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, 2004 | 
|-------------- | ------------------------------------------------------------------------------------------------------------------------------- | 

or

|[    ] | TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________ | 
|------ | -------------------------------------------------------------------------------------------------------------------------------------------------- | 

Commission File Number:
1-13792

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

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

|11 Harbor Park Drive
Port Washington, New York
(Address of principal executive offices) | 11050
(Zip Code)
|--------------------------------------------------------------------------------------- | ----------------

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

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

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

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

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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]

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

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, 2004, which is the last business day of the
registrant's most recently completed second fiscal quarter, was approximately
$64,416,000. 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 31,
2005 was 34,682,718 shares.

Documents incorporated by reference: Portions of the definitive Proxy Statement
of Systemax Inc. relating to the 2005 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,
2004 (the "Original Form 10-K") to reflect the restatement of the
Company's Consolidated Financial Statements for the years ended December 31,
2004, 2003 and 2002 and to restate the Selected Financial Data and make
conforming changes to Item 1. The restatement is described in Note 2 to the
Consolidated Financial Statements accompanying this amendment. In addition, this
amendment to our Annual Report on Form 10-K includes amendments to Item 7, the
Management's Discussion and Analysis section. Item 2 of Part 1 was also changed
to correct a typographical error.

Except as expressly noted otherwise, this amendment only makes
changes to Items 1 and 2 of Part I, Items 6, 7, 7A and 9A of Part II and Item 15
of Part IV. We have, however, included the Form 10-K in its entirety (other than
exhibits) for the convenience of the reader. This report continues to speak as
of the date of the Original Form 10-K (filed on April 15, 2005) 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
|------

|Forward Looking Statement | 3
|------------------------- | -

|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 | 3
3
4
4
5
6
8
8
8
9
9
10
10
10
|------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------

|Item 2. | Properties | 11
|------- | ---------- | --

|Item 3. | Legal Proceedings | 11
|------- | ----------------- | --

|Item 4. | Submission of Matters to a Vote of Security Holders | 12
|------- | --------------------------------------------------- | --

|Part II
|-------

|Item 5. | Market for Registrant's Common Equity and Related Stockholder
Matters | 12
|------- | --------------------------------------------------------------------- | --

|Item 6. | Selected Financial Data | 13
|------- | ----------------------- | --

|Item 7. | Management's Discussion and Analysis of Financial Condition and
Results of Operations | 15
|------- | ------------------------------------------------------------------------------------- | --

|Item 7A. | Quantitative and Qualitative Disclosures About Market Risk | 31
|-------- | ---------------------------------------------------------- | --

|Item 8. | Financial Statements and Supplementary Data | 32
|------- | ------------------------------------------- | --

|Item 9. | Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure | 32
|------- | ------------------------------------------------------------------------------------ | --

|Item 9A. | Controls and Procedures | 32
|-------- | ----------------------- | --

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

|Item 10. | Directors and Executive Officers of the Registrant | 35
|-------- | -------------------------------------------------- | --

|Item 11. | Executive Compensation | 35
|-------- | ---------------------- | --

|Item 12. | Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters | 35
|-------- | ---------------------------------------------------------------------------------------------- | --

|Item 13. | Certain Relationships and Related Transactions | 35
|-------- | ---------------------------------------------- | --

|Item 14. | Principal Accounting Fees and Services | 35
|-------- | -------------------------------------- | --

|Part IV
|-------

|Item 15. | Exhibits, Financial Statement Schedules and Reports on Form 8-K | 36
|-------- | --------------------------------------------------------------- | --

| | Signatures | 40
| | ---------- | --

2

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PART I

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

Forward Looking Statements

This report contains forward looking statements within the meaning of that
term in the Private Securities Litigation Reform Act of 1995 (Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934).
Additional written or oral forward looking statements may be made by the Company
from time to time, in filings with the Securities 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. During 2004 we also began to market our ProfitCenter
Software suite of on-demand, web-based software applications.
Computers and computer related products accounted for 92% of our net sales in
2004.

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.

3

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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

Company Extends United States Credit Facility

On
March 17, 2005, we extended the maturity date of our $70 million revolving
credit facility agreement with JP Morgan Chase Bank, N.A. and other lenders from
March 31, 2005 to September 30, 2006 under substantially the same terms and
conditions.

Restatement of Financial Statements

On
February 21, 2004, we announced that we would restate our previously issued
consolidated financial statements for the year ended December 31, 2003 and the
first three quarters of fiscal 2004, following the discovery of certain errors
in accounting for inventory at our United Kingdom subsidiary. In connection with
this restatement, the Company filed an amended Form 10-K for the year ended
December 31, 2003 with the Securities and Exchange Commission on April 15, 2005.
The consolidated financial statements included herein and all related
information for the periods affected have been restated to reflect the
corrections.

Employment and Restricted Stock Unit Agreements

On
October 12, 2004, we entered into an employment agreement with Gilbert
Fiorentino, the Chief Executive Officer of our subsidiary, Tiger Direct, Inc.,
and a director of the Company. The agreement became effective as of June 1, 2004
and expires on December 31, 2013 unless terminated sooner under the terms of the
agreement.

The
agreement provides for annual compensation and bonus payments. The agreement
also accelerates the vesting schedule of certain options previously granted to
Mr. Fiorentino. In addition, new options were granted under the Company's 1999
Long-term Stock Incentive Plan (the "1999 Plan") for 166,667 shares, and the
agreement obligates the Company to issue additional options of 166,667 shares in
each of August 2005 and 2006, at the then fair market value. Options will vest
in five annual cumulative installments of 20% each.

4

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Mr. Fiorentino also was granted, pursuant to a restricted stock unit agreement,
restricted stock units under the 1999 Plan representing the right to receive a
total of 1,000,000 shares of restricted stock of the Company. The grant is
conditioned upon shareholder approval at the 2005 annual meeting (which approval
has been assured as a result of a concurrent signed agreement whereby the
Company's three controlling shareholders agreed to vote for approval) and
satisfaction of certain performance conditions based on earnings before
interest, taxes and depreciation and amortization expense in fiscal 2004, which
have been met. Such restricted stock units generally vest at the rate of 20% on
May 31, 2005 and 10% per year on April 1, 2006 and each year
thereafter.

Restructuring Activities

We
continue to address the pressures of a competitive market with the
identification of opportunities for cost savings.

In
February 2004 we announced a plan to streamline the back office and warehouse
operations of our computer businesses in the United States. The streamlining,
which resulted in the elimination of approximately 200 jobs resulted in
approximately $3.7 million (pre-tax) of severance and other restructuring costs
which were reflected in our first quarter 2004 results. We expect that this
streamlining plan will result in annual savings of approximately $8 million,
excluding the severance and other restructuring costs recognized in fiscal 2004.

During 2004 we implemented several cost reduction plans in Europe, including a
consolidation of our United Kingdom sales offices in the first quarter of 2004,
resulting in the elimination of 50 jobs.

In
early 2005, we announced that we are taking steps to increase the efficiency and
profitability of our European operations, including combining certain back
office operations in the United Kingdom to provide better customer service and
reduce costs. These actions will result in the elimination of approximately 185
positions, which is expected to result in approximately $8.0 million in annual
savings.

Rebate Program Use Investigated

On
August 10, 2004 we announced that we were cooperating in an investigation by the
United States Attorney's Office for the Southern District of Florida of one or
more government employees and certain former employees of the Company of
possible misuse of certain previously terminated rebate programs offered by the
Company's Dartek subsidiary. The Government has informed the Company that it is
not a subject of the investigation at this time. The Audit Committee conducted a
review of the aforementioned terminated rebate programs, including their
potential violations of Company policies, and has reviewed other similar
programs offered by the Company.

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; monitors; digital cameras; plasma TVs
and packaged software.

5

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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. 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.

We
began to market our ProfitCenter Software suite of applications in
2004. ProfitCenter Softwareis a web-based application which is
delivered as an on-demand service over the internet. The product helps companies
automate and manage their entire customer life-cycle across multiple sales
channels (internet, call center, outside salespersons, etc.).

