of the entire carrying amount of
goodwill. We had net income for the year ended December 31, 2001 of $653,000.

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

`2003          2002        2001
                                                                       ----          ----        ----
Net sales                                                            100.0%        100.0%      100.0%
Gross profit                                                          16.0%         17.1%       17.9%
Selling, general and administrative expenses                          15.2%         16.5%       17.6%
Restructuring and other charges                                        0.1%          1.1%        0.2%
Goodwill impairment                                                    0.2%
Income (loss) from operations                                          0.6%        (0.5)%        0.2%
Interest expense                                                       0.1%          0.1%        0.1%
Income taxes                                                           0.3%        (0.1)%
Income (loss) before cumulative effect of change in accounting         0.2%        (0.5)%        0.1%
  principle, net of tax
Cumulative effect of change in accounting principle, net of tax                    (3.3)%
Net income (loss)                                                      0.2%        (3.8)%        0.1%`

NET SALES

Net
sales for the year ended December 31, 2003 were $1.658 billion, an increase of
6.8% from $1.552 billion for the year ended December 31, 2002. North American
sales were $1.026 billion, a 6.5% increase from last years $963.8 million.
The increase in North American sales was a result of growth in our consumer
business. Continued weakness in demand for information technology products from
corporate customers resulted in lower sales to those customers. European sales,
in US dollars, increased 7.5% to $631.5 million for 2003 (representing 38.1% of
worldwide sales) compared to $587.7 million (representing 37.9% of worldwide
sales) in the year-ago period. Movements in foreign exchange rates positively
impacted European sales for 2003 by approximately $81.0 million. If currency
exchange rates for 2002 had prevailed in 2003, European sales would have
decreased 6.4% from the prior year. Lower demand and the effect of exchange rate
movements on product pricing in certain European markets resulted in decreased
local currency denominated sales.

Net
sales of $1.552 billion in 2002 were $4.5 million or 0.3% higher than the $1.547
billion reported in 2001. The weak worldwide economic environment resulted in
reduced demand, particularly in the technology sector. While sales to individual
consumers showed growth, sales to business customers remained weak, as the
anticipated replacement cycle for PCs continued to be deferred due to our
business customers desire to reduce capital expenditures. PC sales were
$350 million in 2002, representing 22.6% of the Companys net sales, which
was largely unchanged from 2001. Sales in North America decreased 1.9% to $964
million in 2002 from $983 million in 2001 primarily as a result of the
continuing economic slowdown in the United States. European sales increased 4.1%
to $588 million in 2002 from $564 million in 2001. Movements in foreign exchange
rates positively impacted the European sales comparison by approximately $24.8
million in 2002 compared to 2001. Excluding the movements in foreign exchange
rates, European sales would have been substantially unchanged from the prior
year.

European
economies continued to weaken during 2003, which is reflected in our results. We
suffered declines in local currencies in 2003 after a relatively flat year in
2002 and slowing growth in 2001. The table below reflects European sales for the
three reported years at constant (2001) exchange rates (in millions):

`2003         2002         2001
                                                      ----         ----         ----
       European sales as reported                    $631.5       $587.7       $564.4
       European sales at 2001 exchange rates         $528.3       $563.2       $564.4`

GROSS PROFIT

Gross profit, which consists of net sales less product cost, shipping, assembly
and certain distribution center costs, was $265.0 million, or 16.0% of net
sales, compared to $265.6 million, or 17.1% of net sales, in the year-ago
period, a decrease of $600,000.  As a result of adopting Emerging
Issues Task Force ("EITF") Issue No. 02-16, "Accounting by a Customer (including
a Reseller) for Certain Consideration Received from a Vendor", $14.5 million of
vendor consideration was recorded as a reduction of cost of sales in 2003.
Excluding the impact of EITF 02-16, and therefore on a non-GAAP basis, the gross
profit margin would have been 15.1% in 2003 compared to 17.1% in 2002. (The
non-GAAP gross profit margin has been included here to provide comparability to
the prior year.) The decline in the gross profit margin was due to continued
pricing pressure resulting from weak market demand and response to competition
and changes in the mix of products sold, as customers continue to shift to
lower-priced solutions.

Gross profit was $265.6 million in 2002, down 4.1%, or $11.3 million, from
$276.9 million in 2001. As a percentage of sales, gross profit fell to 17.1% in
2002, from 17.9% in 2001. This decline resulted from a decline in the gross
profit ratio in the Companys European operations, which was affected by
intense pricing pressure in certain of its markets. The gross profit ratio in
the Companys North American business decreased only slightly from 2001 as
pricing pressures were partially offset by cost reductions resulting from
initiatives undertaken in recent years and production efficiencies achieved in
the Companys PC assembly business.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses for 2003 were $251.5 million
compared to $256.1 million in 2002, a net decrease of $4.6 million or 1.8%. The
decrease was realized in our North American operations and included decreased
television advertising spending related to sales of the Companys PCs. In
addition, as a result of increased internet sales, we were able to leverage our
total advertising spending and reduce our other advertising expenses by reducing
the number of catalogs we mailed. These decreases were partially offset by
approximately $13 million of increased costs in Europe resulting from the
effects of changes in foreign exchange rates and the effects of the adoption of
EITF 02-16. The adoption of EITF 02-16 resulted in the reclassification of
$14.5 million of vendor consideration as a reduction of cost of sales,
which would previously have been recorded as a reduction of advertising expense.
As a percentage of sales, selling, general and administrative expenses were
15.2% (14.3% on a non-GAAP basis before the adoption of EITF 02-16) compared to
16.5% in the year-ago period.

Selling, general and administrative expenses totaled $256.1 million, or 16.5% of
net sales, in 2002, a decrease of $15.6 million, or 5.7%, compared to $271.6
million, or 17.6% of net sales, in 2001. Reductions in catalog costs comprised
the largest portion of the decrease. The Company also reduced its employee count
in the United States, lowering its salary expense and related benefit costs in
2002. Selling, general and administrative expenses also declined as a result of
actions taken to reduce costs and tighten discretionary spending. These
reductions were partially offset by increased salary and other operating
expenses in the Companys European operations.

RESTRUCTURING AND OTHER CHARGES

In
the fourth quarter of 2003 we implemented a plan to consolidate the warehousing
facilities in our United States computer supplies business. We recorded $713,000
of costs related to this plan in the fourth quarter, including $233,000 of
non-cash costs for impairment of the carrying value of fixed assets and $480,000
of charges for other exit costs.

During
2002 we implemented a plan to consolidate the activities of our three United
Kingdom locations into a new facility we had constructed. We incurred $4.1
million of costs associated with the plan, including $1.9 million for
recruitment, staff relocation and severance and benefits for approximately 150
terminated employees, $1.7 million of charges for other exit costs, primarily
facilities closing and lease terminations, and $0.5 million of non-cash costs
for impairment of the carrying value of fixed assets. During the fourth quarter
of fiscal 2003 we recorded $2.2 million of additional costs, net of reductions,
related to this plan as a charge to operations. These charges consisted of $1.6
million of other restructuring activities as we adjusted the original estimates
of lease and contract termination costs and $600,000 of additional non-cash
asset impairments, related to buildings vacated.

In
2001 approximately $2 million of previously capitalized costs associated with
software projects abandoned were written off. We also incurred approximately
$750,000 of costs in 2001 related to the consolidation of one of our domestic
warehouse locations.

In
August 2003 we settled our litigation with a software developer and reversed a
previously recorded liability of $1.3 million, which was no longer required.

During the second quarter of 2003, we purchased the minority ownership of our
Netherlands subsidiary for approximately $2.6 million, pursuant to the terms of
the original purchase agreement. All of the purchase price was attributable to
goodwill and, as a result of an impairment analysis, was written off in
accordance with Statement of Financial Accounting Standards 142, "Goodwill and
Other Intangible Assets."

During the second quarter of 2002 we recorded a non-recurring write-off of $13.2
million resulting from our decision to discontinue development of internal-use
computer software.

INCOME (LOSS) FROM OPERATIONS

We
had income from operations of $9.3 million in 2003, a loss from operations of
$7.8 million in 2002 and income from operations for the year ended December 31,
2001 of $2.5 million. Results in 2003 include restructuring and other charges of
$1.7 million and a goodwill impairment charge of $2.6 million. The loss from
operations in 2002 includes $17.3 million of restructuring and other charges.
Income from operations in 2001 includes the elimination of a liability of $3
million recorded in a prior year which we determined was no longer required and
expense of $2.8 million for restructuring and other charges. We had a loss from
operations in Europe in 2003 of $5.2 million, compared to income from operations
of $7.8 million in 2002 and $18.2 million in 2001. European results declined as
a result of decreased gross profit, increased selling, general and
administrative expenses and $4.8 million of restructuring and other charges.

INTEREST AND OTHER INCOME AND INTEREST EXPENSE

Interest expense was $2.3 million in 2003, $1.7 million in 2002 and $1.8 million
in 2001. The increased expense in 2003 resulted from increased short-term
borrowings under our United Kingdom facility and a full year of interest expense
on long-term obligations incurred in 2002. We had decreased borrowings under our
United States and United Kingdom short-term credit facilities in 2002, the
effect of which was partially offset by interest expense on new long-term
borrowings entered into during the year. Interest and other income was $0.8
million in 2003, $0.4 million in 2002 and $0.3 million in 2001.

INCOME TAXES

We
recorded an income tax provision of $4.3 million in 2003, an income tax benefit
of $1.0 million in 2002 and an income tax provision of $389,000 in 2001. The
effective rates were 56.5 % in 2003, 11.5% in 2002 and 37.3% in 2001. The
effective tax rate in 2003 was adversely affected by the goodwill impairment
write-off, which is not tax deducible. The mix in taxable income and losses
between our U. S. and foreign operations and the expected utilization of our
deferred tax assets significantly impacted the recording of the 2002 tax
benefit. In 2002, we also incurred additional tax expense in connection with
audit assessments in two of our foreign subsidiaries. For the years ended
December 31, 2003 and 2002, we have not recognized certain foreign tax credits,
certain state tax benefits on losses 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. Accordingly, valuation allowances were
recorded against the deferred tax assets associated with those tax credits and
net operating loss carryforwards.

CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE

During the first half of 2002, we completed the transitional review for goodwill
impairment required by SFAS 142. The review indicated that the entire carrying
value of the goodwill recorded on our balance sheet was impaired as of January
1, 2002. Accordingly, we recorded a transitional impairment loss of $68 million
($51 million net of tax or a net loss per share of $1.50) as a cumulative effect
of change in accounting principle in our statements of operations for the year
ended December 31, 2002.

NET INCOME (LOSS)

As a
result of the above, net income for 2003 was $3.3 million, or $.10 per basic and
diluted share, the net loss for 2002 was $58.9 million, or $1.73 per basic and
diluted share, and net income for 2001 was $653,000, or $.02 per basic and
diluted share.