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

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

`2004       2003        2002
                                                           ----       ----        ----
         Computer and computer related products             92%        92%         91%
         Industrial products                                 8%         8%          9%
                                                             --         --          --
         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. 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.

6

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Our
sales growth continues to be supported by strong growth in sales to individual
consumers, particularly through e-commerce means. To reach our consumer
audience, we use methods such as website campaigns, banner ads and e-mail
campaigns. We are able to monitor and evaluate the results of our various
advertising campaigns to enable us to execute them in a cost-effective manner.
We combine our use of e-commerce initiatives with catalog mailings, which
generate calls to inbound sales representatives. These sales representatives use
our information systems to fulfill orders and explore additional customer
product needs. Sales to consumers are generally fulfilled from our own stock,
requiring us to carry more inventory than we would for our business customers.
We also periodically take advantage of attractive product pricing by making
opportunistic bulk inventory purchases with the objective of turning them
quickly into sales. We have also successfully increased our sales to individual
consumers by using retail outlet stores. We currently have six such retail
locations in North America, which are located in or near one of our existing
sales and distribution centers, thereby minimizing our operating costs. We
presently plan to add two more in 2005.

Catalogs

We
currently produce a total of 22 full-line and targeted specialty catalogs in
North America and Europe under distinct titles. Our portfolio of catalogs
includes such established brand names as TigerDirect.com, Global
Computer Supplies, Misco®, HCS Misco, Global Industrial,
ArrowStar and 06. Full-line computer product catalogs offer
products such as PCs, notebooks, peripherals, computer components, magnetic
media, data communication, networking and power protection equipment, ergonomic
accessories, furniture and software. Full-line industrial product catalogs offer
products such as material handling products and industrial supplies. Specialty
catalogs contain more focused product offerings and are targeted to individuals
most likely to purchase from such catalogs. We mail catalogs to both businesses
and consumers. In the case of business mailings, we mail our catalogs to many
individuals at a single business location, providing us with multiple
points-of-entry. Our in-house staff designs all of our catalogs. In-house
catalog production helps reduce overall catalog expense and shortens catalog
production time. This allows us the flexibility to alter our product offerings
and pricing and to refine our catalog formats more quickly. Our catalogs are
printed by third parties under fixed pricing arrangements. The commonality of
certain core pages of our catalogs also allows for economies in catalog
production.

During 2004, we distributed approximately 88 million catalogs, which was 9%
fewer than in the prior year. We mailed approximately 50 million catalogs in
North America and approximately 38 million catalogs were distributed in Europe.

E-commerce

The
worldwide growth in active internet users has made e-commerce a significant
opportunity for growth. In 2004 we had approximately $515 million in
internet-related sales, an increase of $131 million, or 34%, from 2003.
E-commerce sales now represent 26.7% of total revenue, compared to 23.2% in
2003. The increase in our internet sales enables us to leverage our advertising
spending, allowing us to reduce our printed catalog costs while maintaining
customer contact.

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

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. Many 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 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. We operate out of multiple sales and distribution facilities
in North America and Europe. The 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. The locations of our distribution
centers in Europe have enabled us to market into four additional countries with
limited incremental investment. We maintain relationships with a number of large
distributors in the North America and Europe that also deliver products directly
to our customers.

Suppliers

We
purchase the majority of our products and components directly from manufacturers
and large wholesale distributors. For the year ended December 31, 2004, Tech
Data Corporation accounted for 12.2% and Ingram Micro Inc. accounted for 10.4%
of our purchases. 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. The loss of either of these vendors, or any other key vendors,
could have an adverse effect on us.

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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, power supplies 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 and Computer Related
Products

The
North American and European computer markets are highly competitive, with many
U.S., Asian and European companies vying for market share. There are few
barriers of entry to the PC market, with PCs being sold through the direct
market channel, mass merchants, over the internet and by computer and office
supply superstores.

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

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

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

Industrial Products

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

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Employees

As
of December 31, 2004, we employed a total of 3,070 employees, including 2,960
full-time and 110 part-time employees, of whom 1,760 were in North America and
1,310 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):

`Europe           North America            Total
     2004
     ----
     Net sales                                $695,695            $1,232,452          $1,928,147
     Income (loss) from operations            $(12,376)              $31,375             $18,999
     Identifiable assets                      $169,912              $313,284            $483,196

     2003
     ----
     Net sales                                $631,048            $1,024,688          $1,655,736
     Income (loss) from operations            $(5,251)               $14,401              $9,150
     Identifiable assets                      $140,319              $304,941            $445,260

     2002
     ----
     Net sales                                $587,681              $964,255          $1,551,936
     Income (loss) from operations              $7,795              $(14,820)            $(7,025)
     Identifiable assets                      $130,241              $306,346            $436,587`

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Item 2. Properties.

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

`Facility                                        Location                     Approximate  Expiration
--------                                        --------                     -----------  ----------
                                                                             Square Feet   of Lease
                                                                             -----------   --------
Headquarters, Sales and Distribution Center(1)  Port Washington, NY              86,000      2007

Sales and Distribution Center                   Suwanee, GA                     361,000     Owned

Sales and Distribution Center                   Naperville, IL                  241,000      2010

PC Assembly, Sales and Distribution Center      Fletcher, OH                    297,000     Owned

Sales and Administrative Center                 Miami, FL                        71,000      2010

Distribution Center                             Las Vegas, NV                    90,000      2010

Sales and Distribution Center                   Markham, Ontario                 22,000      2013

Sales and Distribution Center                   Verrieres le Buisson, France     48,000      2007

Sales and Distribution Center                   Frankfurt, Germany               92,000      2013

Sales and Distribution Center                   Madrid, Spain                    38,000      (2)

Sales and Distribution Center                   Milan, Italy                    102,000      2009

Sales and Distribution Center                   Greenock, Scotland               78,000     Owned

European Headquarters and Sales Center          Wellingborough, England          75,000     Owned

Sales Center                                    Amstelveen, Netherlands          21,000      2007

Sales and Distribution Center                   Lidkoping, Sweden                20,000      2005`

|(1) | For information about this facility, leased from related parties,
see Item 13 --"Certain Relationships and Related Transactions"
|--- | --------------------------------------------------------------------------------------------------------------------------------

|(2) | Terminable upon two months prior written notice.
|--- | ------------------------------------------------

We also lease space for other, smaller offices and retail stores
in the United States, Canada and Europe and certain additional facilities leased
by the Company are subleased to others. For further information regarding our
lease obligations, see Note 10 to the Consolidated Financial Statements.

Item 3. Legal Proceedings.

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

11

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

During the quarter ended December 31, 2004, there were no matters submitted to a
vote of the Company's security holders.

PART II

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

Systemax common stock is traded on the New York Stock Exchange under the symbol
"SYX". The following table sets forth the high and low closing sales
price of our common stock as reported on the New York Stock Exchange for the
periods indicated.

`2004                                       High            Low
              ----                                       ----            ---
              First quarter.......................      $7.95          $4.88
              Second quarter......................       6.70           5.01
              Third quarter.......................       6.68           5.32
              Fourth quarter......................       7.34           5.65


              2003                                       High            Low
              ----                                       ----            ---
              First quarter.......................      $1.99          $1.29
              Second quarter......................       4.28           1.95
              Third quarter.......................       8.45           3.47
              Fourth quarter......................       7.78           6.49`

On
April 14, 2005, the last reported sale price of our common stock on the New York
Stock Exchange was $6.92 per share. As of April 14, 2005, we had 240
shareholders of record.

We
have not paid any dividends since our initial public offering and anticipate
that all of our cash provided by operations in the foreseeable future will be
retained for the development and expansion of our business, and therefore do not
anticipate paying dividends on our common stock in the foreseeable future.

12

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Item 6. Selected Financial Data.

The
following selected financial information is qualified by reference to, and
should be read in conjunction with, the Company's Consolidated Financial
Statements and the notes thereto, and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" contained elsewhere in
this report. The selected statement of operations data for the years ended
December 31, 2004, 2003 and 2002 and the selected balance sheet data as of
December 31, 2004 and 2003 are derived from the audited consolidated financial
statements which are included elsewhere in this report. The selected balance
sheet data as of December 31, 2002, 2001 and 2000 and the selected statement of
operations data for the years ended December 31, 2001 and 2000 are derived from
the audited consolidated financial statements of the Company which are not
included in this report.

`Years Ended December 31*
                                                                                 ------------------------
                                                                  (In millions, except per common share data and number
                                                                                    of catalog titles)
                                                                  -----------------------------------------------------
                                                                      2004      2003      2002      2001        2000
                                                                  -----------------------------------------------------
Statement of Operations Data:
----------------------------

Net sales                                                            $1,928.1  $1,655.7  $1,551.9  $1,550.8   $1,690.3

Gross profit                                                           $286.5    $264.9    $266.3    $275.7     $211.9

Selling, general & administrative expenses                             $260.1    $251.5    $256.1    $271.6     $270.9

Restructuring and other charges                                          $7.4      $1.7     $17.3      $2.8          -

Income (loss) from operations                                           $19.0      $9.2    $(7.0)      $2.5    $(59.0)

Provision (benefit) for income taxes                                     $6.4      $4.4    $(0.8)     $(.1)    $(23.5)

Income (loss) before cumulative effect of change in accounting
   principle, net of tax                                                $10.2      $3.2    $(7.4)         -    $(39.7)

Cumulative effect of change in accounting principle, net of tax             -         -   $(51.0)         -          -

Net income (loss)                                                       $10.2      $3.2   $(58.4)         -    $(39.7)

Net income (loss) per common share, basic:

Income (loss) before cumulative effect of change in accounting
   principle, net of tax                                                 $.30      $.09    $(.21)         -    $(1.16)

Cumulative effect of change in accounting principle, net of tax             -         -   $(1.50)         -          -

Net income (loss) per common share                                       $.30      $.09   $(1.71)         -    $(1.16)

Net income (loss) per common share, diluted:

Income (loss) before cumulative effect of change in accounting
   principle, net of tax                                                 $.29      $.09    $(.21)         -    $(1.16)

Cumulative effect of change in accounting principle, net of tax             -         -   $(1.50)         -          -

Net income (loss) per common share                                       $.29      $.09   $(1.71)         -    $(1.16)

Weighted average common shares outstanding:

Basic                                                                    34.4      34.2      34.1      34.1       34.3

Diluted                                                                  35.5      34.9      34.1      34.1       34.3

Selected Operating Data:
-----------------------

Orders entered                                                            5.2       4.4       4.0       4.0        3.9

Number of catalogs distributed                                             88        97       106       126        157

Number of catalog titles                                                   22        30        37        38         37`

13

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`Balance Sheet Data:
------------------

Working capital                                                        $148.0    $144.1    $132.0    $101.5     $105.6

Total assets                                                           $483.2    $445.3    $436.6    $452.6     $536.9

Short-term debt                                                         $25.0     $20.8     $21.2      $2.8      $48.6

Long-term debt, excluding current portion                                $8.6     $18.4     $17.5         -          -

Shareholders' equity                                                   $222.6    $208.6    $200.6    $253.1     $254.6`

|* | Restated as described in Note 2 to the consolidated financial
statements.
|- | -------------------------------------------------------------------------

14

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

Restatement of Previously Issued Financial Statements

On May 11, 2005 we announced that we would restate our previously issued
financial statements for the year ended December 31, 2004 as a result of errors
discovered in the accounting for inventory at our Tiger Direct, Inc. 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 personal 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 inventory
management 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.

After poor economic and market conditions in the prior two fiscal years, we
experienced improved economic conditions and increased sales and profitability
in North America in 2004. In response to the economic conditions over those past
two years, we implemented a plan in the first quarter of 2004 to streamline our
United States computer business. This plan consolidated duplicative back office
and warehouse operations, which we expect will result in annual savings of
approximately $8 million excluding severance and other restructuring costs of
approximately $3 million recognized in fiscal 2004. Economic conditions in
Europe have not yet recovered and performance in those markets continues to be
negatively impacted with reduced information technology spending. With evidence
of a prolonged economic downturn, we took measures to align our cost structure
with expected potentially lower revenues and decreasing gross margins. We
implemented several cost reduction plans in Europe during 2004 and, in January
2005, we announced additional actions to increase efficiency and profitability
in our United Kingdom operation.

The primary component of our operating expenses historically has been employee
related costs, which includes items such as wages, commissions, bonuses, and
employee benefits. We have made substantial reductions in our workforce and
closed or consolidated several facilities over the past several years. This
resulted in reducing selling, general and administrative expenses from 16.5% of
net sales in 2002 to 13.5% of net sales in 2004. We will continue to monitor our
costs and evaluate the need for additional actions.

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 consolidated financial statements. This
discussion should be read in conjunction with the consolidated financial
statements included herein.

15

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Results of Operations

We
had net income of $10.2 million for the year ended December 31, 2004 and $3.2
million for the year ended December 31, 2003. For the year ended December 31,
2002, we had a net loss of $58.4 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.

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

`2004       2003       2002
                                                                         ----       ----       ----
  Net sales                                                            100.0%     100.0%     100.0%
  Gross profit                                                          14.9%      16.0%      17.2%
  Selling, general and administrative expenses                          13.5%      15.2%      16.5%
  Restructuring and other charges                                        0.4%       0.1%       1.1%
  Goodwill impairment                                                               0.2%
  Income (loss) from operations                                          1.0%       0.6%     (0.5)%
  Interest expense                                                       0.2%       0.1%       0.1%
  Provision (benefit) for income taxes                                   0.3%       0.3%     (0.1)%
  Income (loss) before cumulative effect of change in accounting
    principle, net of tax                                                0.5%       0.2%     (0.5)%
  Cumulative effect of change in accounting principle, net of tax                            (3.3)%
  Net income (loss)                                                      0.5%       0.2%     (3.8)%`

NET SALES

Net sales were $1.93 billion for the year ended December 31, 2004, an increase
of 16.5% from $1.66 billion for the year ended December 31, 2003. Net sales in
2004 included approximately $515 million of internet-related sales, an increase
of $131 million, or 34%, from 2003. North American sales increased to $1.23
billion, a 20.3% increase from last year's $1.02 billion. The increase in North
American sales resulted primarily from growth in both our computer and
computer-related products and our industrial products. Sales of computer and
computer-related products increased 21.1% to $1.08 billion from $893 million in
2003. This increase was largely a result of our successful internet-based
marketing initiatives directed primarily at our consumer customers and reflected
by an increase in our internet-related sales of approximately $109 million.
Although our internet-related sales are not exclusively made to consumers, we
believe that a large majority of these sales are made to consumers. With the
United States economy improving after several years of softness, we also had
strong growth in our industrial product sales in 2004. Sales of industrial
products increased 14.9% to $151.6 million from $131.9 million last year,
representing 9% of the overall increase in North American sales. European sales,
stated in US dollars, increased 10.2% to $695.7 million for 2004 (representing
36.1% of worldwide sales) compared to $631.0 million (representing 38.1% of
worldwide sales) in the year-ago period. Movements in foreign exchange rates
positively impacted European sales for 2004 by approximately $70.0 million. If
currency exchange rates for 2003 had prevailed in 2004, however, European sales
would have decreased 1.1% from the prior year. Continued weakness in demand for
information technology products from business customers in Europe and the effect
of exchange rate movements on product pricing in certain European markets for
products whose cost is U.S. dollar based, resulted in decreased local currency
denominated sales.