Seasonality

Net
sales have historically been modestly weaker during the second and third quarter
as a result of lower business activity during those months. The following table
sets forth the net sales, gross profit and income (loss) from operations for
each of the quarters since January 1, 2002 (amounts in millions).

`2003                                      March 31    June 30    September 30   December 31
 ----                                      --------    -------    ------------   -----------
 Net sales...............................     $426       $389         $405         $438
 Percentage of year's net sales .........      25.7%      23.5%        24.4%        26.4%
 Gross profit............................      $72        $63          $66          $64
 Income (loss) from operations...........       $8        $(1)          $3           $-

 2002                                      March 31    June 30    September 30   December 31
 ----                                      --------    -------    ------------   -----------
 Net sales...............................     $412       $364         $372         $403
 Percentage of year's net sales .........      26.6%      23.4%        24.0%        26.0%
 Gross profit............................      $74        $62          $63          $67
 Income (loss) from operations...........       $1       $(14)          $2           $4`

Financial Condition, Liquidity and Capital
Resources

Liquidity is the ability to generate sufficient cash flows to meet obligations
and commitments from operating activities and the ability to obtain appropriate
financing and to convert into cash those assets that are no longer required to
meet existing strategic and financing objectives. Therefore, liquidity cannot be
considered separately from capital resources that consist of current and
potentially available funds for use in achieving long-range business objectives
and meeting debt service commitments. Currently, our liquidity needs arise
primarily from working capital requirements and capital expenditures.

Our
working capital was $146 million at December 31, 2003, an increase of $13
million from $133 million at the end of 2002. This was due principally to a $36
million increase in inventories, a $4 million increase in accounts receivable
and a $13 million decrease in accrued expense and other current liabilities
offset by a $24 million decrease in cash, a $3 million decrease in prepaid
expenses and other current assets and a $13 million increase in accounts
payable. Our inventories increased to meet the needs of our growing consumer
base, as increased stock levels facilitate such sales, while sales to business
customers include a large portion of merchandise shipped directly by our
vendors. The increase in accounts receivable was less pronounced, as sales to
consumers are generally paid by credit card, which have a 2-3 day
shipment-to-cash cycle compared to the normal 30-day payment terms offered to
our business customers. We expect that future accounts receivable and inventory
balances will fluctuate with the mix of our net sales between consumer and
business customers.

We
maintain our cash and cash equivalents primarily in money market funds or their
equivalent. As of December 31, 2003, 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.

Our
cash balance decreased $24.3 million to $38.7 million during the year ended
December 31, 2003. Net cash used in operating activities was $6.9 million in
2003, compared with net cash provided by operating activities of $4.9 million in
2002 and $95.6 million in 2001. The decrease in cash provided by operations in
2003 resulted from changes in our working capital accounts, which used $28.5
million in cash compared to $16.8 million in 2002, and resulted primarily from
the increase in our inventories and a decrease in accounts payable and accrued
expenses. This was partially offset by an increase in cash generated from net
income adjusted by other non-cash items, which provided $21.5 million in 2003,
compared to $21.6 million provided by these items in 2002. The decrease of $90.7
million in cash provided by operations in 2002 was primarily a result of changes
in working capital, which used $16.8 million in cash compared to $66.2 million
provided in 2001, and resulted primarily from increases in our inventories,
accounts receivable and prepaid expenses. Cash was provided by operations in
2001 by inventory reductions, decreases in accounts receivable and receipt of a
tax refund resulting from the loss recorded in the United States in 2000, offset
by a decrease in accounts payable.

In
2003, $11.2 million of cash was used in investing activities, principally $8.7
million for the purchase of property, plant and equipment, and $2.6 million for
the acquisition of the minority interest in our Netherlands subsidiary. The
capital expenditures in 2003 included upgrades and enhancements to our
information and communications systems hardware and facilities costs for the
opening of several retail stores. Cash of $14.7 million was used in investing
activities in 2002. This included $15.4 million of additions to property, plant
and equipment, primarily for the completion of a new facility for our United
Kingdom operations. In 2001 we used cash in investing activities of $23.8
million, primarily for property, plant and equipment additions. These
expenditures included $9.5 million for software and systems development and $5.5
million toward the construction of our United Kingdom facility. We anticipate no
major capital expenditures in 2004 and will fund any capital expenditures out of
cash from operations and borrowings under our credit lines.

Net
cash of $1.9 million was used in financing activities in 2003. Cash of $4.2
million was used to repay short and long-term obligations, which was partially
offset by $1.5 million of cash provided by the issuance of capital leases and
$759,000 provided by the exercise of stock options. Cash of $33.8 million was
provided by financing activities in 2002 from bank borrowings and the mortgaging
of our Georgia distribution facility and new United Kingdom facility. In 2001,
$45.8 million of cash was used in financing activities, all of which paid down
short-term borrowings.

Under our $70 million United States secured revolving credit agreement, which
expires in June 2004, availability as of December 31, 2003 was $49.0 million.
The revolving credit agreement contains certain financial and other covenants,
including restrictions on capital expenditures and payments of dividends. We
were in compliance with all of the covenants as of December 31, 2003. There were
outstanding letters of credit of $8.0 million and there were no outstanding
advances as of December 31, 2003. We are in the process of extending this
facility through the end of the first quarter of 2005 while we negotiate a new
agreement.

We
also maintain a £15 million ($26.9 million at the December 31, 2003
exchange rate) multi-currency credit facility with a financial institution in
the United Kingdom, which is available to our United Kingdom subsidiaries. The
facility does not have a termination date, but may be canceled by either party
on six months notice. Borrowings under the facility are secured by certain
assets of our United Kingdom subsidiaries. At December 31, 2003 there were
£7.5 million ($13.3 million) of borrowings outstanding under this line with
interest payable at a rate of 5.85%.

In
October 2003 our Netherlands subsidiary entered into a 5 million ($6.3
million at the December 31, 2003 exchange rate) 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, 2003 there were 4.5 million ($5.7 million) of borrowings
outstanding under this line with interest payable at a rate of 5.0%. The
facility expires in November 2005.

In
2002 we entered into a £6.6 million ($10.6 million at the December 31, 2003
exchange rate), 111⁄2 year term loan agreement with a United Kingdom bank, to
finance the construction of a new United Kingdom facility. The borrowings are
secured by the land and building and are repayable in 40 quarterly installments
of £165,000 ($295,000) through August 2012. The outstanding borrowings bear
interest at LIBOR plus 160 basis points (5.25% at December 31, 2003). In
connection with this term loan, we also entered into an interest rate collar
agreement to reduce our exposure to market rate fluctuations. At December 31,
2003, the notional amount of the interest rate collar was £5,775,000
($10,338,000) with an interest rate cap of 6.0% and a floor of 4.5%. The
interest rate collar expires on April 30, 2005. As of December 31, 2003, the
collar was in a loss position of approximately $39,000 and, accordingly, the
aggregate fair value of the collar was recorded as a liability. The change in
the fair value of this derivative for the year ended December 31, 2003 has been
recognized in the Consolidated Statement of Operations as this hedge was
determined to be ineffective. The term loan agreement contains certain financial
and other covenants related to our United Kingdom subsidiaries.

In
April 2002 we entered into a ten year, $8.4 million mortgage loan on our
Suwanee, Georgia distribution facility. The mortgage has 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 loan bears
interest at 7.04% and is collateralized by the underlying land and building.

We
are obligated under operating leases for the rental of certain facilities and
equipment which expire at various dates through 2013. 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.

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 commitments at December 31, 2003 (in
thousands):

`After
                                          2004      2005       2006        2007       2008       2008
                                          ----      ----       ----        ----       ----       ----
 Contractual Obligations:
 Maturities of long-term debt            $1,746    $1,740     $1,745      $1,675     $1,516     $11,677
 Payments on non-cancelable operating     7,277     7,128      6,511       5,614      3,984      11,063
     leases
 Purchase commitments                     1,883         -        -           -          -           -
                                          -----    ------     ------      ------     ------     -------
 Total contractual obligations          $10,906    $8,868     $8,256      $7,289     $5,500     $22,740
                                        =======    ======     ======      ======     ======     =======

 Other Commitments:
 Letters of credit                       $8,000       N/A        N/A         N/A        N/A         N/A`

Our
operating results have generated cash flow which, together with borrowings under
our debt agreements, have 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, fund the payment of principal
and interest on indebtedness and fund capital expenditures. We believe future
cash flows from operations and availability of borrowings under our lines of
credit (as they are expected to be extended) will be sufficient to fund ongoing
cash requirements.

We
are party to certain litigation, as disclosed in "Commitments and Contingencies"
in the Notes to Consolidated Financial Statements, 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.

Factors That May Affect Future Results and Financial
Condition

There are a number of factors and variables that affect our results of
operations and financial condition. Following is a description of some of the
important factors that may affect future results.

| |  | Economic conditions have affected and could continue to
adversely affect our revenues and profits.
Both we and our business customers are subject to global political, economic and
market conditions, including military action and the threat of terrorism.
Economic conditions in the United States have recently begun to improve after
several years of adverse conditions. Economic conditions in Europe continue to
be unsettled. If the strengthening of general economic conditions does not
continue and if conditions in Europe remain weak, our results could continue to
be adversely affected. We may experience a decline in sales as a result of poor
economic conditions and the lack of visibility relating to future orders. Our
consolidated 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.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Competitive pressures could harm our revenue and gross
margin.
We may not be able to compete effectively with current or future competitors.
The market for our products and services is 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 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.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | We are dependent on third-party suppliers.
We purchase a significant portion of our computer related products from major
distributors such as Tech Data Corporation and Ingram Micro Inc. and
directly from large manufacturers such as IBM and Hewlett Packard, who 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
maintaining 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.
A portion of our revenues is derived from the sale of products manufactured
using licensed patents, software and/or technology. Failure to renew these
licenses on favorable terms or at all could force us to stop manufacturing and
distributing these products and our financial condition could be adversely
affected.
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 are exposed to inventory risks.
Our inventory is subject to risk due to technological change and changes in
market demand for particular products. Certain of our suppliers offer limited
price protection from the loss in value of inventory and we have limited right
to return purchases to suppliers. The decrease or elimination of price
protections or purchase returns could lower our gross margin or result in
inventory write-downs. We also periodically 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 enter into such
arrangements may significantly impact our sales and profitability.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 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 other appropriate
nexus to obligate such collection exists. Other states may, from time to time,
claim that we have state-related activities constituting a sufficient nexus to
trigger such collection. Additionally, many other states seek to impose sales
tax collection obligations on companies that sell goods to customers in their
state 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, as do other direct mail retailers, 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 for 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.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | We have substantial international operations and we are exposed
to fluctuations in currency exchange rates and political uncertainties.
We currently have operations located in nine countries outside the United
States, and non-U.S. sales accounted for 39.7% of our revenue during 2003. Our
future results could be materially adversely affected by a variety of factors,
including changes in foreign currency exchange rates, changes in a
countrys economic or political conditions, unexpected changes in
regulatory requirements and natural disasters.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Our income tax rate and the value of our deferred tax assets
are subject to change.
Changes in taxes 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, is dependent on our ability to generate future taxable income in the
United States. 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.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Business disruptions could adversely impact our revenue and
financial condition.
It is our policy to 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 and large losses could materially affect our
insurance obligations and future expense.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Reliance on technology
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 or our failure to expand or
successfully implement our 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.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 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 cash available 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 have no reason to believe that we will not be able to renew our
facilities.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 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.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 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 new rules subsequently implemented by the Securities and
Exchange Commission and new 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. We expect these developments
to increase our legal compliance and financial reporting costs and make some
activities more costly and 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; 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.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Other factors that could contribute to or cause such differences include, but
are not limited to, unanticipated developments in any one or more of the
following areas: (i) the effect on us of volatility in the price of paper and
periodic increases in postage rates, (ii) the operation of our management
information systems, (iii) significant changes in the computer products retail
industry, especially relating to the distribution and sale of such products,
(iv) timely availability of existing and new products, (v) 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, (vi) 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, (vii) borrowing
costs or availability, (viii) pending or threatened litigation and
investigations and (ix) the availability of key personnel, as well as other risk
factors which may be detailed from time to time in our Securities and Exchange
Commission filings.