As European economies continued to weaken during 2004, our sales as measured in
local currencies declined. The table below reflects European sales for the three
years as reported in this report at then-current exchange rates and at constant
(2002) exchange rates (in millions):

16

---

`2004         2003        2002
                                                      ----         ----        ----
       European sales as reported                    $695.7       $631.0     $587.7
       European sales at 2002 exchange rates         $545.1       $550.2     $587.7`

Net
sales for the year ended December 31, 2003 were $1.66 billion, an increase of
6.7% from $1.55 billion for the year ended December 31, 2002. North American
sales were $1.02 billion, a 6.3% increase from last year's $964.3 million. The
increase in North American sales was a result of growth in sales of computer and
computer-related products to $893 million for the year ended December 31, 2003
from $827 million in 2002. The increase is attributable to successful
internet-based marketing initiatives, which resulted in increased
internet-related sales of approximately $113 million. We believe that the
increase in internet sales comes primarily from consumer customers' increased
use of the internet for e-commerce, and that continued weakness in demand for
information technology products from business customers resulted in lower sales
to those customers. Sales of industrial products decreased 4.0% in 2003 to
$131.9 million from $137.5 million in the prior year. European sales, in US
dollars, increased 7.4% to $631.0 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, however, European sales would
have decreased 6.3% from the prior year. Lower demand and the effect of exchange
rate movements on product pricing in certain European markets for products whose
cost is U.S. dollar based, resulted in decreased local currency denominated
sales.

GROSS PROFIT

Gross profit, which consists of net sales less product cost, shipping, assembly
and certain distribution center costs, was $286.5 million, or 14.9% of net
sales, for the year ended December 31, 2004, compared to $264.9 million or 16.0%
of net sales in 2003. Our gross profit ratio declined in 2004 as a result of
increased pricing pressures on our computer business both in North America and
Europe. The decline was partially offset by improved margins on industrial
products.

Gross profit was $264.9 million for the year ended December 31, 2003, or 16.0%
of net sales, compared to $266.3 million, or 17.2% of net sales, in
2002.  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 17.2% 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.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses totaled $260.1 million, or 13.5% of
net sales, in 2004, an increase of $8.7 million, or 3.4%, compared to $251.5
million, or 15.2% of net sales, in 2003. This increase resulted from
approximately $10 million of increased costs in Europe resulting from the
effects of changes in foreign exchange rates and $4 million of higher credit
card processing fees from the higher sales volume in 2004. The increase was
partially offset through restructuring actions taken, reducing our employee
count in the United States and lowering salary expense and related benefit costs
by $6 million in 2004.

17

---

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.

RESTRUCTURING AND OTHER CHARGES

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

In 2003, we had $1.7 million of restructuring and other charges. In the fourth
quarter of 2003 we implemented a plan to consolidate the warehousing facilities
in our United States computer 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 the fourth quarter of fiscal 2003 we recorded $2.2
million of additional costs, net of reductions, as a charge to operations for
our 2002 United Kingdom consolidation plan. 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. The restructuring costs
incurred in 2003 were partially offset by a $1.3 million reversal of a
previously recorded liability which was no longer required as a result of our
settlement of litigation with a software developer in August 2003.

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."

We recorded $17.3 million of restructuring and other charges 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 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.

18

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INCOME (LOSS) FROM OPERATIONS

We
had income from operations of $19.0 million in 2004 and $9.2 million in 2003. We
had a loss from operations of $7.0 million in 2002. For the year ended December
31, 2004, restructuring charges of $7.4 million were included in income from
operations. 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.

We
had losses from operations in Europe for the year ended December 31, 2004 of
$12.4 million and in 2003 of $5.3 million, compared to income from operations of
$7.8 million in Europe in 2002. European results continued to decline as a
result of decreased gross profit and increased selling, general and
administrative expenses. As a result of the decline in our European
profitability, in early 2005 we announced additional plans to reduce costs and
increase efficiency through the elimination of approximately 185 positions in
Europe, which is expected to result in approximately $8 million in annual
savings, excluding severance and other restructuring costs to be recognized in
fiscal 2005.

INTEREST AND OTHER INCOME AND INTEREST EXPENSE

Interest expense was $3.1 million in 2004, $2.3 million in 2003 and $1.7 million
in 2002. Interest expense increased in 2004 as a result of increased short-term
borrowings in the United Kingdom. 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. Interest and
other income, net was $0.6 million in 2004, $0.8 million in 2003 and $0.4
million in 2002.

INCOME TAXES

Our income tax provision was $6.4 million in 2004 and $4.4 million in 2003 and
we had an income tax benefit of $0.8 million in 2002. The effective rates were
38.5% in 2004, 57.6% in 2003 and 9.8% in 2002. The tax rate in 2004 was higher
than the United States statutory rate of 35% primarily due to losses in foreign
jurisdictions for which we recognized no tax benefit and losses in a foreign
jurisdiction where the benefit rate is lower than the rate in the United States.
The effective tax rate in 2003 was adversely affected by the goodwill impairment
write-off, which is not tax deducible. State and local taxes in the United
States did not increase the effective tax rates in 2004 or 2003 as a result of
the utilization of carryforward losses for which valuation allowances were
previously provided. 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, 2004, 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 consolidated 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.

19

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NET INCOME (LOSS)

As a result of the above, net income for 2004 was $10.2 million, or $.30 per
basic share and $.29 per diluted share, and for 2003 was $3.2 million, or $.09
per basic and diluted share. The net loss for 2002 was $58.4 million, or $1.71
per basic and diluted share.

Seasonality

Net sales have historically been modestly weaker during the second and third
quarters as a result of lower business activity during those months. The
following table sets forth the net sales, gross profit and income (loss) from
operations for each of the quarters since January 1, 2003 (amounts in
millions).

`March 31     June 30     September 30     December 31
                                            --------     -------     ------------     -----------
     2004
     ----
     Net sales                                  $485        $433             $458            $552
     Percentage of year's net sales            25.1%       22.5%            23.8%           28.6%
     Gross profit                                $76         $68              $71             $71
     Income from operations                       $7          $2               $4              $6

     2003
     ----
     Net sales                                  $425        $389             $404            $437
     Percentage of year's net sales            25.7%       23.5%            24.4%           26.4%
     Gross profit                                $71         $63              $66             $64
     Income (loss) from operations                $7        $(1)               $2              $0`

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 $148 million at December 31, 2004, an increase of $4
million from $144 million at the end of 2003. This was due principally to a $45
million increase in inventories offset by a $21 million increase in accounts
payable, a $4 million increase in short-term borrowings, a $6 million increase
in taxes payable, a $2 million increase in accrued expense and other current
liabilities, a $2 million decrease in cash and a $5 million decrease in prepaid
expenses and other current assets. The $45 million increase in our inventories
was comprised of a $40 million increase in our North American computer products
and an $8 million increase in industrial products, which was partially offset by
a decrease in our European inventories in response to weakness in those markets.
The increase in computer products inventories in North America was in response
to growing consumer demand for same-day shipping and the decision to expand the
product lines we offer. Our inventories of industrial products increased as we
sourced more of these products from Asia, which practice we expect to continue,
and had to compensate for the longer lead times. As a result of the increased
investment in inventories, our inventory turnover declined from 12 to 10 times.
Increases in accounts payable in the United States and in Europe partially
offset the working capital impact of the inventory increase. The increase in our
accounts receivable as a percentage was less than the increase in our sales. Our
North American accounts receivable decreased from 17 days of sales outstanding
to 13 days, as our sales growth there came primarily from consumer accounts,
which are generally paid by credit card in a 2-3 day shipment-to-cash cycle. The
increase in accounts receivable was attributable to Europe, as the accounts
receivable stated in U.S. dollars increased as a result of changes in exchange
rates. We expect that future accounts receivable and inventory balances will
fluctuate with the mix of our net sales between consumer and business customers,
as well as geographic regions.

20

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We maintain our cash and cash equivalents primarily in money market funds or
their equivalent. As of December 31, 2004, 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 $2.4 million to $36.3 million during the year ended
December 31, 2004. Net cash provided by operating activities was $12.8 million
for the year ended December 31, 2004, compared with net cash used in operating
activities of $6.6 million in 2003 and net cash provided by operating activities
of $4.9 million in 2002. The $19.4 million increase in cash provided by
operating activities in 2004 resulted from an increase in cash provided by net
income adjusted by other non-cash items, such as depreciation expense, and a
decrease in cash used for changes in our working capital accounts. Cash provided
by net income and other non-cash items was $27.2 million in 2004, an increase of
$5.5 million, compared to $21.7 million in 2003, and was primarily attributable
to the $7.0 million increase in net income. The cash used for changes in our
working capital accounts, which were discussed in the working capital comments
above, was $14.5 million in 2004 compared to $28.3 million in 2003. The decrease
of $11.5 million in cash provided by operations for the year ended December 31,
2003 compared to 2002 resulted from changes in our working capital accounts,
which used $28.3 million in cash compared to using $17.5 million in 2002, and
resulted primarily from a $32 million increase in our inventories. Cash provided
from our net income and other non-cash items was $21.7 million in 2003, which
was substantially unchanged compared to $22.4 million provided by these items in
2002.