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.

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 sales based on the
terms of the customer purchase order, which indicates title to the product and
risk of ownership passes to the customer upon shipment. Sales are shown net of
returns and allowances. 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. The adequacy of these reserves are evaluated quarterly. If market
conditions are less favorable than projected or if technological developments
result in accelerated obsolescence, additional write-downs may be required.
While markdowns and obsolescence have been within expectations and the
provisions established, 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. While we believe that our estimates of future
cash flows are reasonable, different assumptions regarding such cash flows could
materially affect our evaluations

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 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 account for income taxes in accordance with Statement of
Financial Accounting Standards 109, "Accounting for Income Taxes", which
requires that deferred tax assets and liabilities be recognized for the effect
of temporary differences between the book and tax bases of recorded assets and
liabilities. 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 requires
management to utilize significant estimates related to expenses for severance
and other employee separation costs, lease cancellations, asset impairments and
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.

Recent Accounting Developments

In
November 2002, the Financial Accounting Standards Board issued Interpretation
45, "Guarantors Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others", which requires that a
guarantor recognize, at the inception of a guarantee, a liability for the fair
value of the obligation undertaken in issuing the guarantee. However, the
provisions related to recognizing a liability at inception of the guarantee for
the fair value of the guarantors obligations does not apply to product
warranties or to guarantees accounted for as derivatives. Interpretation 45 also
elaborates on the disclosures to be made by a guarantor in its interim and
annual financial statements about its obligations under certain guarantees it
has issued. The initial recognition and initial measurement provisions of this
Interpretation are applicable on a prospective basis to guarantees issued or
modified after December 31, 2002 and the disclosure requirements in this
Interpretation are effective for financial statements of interim or annual
periods ending after December 15, 2002. The adoption of the recognition and
measurement provisions of Interpretation 45 did not have a material effect on
our consolidated financial statements.

In
December 2003, the Financial Accounting Standards Board issued
Interpretation 46 (Revised) to address certain Interpretation 46
implementation issues. This interpretation clarifies the application of
Accounting Research Bulletin 51, "Consolidated Financial Statements", for
companies that have interests in entities that are Variable Interest Entities as
defined under Interpretation 46. According to this interpretation, if a
company has an interest in a Variable Interest Entity and is at risk for a
majority of the Variable Interest Entitys expected losses or receives a
majority of the Variable Interest Entitys expected gains it shall
consolidate the Variable Interest Entity. Interpretation 46-R also requires
additional disclosures by primary beneficiaries and other significant variable
interest holders. For entities acquired or created before February 1, 2003,
this interpretation is effective no later than the end of the first interim or
reporting period ending after March 15, 2004, except for those Variable
Interest Entity's that are considered to be special purpose entities, for which
the effective date is no later than the end of the first interim or annual
reporting period ending after December 15, 2003. For all entities that were
acquired subsequent to January 31, 2003, this interpretation is effective
as of the first interim or annual period ending after December 31, 2003. We
have adopted Interpretation 46-R, the effect of which is not material.

In
April 2003, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards 149, "Amendment of Statement 133 on Derivative
Instruments and Hedging Activities." Statement of Financial Accounting Standards
149 amends and clarifies Statement of Financial Accounting Standards 133 for the
financial accounting and reporting of derivative instruments and hedging
activities and requires that contracts with similar characteristics be accounted
for on a comparable basis. The provisions of Statement of Financial Accounting
Standards 149 are effective for contracts entered into or modified after June
30, 2003, and for hedging relationships designated after June 30, 2003. The
adoption of Statement of Financial Accounting Standards 149 did not have a
material impact on our consolidated financial statements.

In
May 2003, the Financial Accounting Standards Board issued SFAS 150, "Accounting
for Certain Financial Instruments with Characteristics of both Liabilities and
Equity." Statement of Financial Accounting Standards 150 establishes standards
on the classification and measurement of certain financial instruments with
characteristics of both liabilities and equity. The provisions of Statement of
Financial Accounting Standards 150 are effective for financial instruments
entered into or modified after May 31, 2003 and to all other instruments that
exist as of the beginning of the first interim financial reporting period
beginning after June 15, 2003. The adoption of Statement of Financial Accounting
Standards 150 did not have a material impact on our consolidated financial
statements.

|Item 9A. | Controls and Procedures.
|-------- | ------------------------

When
the Companys Annual Report on Form 10-K was initially filed, the
Companys Chairman and Chief Executive Officer and Chief Financial Officer
both concluded that the Companys disclosure controls and procedures were
effective. On February 21, 2005, we announced that we would be restating our
previously filed consolidated financial statements to correct errors in
accounting for inventory at our United Kingdom subsidiary as described in Note 2
to the Consolidated Financial Statements. Management has concluded that the
internal control deficiencies that made the restatements necessary indicate the
existence of a material weakness, as defined by the Public Company Accounting
Oversight Boards Auditing Standard No. 2. Based on this evaluation and due
to existence of the internal control deficiencies described below, our Chairman
and Chief Executive Officer and our Chief Financial Officer concluded that our
disclosure controls and procedures were not effective as of December 31, 2003.
The design and operation of accounting for inventory at our United Kingdom
subsidiary did not reduce to a relatively low level of risk the chance or
chances that a material misstatement would occur and not be detected.

Management undertook a review of the subsidiarys inventory activities for
the fiscal years ended December 31, 2002 and 2003. The independent Audit
Committee also performed an investigation of the circumstances surrounding the
activities requiring the restatement. The Company determined that the errors
requiring this restatement were principally a result of changes in the way
certain inventory transactions were processed and recorded and an inaccurate
recording of a period end cut-off. These errors were undetected or unrecognized
as a result of the following weaknesses and deficiencies in the
subsidiarys internal controls:

| |  | Lack of local management review procedures
| | - | ------------------------------------------

| |  | Rapid turnover of accounting personnel together with little or no
training as to manual detection procedures necessary to properly close the
books
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Deficiencies in the subsidiary's month-end closing process
| | - | ----------------------------------------------------------

| |  | Insufficient formalized procedures to ensure that all relevant
transactions were accounted for
| | - | ----------------------------------------------------------------------------------------------

| |  | Breakdown in communication between accounting and operations
personnel
| | - | ----------------------------------------------------------------------

| |  | Insufficient staffing of the accounting function at the subsidiary
| | - | ------------------------------------------------------------------

| |  | Inadequate information technology general controls with respect to
inventory movements
| | - | --------------------------------------------------------------------------------------

Management discussed the weaknesses described above with the Audit Committee and
began implementing remedial measures to prevent a repeat of such accounting
errors. To this end, we have modified our internal procedures to more accurately
identify the types of inventory transactions processed. This has been combined
with additional system reporting to provide more details to enhance the
inventory reconciliation process. This reconciliation process is also supported
by additional levels of management review. Additional review procedures have
been implemented to test cut-off accuracy. We are continuing to monitor these
processes to further enhance our procedures as may be necessary.

Management believes that the immediate enhancements to the controls and
procedures address the initial conditions identified by its review. We are
continuing to monitor the effectiveness of our enhanced internal controls and
procedures on an ongoing basis and will take further action, as appropriate.

In designing and evaluating our disclosure controls and procedures, we recognize
that any controls, no matter how well designed and operated, can only provide
reasonable assurance of achieving the desired control objectives. Because of the
inherent limitations in control systems, misstatements due to error or fraud may
occur and not be detected.

PART IV

Item 15.
Exhibits, Financial Statements, Schedules and Reports on Form 8-K.

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

| |  |  | Independent Auditors' Report | 30
| |  |  | ---------------------------- | --

| |  |  | Consolidated Balance Sheets as of December 31, 2003,
     as restated, and 2002 | 31
| |  |  | ------------------------------------------------------------------------------- | --

| |  |  | Consolidated Statements of Operations for the years
     ended December 31, 2003, as restated, 2002 qnd 2001 | 32
| |  |  | ------------------------------------------------------------------------------------------------------------ | --

| |  |  | Consolidated Statements of Shareholders' Equity for the
     years ended December 31, 2003, as restated, 2002
     and 2001 | 33
| |  |  | --------------------------------------------------------------------------------------------------------------------------- | --

| |  |  | Consolidated Statements of Cash Flows for the years
     ended December 31, 2003, as restated, and 2002 | 34
| |  |  | ------------------------------------------------------------------------------------------------------- | --

| |  |  | Notes to Consolidated Financial Statements | 35-44
| |  |  | ------------------------------------------ | -----

| |  | 2. | Financial Statement Schedules: | 
| |  | -- | ------------------------------ | 

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

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

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

| | 3.1 | Composite Certificate of Incorporation of Registrant, as
amended9
| | --- | -----------------------------------------------------------------

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

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

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

| | 10.2 | Form of 1999 Long-Term Stock Incentive Plan as amended13*
| | ---- | ---------------------------------------------------------

| | 10.3 | Lease Agreement dated September 20, 1988 between the Company and Addwin Realty
Associates (Port Washington facility)1
| | ---- | ---------------------------------------------------------------------------------------------------------------------

| | 10.4 | Amendment to Lease Agreement dated September 29, 1998 between the Company and
Addwin Realty Associates (Port Washington facility) 6
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------

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

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

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

| | 10.8 | Royalty Agreement dated June 30, 1986 between the Company and Richard Leeds,
Bruce Leeds and Robert Leeds, and Addendum thereto1
| | ---- | --------------------------------------------------------------------------------------------------------------------------------

| | 10.9 | Form of 1995 Stock Plan for Non-Employee Directors3*
| | ---- | ----------------------------------------------------

| | 10.10 | Consulting Agreement dated as of January 1, 1996 between the Company and Gilbert
Rothenberg3*
| | ----- | ---------------------------------------------------------------------------------------------

| | 10.11 | Separation Agreement and General Release between the Company and Robert Dooley,
dated March 5, 2004*
| | ----- | ----------------------------------------------------------------------------------------------------

| | 10.12 | Employment Agreement dated as of December 12, 1997 between the Company and
Steven M. Goldschein4*
| | ----- | -------------------------------------------------------------------------------------------------

| | 10.13 | Loan and Security Agreement, dated June 13, 2001, between The Chase Manhattan
Bank (as Lender and Agent) and TransAmerica Business Capital Corporation (as
Lender and Co-Agent) with the Company and certain subsidiaries of the Company
(as Borrowers), as amended, the "Chase Loan Agreement") 7
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.14 | Amendment No. 1, dated as of September 1, 2001, to the Chase Loan Agreement 8
| | ----- | -----------------------------------------------------------------------------

| | 10.15 | Amendment No. 2, dated as of December 13, 2001, to the Chase Loan Agreement 9
| | ----- | -----------------------------------------------------------------------------

| | 10.16 | Amendment No. 3, dated as of December 20, 2001, to the Chase Loan Agreement 9
| | ----- | -----------------------------------------------------------------------------

| | 10.17 | Amendment No. 4, dated as of April 18, 2002, to the Chase Loan Agreement10
| | ----- | --------------------------------------------------------------------------

| | 10.18 | Amendment No. 5, dated as of June 30, 2002, to the Chase Loan Agreement11
| | ----- | -------------------------------------------------------------------------

| | 10.19 | Amendment No. 6, dated as of September 22, 2003, to the Chase Loan Agreement
| | ----- | ----------------------------------------------------------------------------

| | 10.20 | Promissory Note of Systemax Suwanee LLC, dated as of April 18, 2002 payable to
the order of New York Life Insurance Company in the original principal sum of
$8,400,000 10
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.21 | Deed to Secure Debt, Assignment of Leases and Rents and Security Agreement,
dated as of April 18, 2002 from Systemax Suwanee LLC to New York Life Insurance
Company 10
| | ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 14 | Corporate Ethics Policy for Officers, Directors and Employees14
| | -- | ---------------------------------------------------------------

| | 19 | Specimen stock certificate of Registrant 9
| | -- | ------------------------------------------

| | 21 | 
| | -- | 

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

| | 99.1 | Charter of the Audit Committee of the Company's Board of Directors, as revised
February 28, 200312
| | ---- | --------------------------------------------------------------------------------------------------

| | 99.2 | Charter of the Compensation Committee of the Company's Board of
Directors, as approved February 28, 200312
| | ---- | ----------------------------------------------------------------------------------------------------------

| | 99.3 | Charter of the Nominating/Corporate Governance Committee of the
Company's Board of Directors, as approved February 28, 200312
| | ---- | -----------------------------------------------------------------------------------------------------------------------------

| | 99.4 | Annual CEO Certification to the New York Stock Exchange, dated
March 26,200414
| | ---- | ------------------------------------------------------------------------------

| | (b) |  | Reports on Form 8-K. | 
| | --- |  | -------------------- | 

| | A
report on Form 8-K was filed by the Company on November 12, 2003 regarding the
Companys financial results for the quarterly period ended September 30,
2003.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

|* | Management contract or compensatory plan or arrangement
|- | -------------------------------------------------------

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

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

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

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

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

|6 | Incorporated herein by reference to the Companys annual
report on Form 10-K for the year ended December 31, 1998.
|- | ------------------------------------------------------------------------------------------------------------------

|7 | Incorporated herein by reference to the Companys report on
Form 8-K dated June 13, 2001.
|- | -----------------------------------------------------------------------------------------

|8 | Incorporated herein by reference to the Companys quarterly
report on Form 10-Q for the quarterly period ended September 30, 2001.
|- | ----------------------------------------------------------------------------------------------------------------------------------

|9 | Incorporated herein by reference to the Companys annual
report on Form 10-K for the year ended December 31, 2001.
|- | ------------------------------------------------------------------------------------------------------------------

|10 | Incorporated herein by reference to
the Companys quarterly report on Form 10-Q for the quarterly period ended
March 31, 2002.
|-- | ------------------------------------------------------------------------------------------------------------------------------

|11 | Incorporated herein by reference to the Companys quarterly
report on Form 10-Q for the quarterly period ended June 30, 2002.
|-- | -----------------------------------------------------------------------------------------------------------------------------

|12 | Incorporated herein by reference to the Companys annual
report on Form 10-K for the year ended December 31, 2002.
|-- | ------------------------------------------------------------------------------------------------------------------

|13 | Incorporated herein by reference to the Company's report on Form
8-K dated May 20, 2003.
|-- | ----------------------------------------------------------------------------------------

|14 | Incorporated herein by reference to the Company's report on Form
10-K for the year ended December 31, 2003.
|-- | -----------------------------------------------------------------------------------------------------------

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: April 15, 2005
| | ---------------------------------------------------------------------------------------------------------------------------

REPORT OF REGISTERED INDEPENDENT
AUDITORS

The Shareholders and Board of Directors of
SYSTEMAX INC.:

We have audited the accompanying consolidated balance sheets of
Systemax Inc. and its subsidiaries, (the "Company"), as of December 31, 2003 and
2002, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the three years in the period ended December
31, 2003. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with 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. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present
fairly, in all material respects, the consolidated financial position of the
Company at December 31, 2003 and 2002, and the consolidated results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2003, in conformity with accounting principles generally accepted
in the United States of America.

As discussed in Note 1 to the consolidated financial statements,
the Company changed its method for accounting for goodwill and other intangible
assets in 2002 to conform to Financial Accounting Standards Board Statement No.
142 ("Goodwill and Other Intangible Assets").

As discussed in Note 2 to the consolidated financial statements,
the accompanying 2003 financial statements have been restated.

/s/ DELOITTE & TOUCHE LLP
New York, New York
March 12, 2004
(April 13, 2005 as to the effects of the restatement discussed in
Note 2)

`SYSTEMAX INC.
                                            CONSOLIDATED BALANCE SHEETS
                                            DECEMBER 31, 2003 AND 2002
                                       (IN THOUSANDS, except for share data)

                                                                                           2003             2002
                                                                                           ----             ----
                                                                                       (As restated,
                                                                                        see Note 2)
ASSETS:
   CURRENT ASSETS:
      Cash and cash equivalents                                                         $38,702          $62,995
      Accounts receivable, net of allowances of $10,000 (2003) and $11,275 (2002)       152,435          148,554
      Inventories                                                                       133,905           98,401
      Prepaid expenses and other current assets                                          26,849           31,343
     Deferred income tax assets                                                          10,132            9,073
                                                                                        -------          -------
           Total current assets                                                         362,023          350,366

   PROPERTY, PLANT AND EQUIPMENT, net                                                    68,647           71,133
   DEFERRED INCOME TAX ASSETS                                                            15,673           15,100
   OTHER ASSETS                                                                             376            1,305
                                                                                        -------          -------

              TOTAL                                                                    $446,719         $437,904
                                                                                       ========         ========

LIABILITIES AND SHAREHOLDERS' EQUITY:
   CURRENT LIABILITIES:
      Short-term borrowings, including current portions of long-term debt               $20,814          $21,211
       Accounts payable                                                                 144,662          131,510
       Accrued expenses and other current liabilities                                    51,037           64,349
                                                                                        -------          -------
          Total current liabilities                                                     216,513          217,070
                                                                                        -------          -------

   LONG-TERM DEBT                                                                        18,353           17,519
   OTHER LIABILITIES                                                                      1,768            1,398

   COMMITMENTS AND CONTINGENCIES

   SHAREHOLDERS' EQUITY:
   Preferred stock, par value $.01 per share, authorized 25 million shares,
       issued none
   Common stock, par value $.01 per share, authorized 150 million shares, issued
       38,231,990 shares; outstanding 34,288,068 (2003) and 34,104,290 (2002)
       shares                                                                               382              382
   Additional paid-in capital                                                           175,343          176,743
   Accumulated other comprehensive income (loss), net of tax                              1,933          (2,130)
   Retained earnings                                                                     78,757           75,411
                                                                                        -------          -------
                                                                                        256,415          250,406
   Less: common stock in treasury at cost - 3,943,922 (2003) and 4,127,700
       (2002) shares                                                                     46,330           48,489
                                                                                        -------          -------
                        Total shareholders' equity                                      210,085          201,917
                                                                                        -------          -------

                TOTAL                                                                  $446,719         $437,904
                                                                                       ========         ========

See notes to consolidated financial statements.`

`SYSTEMAX INC.
                              CONSOLIDATED STATEMENTS OF OPERATIONS
                        FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
                            (IN THOUSANDS, EXCEPT PER COMMON SHARE AMOUNTS)


                                                                               2003             2002              2001
                                                                               ----             ----              ----
                                                                      (As restated,
                                                                        see Note 2)
Net sales                                                                $1,657,778       $1,551,517        $1,546,975
Cost of sales                                                             1,392,745        1,285,929         1,270,051
                                                                     ---------------  ---------------  ----------------
Gross profit                                                                265,033          265,588           276,924
Selling, general and administrative expenses                                251,460          256,075           271,636
Restructuring and other charges                                               1,726           17,294             2,758
Goodwill impairment                                                           2,560
                                                                     ---------------  ---------------  ----------------
Income (loss) from operations                                                 9,287          (7,781)             2,530
Interest and other income, net                                                (755)            (427)             (276)
Interest expense                                                              2,344            1,653             1,764
                                                                     ---------------  ---------------  ----------------
Income (loss) before income taxes                                             7,698          (9,007)             1,042
Provision (benefit) for income taxes                                          4,352          (1,039)               389
                                                                     ---------------  ---------------  ----------------
Income (loss) before cumulative effect of change in accounting                3,346          (7,968)               653
    principle, net of tax
Cumulative effect of change in accounting principle, net of tax                             (50,971)
Net income (loss)                                                            $3,346        $(58,939)              $653
                                                                     ===============  ===============  ================

Net income (loss) per common share, basic and diluted:
Income (loss) before cumulative effect of change in accounting
    principle, net of tax                                                      $.10           $(.23)              $.02
Cumulative effect of change in accounting principle, net of tax                               (1.50)
                                                                     ---------------  ---------------  ----------------
Net income (loss)                                                              $.10          $(1.73)              $.02
                                                                     ===============  ===============  ================


See notes to consolidated financial statements.`

`SYSTEMAX INC.