In 2004, $8.3 million of cash was used in investing activities, principally for
the purchase of property, plant and equipment. Capital expenditures in 2004
included upgrades and enhancements to our information and communications systems
hardware and facilities costs for the opening of two additional retail outlet
stores in the United States. During 2003, $9.7 million of cash was used in
investing activities, principally $7.1 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 outlet 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. We anticipate no
major capital expenditures in 2005 and will fund any capital expenditures out of
cash from operations and borrowings under our credit lines.

Net cash of $6.8 million was used in financing activities in 2004, primarily for
the repayment of short and long-term borrowings. Net cash of $3.8 million was
used in financing activities in 2003. Cash of $4.3 million was used to repay
short and long-term obligations, which was partially offset by $419,000 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.

21

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Under our $70 million secured revolving credit agreement in the United States,
which expires on September 30, 2006, availability as of December 31, 2004 was
$54.6 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,
2004. There were outstanding letters of credit of $9.1 million and there were no
outstanding advances as of December 31, 2004.

We also maintain a £15 million ($28.5 million at the December 31, 2004
exchange rate, which exchange rate applies to all the other Sterling denominated
amounts below) 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, 2004 there were
£5.3 million ($10.0 million) of borrowings outstanding under this line with
interest payable at a rate of 5.87%.

Our Netherlands subsidiary has a 5 million ($6.7 million at the December
31, 2004 exchange rate, which exchange rate applies to all the other Euro
denominated amounts below) credit facility. Borrowings under the facility are
secured by the subsidiary's accounts receivable and are subject to a borrowing
base limitation of 85% of the eligible accounts. At December 31, 2004 there were
3.5 million ($4.8 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 ($12.5 million), 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 ($313,000) through
August 2012. The outstanding borrowings bear interest at the 12 month LIBOR plus
160 basis points (5.25% at December 31, 2004). 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, 2004, the notional amount
of the interest rate collar was £5,115,000 ($9,713,000) 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, 2004, the collar was in a neutral position. The
change in the fair value of this derivative for the year ended December 31, 2004
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. As of
December 31, 2004, the Company was not in compliance with the financial
covenants and has classified the entire obligation as current.

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 non-cancelable operating leases for the rental of most of
our facilities and certain of our equipment which expire at various dates
through 2014. We currently lease our New York facility from an entity owned by
Richard Leeds, Robert Leeds and Bruce Leeds, the Company's three principal
shareholders and senior executive officers. The annual rental totals $612,000
and the lease expires in 2007. We have sublease agreements for leased space in
Compton, California and Markham, Ontario. In the event the sublessees are unable
to fulfill their obligations, we would be responsible for rent due under the
leases. However, we expect the sublessees will fulfill their obligations under
these leases.

Following is a summary of our contractual obligations for future principal
payments on our debt, minimum rental payments on our non-cancelable operating
leases and minimum payments on our other purchase obligations at December 31,
2004 (in thousands):

22

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`After
                                            2005       2006      2007      2008      2009     2009
                                            ----       ----      ----      ----      ----     ----
Contractual Obligations:
Payments on debt obligations             $25,750       $728      $727      $725      $726    $8,144
Payments capital lease obligations          $403       $388      $299      $125
Payments on non-cancelable operating
    leases, net of subleases               8,097      7,633     7,092     5,691     5,326     6,924
Purchase and other obligations             5,983      1,417     1,041       837       799     3,619
                                           -----      -----     -----       ---       ---     -----
Total contractual obligations            $40,233    $10,166    $9,159    $7,378    $6,851   $18,687
                                         =======    =======    ======    ======    ======   =======`

Our purchase and other obligations include $3.9 million of inventory purchases
under outstanding letters of credit from overseas vendors which expire during
2005. The balance consists primarily of certain employment agreements and
service agreements.

In addition to the contractual obligations noted above, we had $5,222,000 of
standby letters of credit outstanding as of December 31, 2004 which will expire
during 2005.

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 will be sufficient to fund ongoing cash requirements.

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

Off-balance Sheet Arrangements

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

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 improved 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
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

23

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| | 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 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
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

24

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| | decrease, or if the prices for these components were to increase significantly,
operating costs and expenses could be adversely affected.
A portion of our revenue 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.
A substantial portion of 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 rights to return purchases to certain suppliers. The decrease or
elimination of price protection or purchase returns could lower our gross margin
or result in inventory write-downs. We also take advantage of attractive product
pricing by making opportunistic bulk inventory purchases; any resulting excess
and/or obsolete inventory that we are not able to re-sell could have an adverse
impact on our results of operations. Any inability to make such bulk inventory
purchases may significantly impact our sales and profitability.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | State and local sales tax collection may affect demand for our
products.
Our United States subsidiaries collect and remit sales tax in states in which
the subsidiaries have physical presence or in which we believe nexus exists
which obligates us to collect sales tax. Other states may, from time to time,
claim that we have state-related activities constituting a sufficient nexus to
require such collection. Additionally, many other states seek to impose sales
tax collection obligations on companies that sell goods to customers in their
state, or directly to the state and its political subdivisions, even without a
physical presence. Such efforts by states have increased recently, as states
seek to raise revenues without increasing the tax burden on residents. We rely,
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 related to past sales and would result in considerable
administrative burdens and costs for us and may reduce demand for our products
from customers in such states when we charge customers for such taxes.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

25

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| |  | 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 (Europe and Canada) accounted for 40% of our revenue
during 2004. 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 and unexpected changes
in regulatory requirements.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Our income tax rate and the value of our deferred tax assets
are subject to change.
Changes in our income tax expense due to changes in the mix of U.S. and non-U.S.
revenues and profitability, changes in tax rates or exposure to additional
income tax liabilities could affect our profitability. We are subject to income
taxes in the United States and various foreign jurisdictions. Our effective tax
rate could be adversely affected by changes in the mix of earnings in countries
with differing statutory tax rates, changes in the valuation of deferred tax
assets and liabilities, changes in tax laws or by material audit assessments.
The carrying value of our deferred tax assets, which are primarily in the United
States and the United Kingdom, is dependent on our ability to generate future
taxable income in those jurisdictions. 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, natural disasters and large losses could
materially affect our insurance obligations and future expense.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Our reliance on technology requires significant expenditures
and entails risk. 
We rely on a variety of information and telecommunications systems in our
operations. Our success is dependent in large part on the accuracy and proper
use of our information systems, including our telecommunications systems. To
manage our growth, we continually evaluate the adequacy of our existing systems
and procedures. We anticipate that we will regularly need to make capital
expenditures to upgrade and modify our management information systems, including
software and hardware, as we grow and the needs of our business change. The
occurrence of a significant system failure 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.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

26

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

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

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

| |  | Errors or security flaws in our product
| | - | ---------------------------------------

| |  | Technical difficulties which we can not resolve on a timely or
cost-effective basis,
| | - | ------------------------------------------------------------------------------------

| |  | Inability to provide the level of service we commit to
| | - | ------------------------------------------------------

| |  | Inability to deliver product upgrades and enhancements
| | - | ------------------------------------------------------

| |  | Delays in development
| | - | ---------------------

| |  | Inability to hire and retain qualified technical personnel
| | - | ----------------------------------------------------------

| |  | Impact of privacy laws on the use of our product
| | - | ------------------------------------------------

| |  | Exposure to claims of infringement of intellectual property
rights
| | - | ------------------------------------------------------------------

| |  | Increased costs associated with corporate governance compliance
may impact our results of operations.
As a public company, we incur significant legal, accounting and other expenses
that we would not incur as a private company. In addition, the Sarbanes-Oxley
Act of 2002, as well as rules subsequently implemented by the Securities and
Exchange Commission and listing requirements subsequently adopted by the New
York Stock Exchange in response to Sarbanes-Oxley, have required changes in
corporate governance practices of public companies. We expect these
developments, especially the impact of Section 404 of the Sarbanes-Oxley Act, 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
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