                                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                              FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
                                               (IN THOUSANDS)


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

Balances, January 1, 2001     34,104     $382    $176,743    $133,697    $(6,662)      $(48,489)

Change in cumulative
   translation adjustment                                                                (1,376)        $(1,376)
Net income                    ______     ____     _______         653     _______        _______            653

Total comprehensive loss                                                                                $  (723)
                                                                                                        =======

Balances, December 31, 2001   34,104      382     176,743     134,350     (8,038)       (48,489)

Change in cumulative
   translation adjustment                                                                 5,908          $5,908
Net loss                      ______     ____     _______    (58,939)     _______        _______        (58,939)

Total comprehensive loss                                                                               $(53,031)
                                                                                                       ========

Balances, December 31, 2002   34,104      382     176,743      75,411     (2,130)     (48,489)

Change in cumulative
   translation adjustment,
    as restated, see Note 2                                                 4,063                        $4,063
Exercise of stock options        184              (1,400)                                2,159
Net income, as restated,                                        3,346                                     3,346
   see Note 2                  ______     ____     _______     _______      ______      _______         _______

Total comprehensive income                                                                               $7,409
                                                                                                         ======

Balances, December 31, 2003,
   as restated, see Note 2    34,288     $382    $175,343     $78,757      $1,933     $(46,330)
                              ======     ====    ========     =======      ======     ========


See notes to consolidated financial statements.`

`SYSTEMAX INC.

                                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                        FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
                                               (IN THOUSANDS)


                                                                                     2003            2002            2001
                                                                                     ----            ----            ----
                                                                            (As restated,
                                                                              see Note 2)
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
   Net income (loss)                                                               $3,346       $(58,939)            $653
   Adjustments to reconcile net income (loss) to net cash provided by
   (used in) operating activities:
       Cumulative effect of change in accounting principle, net of tax                             50,971
       Goodwill impairment                                                          2,560
       Loss on dispositions and abandonment                                           595          14,843           2,003
       Depreciation and amortization, net                                          13,938          13,652          15,143
       Provision for deferred income taxes                                        (2,818)         (3,475)           7,929
       Provision for returns and doubtful accounts                                  3,906           4,581           3,696
   Changes in operating assets and liabilities:
       Accounts receivable                                                          6,182         (5,922)          40,124
       Inventories                                                               (30,089)         (2,644)          33,946
       Prepaid expenses and other current assets                                    7,972         (8,422)           9,048
       Income taxes receivable                                                    (3,915)           7,755          19,445
       Accounts payable, accrued expenses and other current liabilities           (8,624)         (7,532)        (36,381)
                                                                                  ------          ------         -------
           Net cash provided by (used in) operating activities                    (6,947)           4,868          95,606
                                                                                  ------            -----          ------

CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
   Investments in property, plant and equipment                                   (8,699)        (15,367)        (24,682)
   Proceeds from disposals of property, plant and equipment                            11             635             856
   Purchase of minority interest                                                  (2,560)
                                                                                  ------           ______         _______
           Net cash used in investing activities                                 (11,248)        (14,732)        (23,826)
                                                                                 =======         =======         =======

CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
   Issuance of long-term borrowings and capital lease obligations                   1,534          18,879
   Proceeds (repayments) of borrowings from banks                                 (2,951)          15,253        (45,762)
   Repayments of long-term debt and capital lease obligations                     (1,257)           (348)
   Exercise of stock options                                                          759
                                                                                      ---          ______         _______
           Net cash provided by (used in) financing activities                    (1,915)          33,784        (45,762)
                                                                                  ------           ------        -------


EFFECTS OF EXCHANGE RATES ON CASH                                                 (4,183)           2,611         (4,050)
                                                                                  ------            -----         ------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                             (24,293)          26,531          21,968
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR                                      62,995          36,464          14,496
                                                                                   ------          ------          ------

CASH AND CASH EQUIVALENTS - END OF YEAR                                           $38,702         $62,995         $36,464
                                                                                  =======         =======         =======

SUPPLEMENTAL DISCLOSURES:
       Interest paid                                                               $2,697          $1,375          $2,026
                                                                                   ======          ======          ======
       Income taxes paid                                                          $13,840          $5,397          $3,819
                                                                                  =======          ======          ======

See notes to consolidated financial statements.`

SYSTEMAX INC.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001

|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. The equity method of accounting is used for the Companys
investment in a 50%-owned joint venture. The results of operations of this
investee are not material to the results of operations of the Company. The joint
venture brokers paper, a significant portion of which is used by the Company in
printing its catalogs.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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 balance sheet
items and average exchange rates for the statements of operations items. 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 with an
original maturity date of three months or less to be cash equivalents. The
Companys investments in cash equivalents are classified as debt securities
available-for-sale and are stated at fair market value. Unrealized holding gains
and losses are not significant for any of the years presented.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

| | Goodwill  The cost in excess of fair value of
net assets of businesses acquired is recorded in the consolidated balance sheets
as "Goodwill." In accordance with Statement of Financial Accounting Standards
("SFAS") No. 142, "Goodwill and Other Intangible Assets", the Company ceased
amortization of goodwill effective January 1, 2002. Prior to the adoption of
SFAS 142, goodwill was amortized on a straight-line basis over periods of 10 to
40 years. Amortization expense was $1,605,000 in 2001. The Company completed the
transitional impairment analysis required under SFAS 142 during 2002, which
resulted in an implied fair value of goodwill of zero. See Note 2 for the impact
of the adoption of SFAS 142 on the consolidated financial statements
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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 recorded. 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.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Income taxes - Deferred tax assets and liabilities
are recognized for the expected tax consequences of temporary differences
between financial reporting and tax bases of assets and liabilities and are
measured using enacted tax laws and rates. Valuation allowances are provided for
deferred tax assets to the extent it is more likely than not that deferred tax
assets will not be recoverable against future taxable income.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Revenue Recognition and Accounts Receivable 
The Company recognizes sales of products, including shipping revenue, at the
time of shipment. Allowances for estimated subsequent customer returns 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. The
changes in these allowance accounts are summarized as follows (in
thousands):
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

`Years ended December 31,
                                       2003                2002                2001
                                       ----                ----                ----
   Balance, beginning of year       $11,275             $11,120             $15,329
   Charged to expense                 3,906               4,581               3,696
   Deductions                       (5,181)             (4,426)             (7,905)
                                    ------              ------              ------
   Balance, end of year             $10,000             $11,275             $11,120
                                    =======             =======             =======`

| | Advertising Costs - Direct response advertising
costs, consisting primarily of catalog preparation, printing and postage
expenditures are amortized over the period of catalog distribution during which
the benefits are expected. Advertising expenditures relating to the Company's
national advertising campaign and other television advertising costs are
expensed in the period the advertising takes place.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Advertising costs, net of rebates from vendors, of $43.7 million
in 2003, $44.1 million in 2002 and $53.0 million in 2001 are included in the
accompanying Consolidated Statements of Operations. Effective January 1, 2003
the Company adopted Emerging Issues Task Force ("EITF") Issue No. 02-16,
"Accounting by a Customer (Including a Reseller) for Certain Consideration
Received from a Vendor." EITF 02-16 requires that consideration received from
vendors, such as advertising support funds, be accounted for as a reduction of
cost of sales unless certain conditions are met showing that the funds are used
for a specific program entirely funded by an individual vendor. If these
specific requirements related to individual vendors are met, the consideration
is accounted for as a reduction in the related expense category, such as
advertising expense. EITF 02-16 applies to all agreements modified or entered
into on or after January 1, 2003. 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. As a result of
prospectively adopting EITF 02-16, the Company has recorded $14.5 million for
the year ended December 31, 2003 of vendor consideration as a reduction of cost
of sales. Adopting EITF 02-16 had no impact on income (loss) from operations, as
the vendor consideration recorded as a reduction of cost of sales would
previously have been recorded as a reduction of advertising expense.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Prepaid expenses at December 31, 2003 and 2002 include deferred
advertising costs of $4.2 million and $3.6 million, respectively, which are
reflected as an expense during the periods benefited, typically the subsequent
fiscal quarter.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Research and Development Costs - Costs incurred in
connection with research and development are expensed as incurred. Such expenses
for the years ended December 31, 2003, 2002 and 2001 aggregated approximately
$800,000, $1,036,000 and $1,539,000, respectively.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Derivative Financial Instruments - The Company
adopted SFAS 133, "Accounting for Derivative Instruments and Hedging
Activities", as amended, effective January 1, 2001. SFAS 133 requires that all
derivative financial instruments be recognized as either assets or liabilities
in the balance sheet based on their fair values. Changes in the fair values are
required to be 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 (see Note 7).
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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 (Loss) Per Common Share  The
Company calculates net income (loss) per share in accordance with SFAS 128,
"Earnings Per Share". Net income (loss) per common share-basic was calculated
based upon the weighted average number of common shares outstanding during the
respective periods presented. Net income (loss) per common share-diluted was
calculated based upon the weighted average number of common shares outstanding
and included the equivalent shares for dilutive options outstanding during the
respective periods except in loss periods, where the effect is anti-dilutive.
The dilutive effect of outstanding options issued by the Company are reflected
in net income (loss) 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. The weighted average number of stock options outstanding
excluded from the computation of diluted earnings per share was 697,000 in 2003,
1,149,000 in 2002 and 1,979,000 in 2001 due to their antidilutive effect.
The weighted average common shares outstanding for the computation of basic
earnings per common share for 2003, 2002 and 2001 were 34.2 million, 34.1
million and 34.1 million, respectively. Additionally, in 2003, 715,000 of
equivalent common shares and in 2001, 19,000 of equivalent common shares were
included for the diluted calculation.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Comprehensive Income (Loss) - Comprehensive income
(loss) consists of net income (loss) and foreign currency translation
adjustments and is included in the Consolidated Statements of Shareholders
Equity. Comprehensive income (loss) was $7,409,000 in 2003, $(53,031,000) in
2002 and $(723,000) in 2001, net of tax effects on foreign currency translation
adjustments of $(3,030,000) in 2003, $3,483,000 in 2002 and $1,338,000 in
2001.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Stock-based Compensation  The Company has
three stock-based compensation plans, two of which are for employees,
consultants and advisors and the third of which is for non-employee directors,
which are more fully described in Note 9. The Company has elected to follow the
accounting provisions of Accounting Principles Board ("APB") Opinion 25,
"Accounting for Stock Issued to Employees" for stock-based compensation and to
provide the pro forma disclosures required under SFAS 148, "Accounting for
Stock-based Compensation  Transition and Disclosure". No stock-based
employee compensation cost is reflected in net income (loss), as all options
granted under the plans have an exercise price equal to the market value of the
underlying stock on the date of grant. The following table illustrates the
effect on net income (loss) and earnings (loss) 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):
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

`2003         2002     2001
                                                                      ----         ----     ----

 Net income (loss) - as reported                                    $3,346    $(58,939)     $653
 Stock-based employee compensation expense determined under
 fair value based method, net of related tax effects                   544          713      780
                                                                    ------    ---------    -----
 Pro forma net income (loss)                                        $2,802    $(59,652)    $(127)
                                                                    ======    =========    =====

 Basic and diluted net income (loss) per common share:
 Net income (loss) - as reported                                      $.10      $(1.73)     $.02
                                                                      ====      ======      ====
 Net income (loss) - pro forma                                        $.08      $(1.75)        -
                                                                      ====      ======      ====`

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

`2003             2002             2001
                                      ----             ----             ----
   Expected dividend yield              0%               0%               0%
   Risk-free interest rate            5.9%             5.6%             6.1%
   Expected volatility               76.0%            71.0%            72.0%
   Expected life in years             2.41             2.52             3.17`

| | The weighted average contractual life of the stock options
outstanding was 7.7 years at December 31, 2003, 7.8 years at December 31, 2002
and 8.1 years at December 31, 2001.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | In November 2002, the Financial Accounting Standards Board
("FASB") issued Interpretation 45 ("FIN 45") "Guarantors Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others", which requires that a guarantor recognize, at the
inception of a guarantee, a liability for the fair value of the obligation
undertaken in issuing the guarantee. However, the provisions related to
recognizing a liability at inception of the guarantee for the fair value of the
guarantors obligations does not apply to product warranties or to
guarantees accounted for as derivatives. FIN 45 also elaborates on the
disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under certain guarantees it has issued. The
initial recognition and initial measurement provisions of this Interpretation
are applicable on a prospective basis to guarantees issued or modified after
December 31, 2002 and the disclosure requirements in this Interpretation
are effective for financial statements of interim or annual periods ending after
December 15, 2002. The adoption of the recognition and measurement provisions of
FIN 45 did not have a material effect on the Companys consolidated
financial statements.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In December 2003, the FASB issued FIN 46 (Revised) ("FIN
46-R") to address certain FIN 46 implementation issues. This interpretation
clarifies the application of Accounting Research Bulletin ("ARB") 51,
"Consolidated Financial Statements", for companies that have interests in
entities that are Variable Interest Entities (VIE) as defined under FIN 46.
According to this interpretation, if a company has an interest in a VIE and is
at risk for a majority of the VIE's expected losses or receives a majority of
the VIE's expected gains it shall consolidate the VIE. FIN 46-R also
requires additional disclosures by primary beneficiaries and other significant
variable interest holders. For entities acquired or created before
February 1, 2003, this interpretation is effective no later than the end of
the first interim or reporting period ending after March 15, 2004, except
for those VIE's that are considered to be special purpose entities, for which
the effective date is no later than the end of the first interim or annual
reporting period ending after December 15, 2003. For all entities that were
acquired subsequent to January 31, 2003, this interpretation is effective
as of the first interim or annual period ending after December 31, 2003.
The Company has adopted FIN 46R, the effect of which is not material.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In April 2003, the FASB issued SFAS 149, "Amendment of Statement
133 on Derivative Instruments and Hedging Activities." SFAS 149 amends and
clarifies SFAS 133 for the financial accounting and reporting of derivative
instruments and hedging activities and requires that contracts with similar
characteristics be accounted for on a comparable basis. The provisions of SFAS
149 are effective for contracts entered into or modified after June 30, 2003,
and for hedging relationships designated after June 30, 2003. The adoption of
SFAS 149 did not have a material impact on the Companys consolidated
financial statements.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In May 2003, the FASB issued SFAS 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." SFAS
150 establishes standards on the classification and measurement of certain
financial instruments with characteristics of both liabilities and equity. The
provisions of SFAS 150 are effective for financial instruments entered into or
modified after May 31, 2003 and to all other instruments that exist as of the
beginning of the first interim financial reporting period beginning after June
15, 2003. The adoption of SFAS 150 did not have a material impact on the
Companys consolidated financial statements.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2. | RESTATEMENT
|-- | -----------

| | Subsequent to the issuance of the Companys consolidated
financial statements in its Form 10-K for the year ended December 31, 2003, the
Company discovered errors related to accounting for inventory at its United
Kingdom subsidiary. These errors, which related to inventories, were the result
of recording errors which were substantially being offset by an improper cut-off
of purchases. The ending effect on inventories was not material. However, these
errors did have the effect of understating certain vendor-related liabilities as
of December 31, 2003 and overstating income for the year ended December 31,
2003. Such errors did not have any impact on the consolidated financial
statements for any previous years. The restatement does not affect previously
reported net cash flows for the restated period or future periods.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As a result, the accompanying financial statements for the year
ended December 31, 2003 have been restated from the amounts previously reported
to properly reflect these items. A summary of the significant effects of the
restatement is as follows (in thousands, except per share data):
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

`As Previously Reported     As Restated
                                                                   ----------------------     ------------
  As of December 31, 2003:
  Deferred income tax assets (non-current)                                  $14,606             $15,673
  Accounts payable                                                         (141,106)           (144,662)
  Accumulated other comprehensive income (loss), net of tax                  (2,157)             (1,933)
  Retained earnings                                                         (81,022)            (78,757)

  Period Ended December 31, 2003:
  Cost of sales                                                          $1,389,509          $1,392,745
  Income from operations                                                     12,523               9,287
  Income before income taxes                                                 10,934               7,698
  Provision for income taxes                                                  5,323               4,352
  Net income                                                                 $5,611              $3,346

  Net income per common share:
         Basic and diluted                                                     $.16                $.10`

|3. | BUSINESS COMBINATIONS AND GOODWILL
|-- | ----------------------------------

| | Effective January 1, 2002, the Company adopted SFAS 142,
"Goodwill and Other Intangible Assets," which established new accounting and
reporting requirements for goodwill and other intangible assets. SFAS 142
requires that goodwill amortization be discontinued and replaced with periodic
tests of impairment. With the adoption of SFAS 142, management determined that
the carrying value of the Company was impaired in an amount greater than the
carrying value of goodwill at the date of adoption. As required by SFAS 142, the
entire carrying value of goodwill was written off. This write-off,
$68 million ($51 million or $1.50 per share, net of tax), was reported
as a cumulative effect of a change in accounting principle, on a net of tax
basis, in the Company's Consolidated Statements of Operations for the year ended
December 31, 2002. The adoption of SFAS 142 had no cash flow impact on the
Company.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During the second quarter of 2003, the Company purchased the
minority ownership of its Netherlands subsidiary pursuant to the terms of the
original purchase agreement for approximately $2.6 million. All of the purchase
price was attributable to goodwill and, as a result of an impairment analysis,
was written off in accordance with SFAS 142.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Adoption of the non-amortization provisions of SFAS 142 as of
January 1, 2001 would have increased net income for the year ended December 31,
2001 by $1,126,000, or $.03 per diluted share.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4. | PROPERTY, PLANT AND EQUIPMENT
|-- | -----------------------------

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

                                                                           2002        2003
                                                                           ----        ----
 Land and buildings................................................... $  46,898   $  43,268
 Furniture and fixtures, office, computer and other equipment.........    78,327      71,453
 Leasehold improvements ..............................................    14,010      12,660
                                                                          ------      ------
                                                                         139,235     127,381
 Less accumulated depreciation and amortization.......................    70,588      56,248
                                                                          ------      ------
 Property, plant and equipment, net................................... $  68,647   $  71,133
                                                                       =========   =========`

|5. | RELATED PARTY TRANSACTIONS
|-- | --------------------------

| | The Company leased one warehouse and office facility from
affiliates during the year ended December 31, 2003 (see Note 11) and vacated a
second warehouse and office facility leased from affiliates during 2002. Rent
expense under those leases aggregated approximately $612,000 (2003), $1,071,000
(2002) and $1,224,000 (2001).
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|6. | CREDIT FACILITIES
|-- | -----------------

| | The Company maintains a $70,000,000 revolving credit agreement
with a group of financial institutions which provides for borrowings in the
United States. The borrowings are secured by all of the domestic accounts
receivable and inventories of the Company and the Companys shares of stock
in its domestic subsidiaries. The credit facility expires and outstanding
borrowings thereunder are due on June 15, 2004. The borrowings under the
agreement are subject to borrowing base limitations of up to 75% of eligible
accounts receivable and up to 25% of qualified inventories. The interest on
outstanding advances is payable monthly, at the Companys option, at the
agent banks base rate (4.25% at December 31, 2003) plus 0.25% to 0.75% or
the bank's daily LIBOR rate (2.87% at December 31, 2003) plus 2.25% to 3%. The
facility also calls for a commitment fee payable quarterly in arrears of 0.5% of
the average daily unused portion of the facility. The revolving credit agreement
contains certain financial and other covenants, including restrictions on
capital expenditures and payments of dividends. The Company was in compliance
with all of the covenants as of December 31, 2003. As of December 31, 2003,
availability under the agreement was $49.0 million. There were outstanding
letters of credit of $8.0 million as of December 31, 2003 and $6.1 million as of
December 31, 2002 and there were no outstanding advances as of December 31, 2003
and December 31, 2002.
The Company also has a £15,000,000 ($26,852,000 at the December 31, 2003
exchange rate) multi-currency credit facility with a United Kingdom financial
institution, which is available to its United Kingdom subsidiaries. Drawings
under the facility may be made by overdraft, trade acceptance or loan. The
facility does not have a termination date, but may be canceled with six months
notice beginning in December 2003. Borrowings under the facility are secured by
certain assets of the Companys United Kingdom subsidiaries and a portion
of the line is subject to a borrowing base limitation of 70% of eligible
accounts receivable. At December 31, 2003 there were £7.5 million ($13.3
million) of borrowings outstanding under this line with interest payable at a
rate of 5.85%. At December 31, 2002 there were £12.4 million ($20.0 million
at the December 31, 2002 exchange rate) of borrowings outstanding under this
line with interest payable at a rate of 6.08%.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In October 2003, the Companys Netherlands subsidiary entered
into a 5 million ($6,307,000 at the December 31, 2003 exchange rate)
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, 2003 there were
4.5 million ($5.7 million) of borrowings outstanding under this line with
interest payable at a rate of 5.0%. The facility expires in November 2005.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The weighted average interest rate on short-term borrowings was
5.2% in 2003, 6.3% in 2002 and 6.6% in 2001.
| | ------------------------------------------------------------------------------------------------------------