27

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

| |  | In the event we are unable to satisfy regulatory requirements
requiring companies to evaluate internal controls under Section 404 of the
Sarbanes-Oxley Act of 2002, or if these internal controls are not effective, our
business could suffer.
Section 404 of the Sarbanes-Oxley Act of 2002 will require that we evaluate and
report on the effectiveness of our internal control over financial reporting and
have our independent registered public accounting firm attest to such
evaluation. Based on SEC implementing regulations in effect as of April 15, 2004
and assuming that we will be considered an accelerated filer in 2005 (which will
be determined based on our public float at the end of our second fiscal quarter
of 2005), we will be required to satisfy the Section 404 requirements beginning
with our annual report for the fiscal year ending December 31, 2005. We have
prepared a plan of action for compliance and we are in the process of
documenting and testing our systems of internal control over financial
reporting. Due to the ongoing evaluation and testing of our internal control
over financial reporting we cannot be assured that significant deficiencies or
material weaknesses would not be required to be reported in the future. We have
already identified a number of deficiencies in our internal control over
financial reporting. We are working to implement remedial measures which include
enhancements to eliminate these deficiencies. If we are not able to implement
the requirements of Section 404 in a timely manner or with adequate
compliance, we might be subject to regulatory sanctions and we might suffer a
loss of public confidence in our reported financial information. Any such action
could adversely affect our business and financial results.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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.

28

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By their nature, these judgments are subject to an inherent degree of
uncertainty, and as a result, actual results could differ from those estimates.
These judgments are based on historical experience, observation of trends in the
industry, information provided by customers and information available from other
outside sources, as appropriate. Management believes that full consideration has
been given to all relevant circumstances that we may be subject to, and the
consolidated financial statements of the Company accurately reflect management's
best estimate of the consolidated results of operations, financial position and
cash flows of the Company for the years presented. Actual results may differ
from these estimates under different conditions or assumptions.

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

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

Inventories. We value our inventories at the
lower of cost or market, cost being determined on the first-in, first-out
method. Reserves for excess and obsolete or unmarketable merchandise are
provided based on historical experience, assumptions about future product demand
and market conditions. 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 obsolescence and resultant markdowns have been within
expectations, there can be no guarantee that we will continue to experience the
same level of markdowns we have in the past.

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

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.

29

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

Recent Accounting Developments

In November 2004, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards ("SFAS") 151,
"Inventory Costs, an amendment of ARB No. 43, Chapter 4." SFAS 151 clarifies
that abnormal inventory costs such as costs of idle facilities, excess freight
and handling costs, and wasted materials (spoilage) are required to be
recognized as current period charges. SFAS 151 also requires that the allocation
of fixed production overheads to the costs of conversion be based on the normal
capacity of the production facility. The provisions of SFAS 151 will be
effective for fiscal years beginning after June 15, 2005. The Company is
currently evaluating the provisions of SFAS 151 and does not expect that the
adoption will have a material impact on the Company's consolidated financial
position or results of operations.

In December 2004, the FASB issued Statement of Financial
Accounting Standards 123 (revised 2004) (SFAS 123R), "Share-Based Payment". SFAS
123R replaced SFAS 123, Accounting for Stock-Based Compensation (SFAS 123), and
superseded Accounting Principles Board Opinion 25, Accounting for Stock Issued
to Employees. SFAS 123R will require the Company to expense share-based
payments, including employee stock options, based on their fair value. The
Company is required to adopt the provisions of SFAS 123R effective as of the
beginning of its first quarter in 2006. SFAS 123R provides alternative methods
of adoption which include prospective application and a modified retroactive
application. The Company is currently evaluating the available alternatives of
adoption, of SFAS 123R. The Company believes the adoption of SFAS 123R will have
a financial statement impact which could be significant.

30

---

In December 2004, the FASB issued FASB Staff Position (FSP)
109-1, "Application of FASB Statement No. 109, Accounting for Income Taxes, to
the Tax Deduction on Qualified Production Activities Provided by the American
Jobs Creation Act of 2004." FSP 109-1 states that qualified domestic production
activities should be accounted for as a special deduction under SFAS 109,
"Accounting for Income Taxes," and not be treated as a rate reduction.
Accordingly, any benefit from the deduction should be reported in the period in
which the deduction is claimed on the tax return. The company is currently
evaluating the effect that the deduction, if any, will have in subsequent years.

In December 2004, the FASB also issued FSP 109-2, "Accounting
and Disclosure Guidance for the Foreign Earnings Repatriation Provision within
the American Jobs Creation Act of 2004." FSP 109-2 provides guidance under SFAS
109, "Accounting for Income Taxes", with respect to recording the potential
impact of the repatriation provisions of the American Jobs Creation Act of 2004
("Jobs Act"). FSP 109-2 temporarily allows companies that are evaluating whether
to repatriate foreign earnings under the Jobs Act to delay recognizing any
related taxes until that decision is made. This pronouncement also requires
companies that are considering repatriating earnings to disclose the status of
their evaluation and the potential amounts being considered for repatriation.
The Company has completed its evaluation of this legislation and FSP 109-2 and
will not repatriate any foreign earnings

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

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

The
translation of the financial statements of our operations located outside of the
United States is impacted by movements in foreign currency exchange rates.
Changes in currency exchange rates as measured against the U.S. dollar may
positively or negatively affect sales, gross margins, operating expenses and
retained earnings as expressed in U.S. dollars. Sales would have fluctuated by
approximately $70.0 million and income from operations would have fluctuated by
approximately $1.0 million if average foreign exchange rates changed by 10% in
2004. We have limited involvement with derivative financial instruments and do
not use them for trading purposes. We may enter into foreign currency options or
forward exchange contracts aimed at limiting in part the impact of certain
currency fluctuations, but as of December 31, 2004 we had no outstanding forward
exchange contracts.

Our
exposure to market risk for changes in interest rates relates primarily to our
variable rate debt. Our variable rate debt includes short-term borrowings under
our European credit facilities and our United Kingdom term loan. As of December
31, 2004, the balance outstanding on our variable rate debt was approximately
$24.5 million. In connection with our United Kingdom term loan agreement,
effective April 30, 2002 we entered into an interest rate collar agreement to
reduce our exposure to market rate fluctuations. At December 31, 2004 the
notional amount of the interest rate collar was £5.1 million ($9.7 million
at the December 31, 2004 exchange rate) with an interest rate cap of 6.0% and a
floor of 4.5%. The fair value of the interest rate collar was zero as of
December 31, 2004. The interest rate collar expires on April 30, 2005. A
hypothetical change in average interest rates of one percentage point is not
expected to have a material effect on our financial position, results of
operations or cash flows over the next fiscal year.

31

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Item 8. Financial Statements and Supplementary Data.

The
information required by Item 8 of Part II is incorporated herein by reference to
the Consolidated Financial Statements filed with this report; see Item 15 of
Part IV.

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

None.

Item 9A. Controls and Procedures.

Our
management is responsible for establishing and maintaining adequate disclosure
controls and internal control over financial reporting.

Disclosure Controls and Procedures

As
of the end of the period covered by this report, we carried out an evaluation,
under the supervision and with the participation of our management, including
the Chairman and Chief Executive Officer and the Chief Financial Officer, of the
effectiveness of the design and the operation of our disclosure controls and
procedures pursuant to Exchange Act Rules 13a-15 and 15d-15 of the Securities
Exchange Act of 1934.