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

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

`2003             2002
                                                             ----             ----
  Mortgage note payable (a)                               $ 8,170          $ 8,319
  Term loan payable (b)                                    10,338           10,360
  Capitalized equipment lease obligations                   1,591               90
                                                            -----               --
                                                           20,099           18,769
  Less: current portion                                     1,746            1,250
                                                            -----            -----
                                                          $18,353          $17,519
                                                          =======          =======`

| | (a) | Mortgage note payable. The Company has a ten year, $8.4 million
mortgage loan on its Georgia distribution facility. The mortgage has 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 bears interest at 7.04% and is collateralized by the underlying land
and building.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | Term loan payable. The Company has a term loan agreement which was
used to finance the construction of its United Kingdom facility and which is
secured by the underlying land and building. The loan matures in August 2012 and
is repayable in quarterly installments of(pound)165,000 ($295,000) plus
interest. The outstanding borrowing bears interest at LIBOR plus 160 basis
points (5.25% at December 31, 2003 and 5.69% at December 31,2002). The term loan
agreement also contains certain financial and other covenants related to the
Company's United Kingdom subsidiaries.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In connection with this term loan, the Company also entered into
an interest rate collar agreement to reduce its exposure to market rate
fluctuations. The collar agreement covers a period of three years, matures in
the same amounts and over the same periods as the related debt and has a cap of
6.0% and a floor of 4.5%. This derivative has been designated as a cash flow
hedge for accounting purposes. As of December 31, 2003, the notional amount of
the interest rate collar was £5,775,000 ($10,338,000). The collar was in a
loss position of approximately $39,000 as of December 31, 2003 and $117,000 as
of December 31, 2002,
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | and, accordingly, the aggregate fair value of the collar was
recorded as a liability. The changes in the fair value of this derivative for
the years ended December 31, 2003 and 2002 have been recognized in the
Consolidated Statement of Operations as this hedge was determined to be
ineffective. The Company considers the credit risk related to the interest rate
collar to be low because such instrument was entered into with a financial
institution having a high credit rating and is generally settled on a net
basis.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The aggregate maturities of long-term debt outstanding at December
31, 2003 are as follows (in thousands):
| | ----------------------------------------------------------------------------------------------------------

`2004         2005         2006         2007         2008     After 2008
                      ----         ----         ----         ----         ----     ----------
      Maturities     $1,746       $1,740       $1,745       $1,675       $1,516     $11,677`

|8. | 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, 2001, 2002 and 2003, management
approved and implemented restructuring actions which included workforce
reductions and facility consolidations.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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 $713,000 of costs related to this plan, including
$233,000 of non-cash costs for impairment of the carrying value of fixed assets
and $480,000 of charges for other exit costs.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During fiscal 2002 the Company implemented a restructuring plan to
consolidate the activities of its three United Kingdom locations into a new
facility constructed for the Company. The restructuring plan resulted in a
pre-tax charge, included in "Restructuring and other charges", of $4.1 million.
Of the total charge, $0.5 million was non-cash for the impairment in carrying
value of fixed assets, $1.9 million was for recruitment, staff relocation costs
and severance and benefits for approximately 150 terminated employees and $1.7
million was for other exit costs, primarily facilities closing costs and lease
termination costs. During the year ended December 31, 2003, the Company recorded
$2.2 million of additional costs, net of reductions, related to this plan as a
charge to operations. These charges consisted of $1.6 million of other
restructuring activities representing adjustments to the original estimates of
lease and contract termination costs and $600,000 of additional non-cash asset
impairments related to buildings vacated. Through December 31, 2003, total cash
charges of approximately $3.4 million had been expended under this plan.
The Company incurred approximately $750,000 of costs during the year ended
December 31, 2001 related to consolidation of one of its domestic
warehouses.
The following table summarizes the components of the restructuring charges, the
cash payments, non-cash activities, and the remaining accrual as of December 31,
2003:
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

`Severance and            Asset          Other
                                   Personnel Costs     Write-downs     Exit Costs      Total
                                   ---------------     -----------     ----------      -----
   Charged to expense in 2002               $1,870            $525         $1,656     $4,051
   Amounts utilized                        (1,693)           (525)          (851)    (3,069)
                                           ------            ----           ----     ------
   Accrued at December 31, 2002                177                            805        982
   Charged to expense in 2003                   63                          2,848      2,911
   Amounts utilized                          (177)                          (691)      (868)
                                             ----                           ----       ----
   Accrued at December 31, 2003               $ 63             --          $2,962     $3,025
                                              ====            ====         ======     ======`

| | In August 2003, the Company settled its litigation with a software
developer and reversed a previously recorded liability of $1.3 million which was
no longer needed (See Note 11).
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During the second quarter of 2003, the Company purchased the
minority ownership of its Netherlands subsidiary for approximately $2.6 million,
pursuant to the terms of the original purchase agreement. All of the purchase
price was attributable to goodwill and, as a result of an impairment analysis,
was written off in accordance with SFAS 142.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During the second quarter of 2002 the Company recorded a
non-recurring write-off of $13.2 million resulting from its decision to
discontinue the development of internal-use computer software.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During the year ended December 31, 2001, approximately $2 million
of capitalized costs associated with software projects abandoned were written
off.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------

|9. | SHAREHOLDERS' EQUITY
|-- | --------------------

| | As required by law, certain foreign subsidiaries must retain a
percentage of shareholders' capital in the respective company. Accordingly, a
portion of retained earnings is restricted and not available for distribution to
shareholders. Such amount at December 31, 2003 was not material.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | The 1995 Long-term Stock Incentive Plan - This plan
allows the Company to issue qualified, non-qualified and deferred compensation
stock options, stock appreciation rights, restricted stock and restricted unit
grants, performance unit grants and other stock based awards authorized by the
Compensation Committee of the Board of Directors. Options issued under this plan
expire ten years after the options are granted and generally become exercisable
ratably on the third, fourth, and fifth anniversary of the grant date. A maximum
total number of 2.0 million shares may be granted under this plan of which a
maximum of 800,000 shares may be of restricted stock and restricted stock units.
No award shall be granted under this plan after December 31, 2005. A total of
991,828 options were outstanding under this plan as of December 31, 2003.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The 1995 Stock Option Plan for Non-Employee
Directors - This plan provides for automatic awards of non-qualified
options to directors of the Company who are not employees of the Company or its
affiliates. All options granted under this plan will have a ten year term from
grant date and are immediately exercisable. A maximum of 100,000 shares may be
granted for awards under this plan. This plan will terminate the day following
the tenth annual shareholders meeting. A total of 46,000 options were
outstanding under this plan as of December 31, 2003.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The 1999 Long-term Stock Incentive Plan, as amended
- This plan was adopted on October 25, 1999 with substantially the same terms
and provisions as the 1995 Long-term Stock Incentive Plan, restricting the
awards to non-qualified stock options authorized by the Compensation Committee
of the Board of Directors. A maximum of 5.0 million shares may be granted under
this plan. No award shall be granted under this plan after December 31, 2009. A
total of 1,783,474 options were outstanding under this plan as of December 31,
2003.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The following table reflects the plan activity for the years ended
December 31, 2003, 2002 and 2001:
| | ----------------------------------------------------------------------------------------------------

`For Shares         Option Prices
                                              ----------         --------------
         Outstanding, January 1, 2001          2,126,632        $  7.19 to $39.06
         Granted                                 849,917        $  1.95 to $ 2.45
         Cancelled                            (1,301,058)       $  1.95 to $26.88
                                              ----------        -----------------
         Outstanding, December 31, 2001        1,675,491        $  1.95 to $39.06
         Granted                                 591,375        $  3.05 to $ 3.39
         Cancelled                              (175,551)       $  1.95 to $18.41
                                                --------        -----------------
         Outstanding, December 31, 2002        2,091,315        $  1.95 to $39.06
         Granted                               1,072,700        $  1.76 to $ 3.36
         Exercised                              (184,341)       $  1.76 to $ 3.05
         Cancelled                              (158,372)       $  1.76 to $39.06
                                                --------        -----------------
         Outstanding, December 31, 2003        2,821,302        $  1.76 to $18.41
                                               =========        =================`

| | The following table summarizes information for the three years
ended December 31, 2003 concerning currently outstanding and exercisable
options:
| | ------------------------------------------------------------------------------------------------------------------------------------------------

`2003                         2002                        2001
                                    ------------------------     -----------------------     ----------------------
                                            Weighted-Average            Weighted Average           Weighted Average
                                    Shares   Exercise Price      Shares   Exercise Price     Shares  Exercise Price
                                    -------  ---------------     ------  ---------------     ------ ---------------
  Outstanding at beginning of year  2,091,315   $ 5.01        1,675,491      $ 6.05        2,126,632  $ 14.70
  Granted ......................... 1,072,700   $ 1.80          591,375      $ 3.05          849,917  $  1.96
  Exercised .......................  (184,341)  $ 2.27
  Cancelled ....................... (158,372)   $ 9.68         (175,551)     $ 8.36       (1,301,058) $ 17.52
                                    --------                   --------                   ----------
  Outstanding at end of year ...... 2,821,302   $ 3.70        2,091,315      $ 5.01        1,675,491  $  6.05
                                    =========                 =========                    =========

  Options exercisable at year end.. 1,483,287                 1,093,294                      478,413
  Weighted average fair value per
     option granted during
     the year......................     $0.81                     $0.67                        $0.89`

`SYSTEMAX INC.
                             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                               FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001

     As of December 31, 2003:
          Range of                              Weighted-Average   Weighted-Average                Weighted-Average
          Exercise                Number            Remaining          Exercise         Number         Exercise
           Price                Outstanding     Contractual Life        Price        Exercisable        Price
     -----------------------    -----------     ----------------    ---------------  ------------  ---------------
     $  1.76  to $  5.00         2,152,602              8.42            $  2.15        814,587       $  2.69
     $  5.01  to $ 15.00           583,700              5.80            $  7.42        583,700       $  7.42
     $ 15.01  to $ 18.41            85,000              2.34            $ 17.62         85,000       $ 17.62
                                    ------                                              ------
     $  1.76  to $ 18.41         2,821,302              7.69            $  3.70      1,483,287       $  5.41
                                 =========                                           =========`

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

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

`Years Ended December 31                               2003        2002          2001
                                                      ----        ----          ----
    United States                                 $ 18,359      $ (6,731)    $ (10,390)
        Foreign                                    (10,661)       (2,276)       11,432
                                                   -------        ------        ------
        Total                                     $  7,698      $ (9,007)    $   1,042
                                                  ========      ========     =========`

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

`Years Ended December 31                           2003       2002          2001
                                                  ----       ----          ----
   Current:
      Federal                                  $  5,247     $ (3,037)    $  (9,256)
      State                                         709          758          (730)
      Foreign                                     1,214        4,715         2,446
                                              ---------     --------     ---------
      Total current                               7,170        2,436        (7,540)

   Deferred:
      Federal                                     1,932       (3,800)        6,777
      State                                        (864)        (604)          585
      Foreign                                    (3,886)         929           567
                                              ---------     --------     ---------
      Total deferred                             (2,818)      (3,475)        7,929
                                              ---------     --------     ---------

      Total                                   $   4,352     $ (1,039)    $     389
                                              =========     ========     =========`

| | 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                                        2003       2002          2001
                                                               ----       ----          ----

Income tax (benefit) at Federal statutory rate              $2,694       $(3,152)     $   365
State and local income taxes, net of federal tax benefit       461         (111)          145
Non-deductible goodwill impairment                             900
Tax credits                                                                (906)
Foreign operating losses with no benefit provided              158          542           575
Foreign income taxed at different rates                        253          949
Change in valuation allowances                              (1,174)         288        (1,118)
Prior year assessments                                                    1,318
Other items, net                                              1,060          33           422
                                                             ------      ---------    -------
                                                             $4,352      $(1,039)     $   389
                                                             ======      =========    ========`

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

`2003       2002
                                                                    ----       ----
    Current:
       Deductible assets..........................................$  (640)    $  (855)
       Accrued expenses and other liabilities..................... 11,069      10,700
       Non-deductible assets......................................    837         615
       Other......................................................   (436)        183
       Valuation allowances.......................................   (698)     (1,570)
                                                                   ------       -----
           Total current.......................................... 10,132       9,073
                                                                   ------       -----

    Non-current:
       Net operating loss and credit carryforwards................  9,833       4,359
       Foreign currency translation adjustments................... (1,635)      1,395
       Accelerated depreciation................................... (1,539)       (853)
       Intangible and other assets................................ 13,630      15,137
       Valuation allowances....................................... (4,616)     (4,938)
                                                                   ------       -----
           Total non-current...................................... 15,673      15,100
                                                                   ------       -----
               Total..............................................$25,805    $ 24,173
                                                                  =======    ========`

| | The Company has not provided for federal income taxes applicable
to the undistributed earnings of its foreign subsidiaries of $13.9 million as of
December 31, 2003, since these earnings are indefinitely reinvested. The Company
has foreign net operating loss carryforwards which expire from 2004 through 2008
except for carryforwards in the Netherlands and the United Kingdom, which have
no expiration. In accordance with SFAS 109 "Accounting for Income Taxes", 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
net operating loss carryforwards where it is not likely they will be
realized.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The Companys federal income tax returns for fiscal years
2000 through 2002 are currently being audited by the Internal Revenue Service.
Although proposed adjustments have not been received for these years and the
outcome of 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 February 2014. 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 5).
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | At December 31, 2003, the future minimum annual lease payments for
related and third-party leases were as follows (in thousands):
| | ---------------------------------------------------------------------------------------------------------------------------------

`Related
                                                             Third Party        Party
                                             Capitalized      Operating        Operating
                                                Leases          Leases          Lease        Total
                                             -----------     -----------       ----------    ------
  2004                                              $433          $6,666           $612       $7,711
  2005                                               403           6,516            612        7,531
  2006                                               388           5,899            612        6,899
  2007                                               299           5,002            612        5,913
  2008                                               125           3,984                       4,109
  2009-2013                                                       11,031                      11,031
  2014                                                                32                          32
                                                  ------         -------         ------      -------

  Total minimum lease payments                     1,648         $39,130         $2,448      $43,226
                                                                 =======         ======      =======
  Less amount representing interest                   57
  Present value of minimum capitalized
  lease payments (including current
  portion of $405)                                $1,591
                                                  ======`

| | Assets recorded under capital leases are included in Property,
Plant and Equipment as follows (in thousands):
| | -------------------------------------------------------------------------------------------------------------

`December 31,
                                                                     2003         2002
                                                                     ----         ----
                 Furniture and fixtures,  office, computer
                     and other equipment                           $1,680         $117
                 Accumulated amortization                             123           26
                                                                      ---           --
                                                                   $1,557         $ 91
                                                                   ======         ====`

| | Annual rent expense aggregated approximately $7,693,000, including
$612,000 to related parties, for 2003, $8,164,000, including $1,071,000 to
related parties, for 2002 and $7,869,000, including $1,224,000 to related
parties, for 2001.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Guarantees - The Company has provided financial
guarantees from time to time to a number of vendors on behalf of its 50%-owned
joint venture (see Note 1) for trade obligations in the normal course of its
business. The amount of such guarantees is limited to $7 million pursuant to the
terms of the Companys revolving credit agreement. As of December 31, 2003
the amount of such guarantees totaled $1.5 million. The Company has not been
required to perform on any of these guarantees and, as a result, estimates that
the fair value of these guarantees is minimal. Accordingly, the Company has
recorded no liabilities for these guarantees at December 31, 2003.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Litigation  In August 2003 the Company entered
into a settlement agreement with a software developer of a new customer order
management software system that was being written for the Companys
internal use. The specific terms of the settlement agreement are confidential;
however, none of the terms had a material effect on the business or the
consolidated financial statements of the Company.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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. Management of the Company,
based on discussions with legal counsel, believes the ultimate resolution of
these lawsuits will not have a material effect on the Companys
consolidated financial statements.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Contingency - The Company is required to collect
sales tax on certain of its sales. In accordance with current laws,
approximately 16% of the Companys 2003, 2002 and 2001 domestic sales were
subject to sales tax. Changes in law could require the Company to collect sales
tax in additional states.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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 1% or more 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
$408,000 in 2003, $442,000 in 2002 and $482,000 in 2001.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | Foreign Exchange Risk Management - The Company has
no involvement with derivative financial instruments and does not use them for
trading purposes. The Company may enter into foreign currency options or forward
exchange contracts to hedge certain foreign currency transactions. The intent of
this practice would be to minimize the impact of foreign exchange rate movements
on the Companys operating results. As of December 31, 2003, the Company
had no outstanding forward exchange contracts.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Fair Value of Financial Instruments - Financial
instruments consist primarily of investments in cash, trade account receivables,
accounts payable and debt obligations. The Company estimates the fair value of
financial instruments based on interest rates available to the Company and by
comparison to quoted market prices. At December 31, 2003 and 2002, the carrying
amounts of cash and cash equivalents, accounts receivable, income taxes
receivable and accounts payable are considered to be representative of their
respective fair values due to their short-term nature. The carrying amounts of
the notes payable to banks and 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, 2003 and 2002.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

| | Pursuant to SFAS 131 "Disclosure About Segments of an Enterprise
and Related Information", the Company determined that it is engaged in a single
reportable segment which markets and sells various business products. The
Companys product offerings include personal computers (PCs), computer
related products, industrial products and office products and are monitored for
sales trends and profitability in these sub-categories. Products are marketed
through an integrated system of direct mail catalogs, a network of major account
sales representatives and proprietary e-commerce Internet web-sites.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

`Net Sales
                                 -----------------------------------------------
                                     2003              2002               2001
                                     ----              ----               ----
     North America               $1,026,233        $  963,805         $  982,615
     Europe                         631,545           587,712            564,360
                                    -------           -------            -------
     Consolidated                $1,657,778        $1,551,517         $1,546,975
                                 ==========        ==========         ==========

          Revenues are attributed to countries based on location of selling subsidiary`

`Long-Lived Assets
                                                     ------------------

                                             2003                           2002
                                             ----                           ----
     North America                        $ 36,571                     $   41,832
     Europe                                 32,076                         29,301
                                            ------                         ------
     Consolidated                        $  68,647                     $   71,133
                                         =========                     ==========`

|13. | QUARTERLY FINANCIAL DATA (UNAUDITED)
|--- | ------------------------------------

| | The condensed consolidated financial statements for the periods
ended March 31, 2003, June 30, 2003, September 30, 2003 and December 31, 2003
have been restated as described in Note 2. A summary of the effects of the
restatement is as follows (in thousands, except per share data):
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

`Three months ended:               March 31, 2003                     June 30, 2003
                                   --------------                     -------------
                             As Previously                     As Previously
                               Reported        As Restated        Reported        As Restated
                             --------------    -----------     -------------      ------------
 Cost of sales                     $353,983       $354,610          $325,273          $325,879
 Gross profit                       $72,478        $71,851           $63,525           $62,919
 Income (loss) from
     operations                      $8,565         $7,938            $(717)          $(1,323)
 Income (loss) before
     income taxes                    $8,351         $7,724          $(1,036)          $(1,642)
 Provision for income
     taxes                           $3,316         $3,127              $828              $646
 Net income (loss)                   $5,035         $4,597          $(1,864)          $(2,288)

 Net income (loss) per
     common share:
 Basic                                 $.15           $.13            $(.05)            $(.07)
 Diluted                               $.15           $.13            $(.05)            $(.07)


 Three months ended:                September 30, 2003                December 31, 2003
                                    ------------------                ------------------
                             As Previously                     As Previously
                               Reported        As Restated        Reported        As Restated
                             --------------    -----------     -------------      ------------

 Cost of sales                     $337,900       $338,947          $372,353          $373,309
 Gross profit                       $67,111        $66,064           $65,155           $64,199
 Income from operations              $3,561         $2,514            $1,114              $158
 Income (loss) before
     income taxes                    $3,019         $1,972              $600            $(356)
 Provision for income
     taxes                           $1,112           $798               $67            $(219)
 Net income (loss)                   $1,907         $1,174              $533            $(137)

 Net income (loss) per
     common share:
 Basic                                 $.06           $.03              $.02              $.--
 Diluted                               $.05           $.03              $.02              $.--`

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

`First        Second         Third         Fourth
 2003     Quarter                           Quarter        Quarter       Quarter       Quarter
 ----     -------                           -------       --------       -------        -------
 Net sales.............................. $  426,461      $ 388,798      $ 405,011     $ 437,508
 Gross profit........................... $   71,851      $  62,919      $  66,064     $  64,199
 Net income (loss)   ................... $    4,597      $  (2,288)     $   1,174     $(137)
 Net income (loss) per common share:
          Basic ........................     $ .13         $ (.07)        $ .03           $ .--
          Diluted.......................     $ .13         $ (.07)        $ .03           $ .--


                                              First        Second         Third         Fourth
 2002                                       Quarter        Quarter       Quarter        Quarter
 ----                                       -------       --------       -------        -------
 Net sales.............................. $ 412,260      $ 363,771       $ 372,139      $ 403,347
 Gross profit........................... $  73,848      $  61,939       $  62,726      $  67,075
 Net income (loss) ..................... $ (50,386)     $  (8,827)      $    (727)     $   1,001
 Net income (loss) per common share:
          Basic and diluted.............   $ (1.48)     $ (.26)         $(.02)           $ .03


                                                   * * * * * * *`

EXHIBIT INDEX

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

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