As
previously disclosed in a Current Report on Form 8-K, which we filed on February
21, 2005, we announced that we would restate previously filed consolidated
financial statements for the year ended December 31, 2003 and the first three
quarters of 2004 to correct errors in accounting for inventory at our United
Kingdom subsidiary. These restated consolidated financial statements were filed
pursuant to a Form 10-K/A for 2003 on April 15, 2005. Management has concluded
that the internal control deficiencies that made the restatements necessary
indicate the existence of a material weakness in internal control over financial
reporting, as defined by the Public Company Accounting Oversight Board's
Auditing Standard No. 2. Based on this evaluation and due to the 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, 2004. The design
and operation of our disclosure controls and procedures did not reduce to a
relatively low level of risk the chance or chances that a material misstatement
would occur and not be detected.

As a
result of a review of the subsidiary's inventory activities for the fiscal years
ended December 31, 2002, 2003 and 2004, 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
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
| | - | --------------------------------------------------------------------------------------

32

---

Subsequent to the quarter ended December 31, 2004, we began implementing
remedial measures to address the identified material weakness described above in
connection with the preparation of our financial statements included in our
Amendment No. 1 to Form 10-K for the year ended December 31, 2003 and in this
Amendment No. 1 to Form 10-K for the year ended December 31, 2004. 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 management
review. Additional review procedures have been implemented to test cut-off
accuracy. We are continuing to monitor these processes to further improve our
procedures as may be necessary.

Our
independent registered public accounting firm has issued a material weakness
letter to the Company which addresses the weaknesses identified above at the
Company's United Kingdom subsidiary and, as well, addresses inadequate oversight
and control activities on the part of senior management of the Company over its
remote subsidiaries. These matters have been discussed in detail among
management, the audit committee and our independent registered public
accountants. We are in the process of addressing the latter of the items
identified on an immediate and longer-term basis.

On
May 11, 2005 we announced that we would be restating our previously filed
consolidated financial statements for the year ended December 31, 2004 to
correct errors in accounting for inventory at our Tiger Direct, Inc. subsidiary
as described in Note 2 to the Consolidated Financial Statements. Management has
concluded that the internal control deficiencies that made the restatement
necessary indicate the existence of another material weakness in internal
control over financial reporting.

As a
result of a review of the subsidiary's inventory activities for the years ended
December 31, 2003 and 2004, the Company determined that the errors requiring
this restatement resulted from an error in the compilation of the subsidiary's
year-end inventory value and an inaccurate recording of period end cut-offs.
These errors were undetected or unrecognized as a result of the following
weaknesses and deficiencies in the subsidiary's controls:

| |  | Deficiencies in the monthly closing process which affect the
timeliness and accuracy of recording transactions, including the preparation of
numerous manual journal entries and a control environment heavily reliant on
manual review procedures and adjustments
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Deficiencies related to subsidiary ledger postings and account
reconciliation processes
| | - | ---------------------------------------------------------------------------------------

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

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

Subsequent to the identification of these weaknesses, during the second quarter
of 2005 we began implementing remedial measures to address the material weakness
described above in connection with the preparation of our financial statements
included in this Amendment No. 1 to Form 10-K for the year ended December 31,
2004. We have modified our internal information technology control procedures to
help ensure the accurate compilation of inventory at the end of each financial
period. We have also scheduled more frequent physical inventory counts (at least
once per quarter) during the next several quarters until we are satisfied that
controls are operating adequately. These actions have been combined with
preparation and analysis of detailed monthly inventory reconciliations, which is
supported by additional management review. Additional review procedures have
been implemented to test cut-off accuracy. We have also hired a new person to
fill a senior managerial position on the subsidiary's accounting staff and
expect to increase the staff further.

Section 404 of the Sarbanes-Oxley Act

Based on SEC implementing regulations in effect as of April 15, 2005 and
assuming that we will be considered an accelerated filer in 2005 (determined
based on our public float at the end of our second fiscal quarter of fiscal
2005), at the end of fiscal year 2005, Section 404 of the Sarbanes-Oxley Act of
2002 will require that management provide an assessment of the effectiveness of
the Company's internal

33

---

control over financial reporting and that the Company's
independent registered public accounting firm will be required to audit that
assessment. We are taking actions to permit timely compliance with Section 404.
We are in the process of performing the system and procedures documentation,
evaluation and testing for compliance with the requirements of Section 404. We
have dedicated substantial time and resources to the review of our control
processes and procedures, including the engagement of another independent
accounting firm to assist us. We have not completed this process or its
assessment, due to the complexities of our decentralized structure and the
number of accounting systems in use. We have not completed our assessment of our
internal control over financial reporting. We have already identified a number
of weaknesses which, individually or in the aggregate, may be a material
weakness or weaknesses. They are as follows:

We
have identified a number of internal control deficiencies that may affect the
timeliness and accuracy of recording transactions. The disparate operating and
financial information systems used at certain of our locations have inherent
limitations resulting in a control environment heavily reliant upon manual
review procedures and adjustments. These deficiencies include inadequate or lack
of systems interfaces and the preparation of numerous manual journal entries.

We
have identified internal control deficiencies in the information technology
area, including, among others, the lack of program change and project management
controls, inadequate segregation of duties between information technology
department development and production functions, the need for formal information
technology strategic planning, the need for formal documentation of information
security procedures, the need for security around user rights to certain
application systems and the need to implement formal help desk procedures.

We
have identified internal control deficiencies related to subsidiary ledger
postings and account reconciliation processes. These deficiencies include
differences between control accounts and subsidiary ledgers which require
extensive manual research to reconcile, some of which can not be resolved on a
timely basis.

We
have identified internal control deficiencies relating to the processing and
reconciliation of intercompany transactions, including the elimination of
intercompany account balances in our financial statement consolidation process.

We
have a significant amount of work to do to remediate the items we have
identified. In the course of completing our evaluation and testing we may
identify further deficiencies and weaknesses that will need to be addressed and
remediated. We may not be able to correct all such internal control deficiencies
in a timely manner and may find that a material weakness or weaknesses continues
to exist. As a result, management may not be able to issue a positive opinion on
the effectiveness of the Company's internal control over financial reporting as
of December 31, 2005.

Limitations on the Effectiveness of Controls

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

34

---

Changes in Internal Controls Over Financial Reporting

Our
management is not aware of any changes in internal control over financial
reporting that occurred during the quarter ended December 31, 2004 that
materially affected, or were reasonably likely to materially affect, our
internal control over financial reporting.

PART III

Item 10. Directors and Executive Officers of the
Registrant.

The
information required by Item 10 of Part III is hereby incorporated by reference
from the Company's Proxy Statement for the 2005 Annual Meeting of Stockholders
(the "Proxy Statement").

Item 11. Executive Compensation.

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

Item 12. Security Ownership of Certain Beneficial
Owners and Management and Related Stockholder Matters.

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

Item 13. Certain Relationships and Related
Transactions.

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

Item 14. Principal Accounting Fees and Services.

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

35

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PART IV

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

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

| |  |  | Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets, as restated
Consolidated Statements of Operations for the years ended
December 31, 2004,     2003 and 2002, as restated
Consolidated Statements of Shareholders' Equity, as restated
Consolidated Statements of Cash Flows for the years ended
December 31, 2004,     2003and 2002, as restated
Notes to Consolidated Financial Statements | 41
42
43
44
45
47 - 63
| |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------

| |  | 2. | Financial Statement Schedules:
The following financial statement schedule is filed as part of this report and
should be read together with our consolidated financial statements:
          Schedule II -
Valuation and Qualifying Accounts 
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. | 64
| |  | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --

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

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

36

---

| | 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
Agreement8
| | ----- | ----------------------------------------------------------------------------

| | 10.15 | Amendment No. 2, dated as of December 13, 2001, to the Chase Loan
Agreement9
| | ----- | ----------------------------------------------------------------------------

| | 10.16 | Amendment No. 3, dated as of December 20, 2001, to the Chase Loan
Agreement9
| | ----- | ----------------------------------------------------------------------------

| | 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
Agreement14
| | ----- | ------------------------------------------------------------------------------

| | 10.20 | Amendment No. 7, dated as of November 17, 2003, to the Chase Loan
Agreement15
| | ----- | -----------------------------------------------------------------------------

| | 10.21 | Amendment No. 8, dated as of May 10, 2004, to the Chase Loan
Agreement15
| | ----- | ------------------------------------------------------------------------

| | 10.22 | Amendment No. 9, dated as of July 2, 2004, to the Chase Loan
Agreement16
| | ----- | ------------------------------------------------------------------------

| | 10.23 | Amendment No. 10, dated as of December 9, 2004, to the Chase Loan
Agreement18
| | ----- | -----------------------------------------------------------------------------

| | 10.24 | Amendment No. 11, dated as of March 8, 2005, to the Chase Loan
Agreement19
| | ----- | --------------------------------------------------------------------------

| | 10.25 | 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 $8,400,00010
| | ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.26 | 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 Company10
| | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.27 | Employment Agreement entered into on October 12, 2004 but effective as of June
1, 2004 between the Company and Gilbert Fiorentino17*
| | ----- | ------------------------------------------------------------------------------------------------------------------------------------

| | 10.28 | Restricted Stock Unit Agreement entered into on October 12, 2004
but effective as of June 1, 2004 between the Company and Gilbert
Fiorentino17*
| | ----- | -----------------------------------------------------------------------------------------------------------------------------------------------

| | 14 | Corporate Ethics Policy for Officers, Directors and Employees
(revised as of March 30, 2005)20
| | -- | ----------------------------------------------------------------------------------------------

| | 19 | Specimen stock certificate of Registrant9
| | -- | -----------------------------------------

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

37

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| | 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
| | ---- | -------------------------------------------------------------------------------

|* | 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 annual report on
Form 10-K for the year ended December 31, 2003.
|-- | ------------------------------------------------------------------------------------------------------------------

|15 | Incorporated herein by reference to the Company's quarterly report
on Form 10-Q for the quarterly period ended March 31, 2004.
|-- | ------------------------------------------------------------------------------------------------------------------------------

|16 | Incorporated herein by reference to the Company's quarterly report
on Form 10-Q for the quarterly period ended June 30, 2004.
|-- | -----------------------------------------------------------------------------------------------------------------------------

|17 | Incorporated herein by reference to the Company's report on Form
8-K dated October 12, 2004.
|-- | --------------------------------------------------------------------------------------------

|18 | Incorporated herein by reference to the Company's report on Form
8-K dated December 9, 2004.
|-- | --------------------------------------------------------------------------------------------

|19 | Incorporated herein by reference to the Company's report on Form
8-K dated March 17, 2005.
|-- | ------------------------------------------------------------------------------------------

|20 | Incorporated herein by reference to the Company's report on Form
8-K dated March 30, 2005.
|-- | ------------------------------------------------------------------------------------------

38

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

| | A report on Form 8-K was filed by the Company on October 18, 2004 regarding the
Company's entry an employment agreement and restricted stock unit agreement with
Gilbert Fiorentino, the Chief Executive Officer of the Company's Tiger Direct,
Inc. subsidiary and a director of the Company.
A report on Form 8-K was filed by the Company on November 9, 2004 regarding the
Company's financial results for the quarterly period ended September 30, 2004
and other matters.
A report on Form 8-K was filed by the Company on December 10, 2004 regarding an
amendment to the Company's Loan and Security Agreement with JP Morgan Chase Bank
and other lenders.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

39

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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: November 22, 2005
| | -------------------------------------------------------------------------------------------------------------

40

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of
SYSTEMAX INC.:

We have audited the accompanying consolidated balance sheets of
Systemax Inc. and subsidiaries (the "Company") as of December 31, 2004 and
2003,and the related consolidated statements of operations,
shareholders' equity, and cash flows for each of the three years in the period
ended December 31, 2004.  Our audits also included the financial statement
schedule listed in the Index at Item 15.  These financial statements and
financial statement schedule are the responsibility of the Company's
management.  Our responsibility is to express an opinion on the financial
statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States).  Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement.  The
Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances but not for the purpose of
expressing an opinion on the effectiveness of the Company's internal control
over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation.  We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of Systemax Inc. and
subsidiaries at December 31, 2004 and 2003, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 2004, in conformity with accounting principles generally accepted in the
United States of America.  Also, in our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.

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

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

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

41

---

SYSTEMAX INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2004 AND 2003
(IN THOUSANDS, except for share data)

`2004              2003
                                                                                      ----              ----
                                                                                    (As restated - see Note 2)
ASSETS:
   CURRENT ASSETS:
      Cash and cash equivalents                                                      $36,257           $38,702
      Accounts receivable, net of allowances of $11,318 (2004) and $10,000 (2003)    137,706           136,391
      Inventories, net                                                               192,774           147,707
      Prepaid expenses and other current assets                                       22,096            26,849
      Deferred income tax assets, net                                                  9,594            10,915
                                                                                     -------           -------
           Total current assets                                                      398,427           360,564

   PROPERTY, PLANT AND EQUIPMENT, net                                                 65,563            68,647
   DEFERRED INCOME TAX ASSETS, net                                                    18,645            15,673
   OTHER ASSETS                                                                          561               376
                                                                                     -------           -------

              TOTAL                                                                 $483,196          $445,260
                                                                                    ========          ========

LIABILITIES AND SHAREHOLDERS' EQUITY:
   CURRENT LIABILITIES:
      Short-term borrowings, including current portions of long-term debt            $25,020           $20,814
       Accounts payable                                                              165,761           144,662
       Accrued expenses and other current liabilities                                 59,639            51,037
                                                                                     -------           -------
          Total current liabilities                                                  250,420           216,513
                                                                                     -------           -------

   LONG-TERM DEBT                                                                      8,639            18,353
   OTHER LIABILITIES                                                                   1,505             1,768

   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 34,432,799 (2004) and 34,288,068 (2003)
       shares                                                                            382               382
   Additional paid-in capital                                                        180,640           175,343
   Accumulated other comprehensive income, net of tax                                  3,920             1,933
   Retained earnings                                                                  87,486            77,298
   Common stock in treasury at cost - 3,799,191 (2004) and 3,943,922 (2003)
       shares                                                                        (44,630)          (46,330)

   Unearned restricted stock compensation                                             (5,166)                -
                                                                                     -------           -------
                        Total shareholders' equity                                   222,632           208,626
                                                                                     -------           -------

                TOTAL                                                               $483,196          $445,260
                                                                                    ========          ========`

See notes to consolidated financial statements.

42

---

SYSTEMAX INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(IN THOUSANDS, except per common share amounts)

`2004             2003             2002
                                                                               ----             ----             ----
                                                                                      (As restated, see Note 2)
Net sales                                                                $1,928,147       $1,655,736       $1,551,936
Cost of sales                                                             1,641,681        1,390,840        1,285,592
                                                                     --------------   --------------   --------------
Gross profit                                                                286,466          264,896          266,344
Selling, general and administrative expenses                                260,111          251,460          256,075
Restructuring and other charges                                               7,356            1,726           17,294
Goodwill impairment                                                                            2,560
                                                                     --------------   --------------   --------------
Income (loss) from operations                                                18,999            9,150           (7,025)
Interest and other income, net                                                 (630)            (755)            (427)
Interest expense                                                              3,073            2,344            1,653
                                                                     --------------   --------------   --------------
Income (loss) before income taxes                                            16,556            7,561           (8,251)
Provision (benefit) for income taxes                                          6,368            4,354             (812)
                                                                     --------------   --------------   --------------
Income (loss) before cumulative effect of change in accounting               10,188            3,207           (7,439)
    principle, net of tax
Cumulative effect of change in accounting principle, net of tax                                               (50,971)
                                                                     --------------   --------------   --------------
Net income (loss)                                                           $10,188           $3,207         $(58,410)
                                                                     ==============   ==============   ==============

Net income (loss) per common share, basic:
Income (loss) before cumulative effect of change in accounting
    principle, net of tax                                                      $.30             $.09            $(.22)
Cumulative effect of change in accounting principle, net of tax                                                 (1.49)
                                                                     --------------   --------------   --------------
Net income (loss)                                                              $.30             $.09           $(1.71)
                                                                     ==============   ==============   ==============

Net income (loss) per common share, diluted:
Income (loss) before cumulative effect of change in accounting
principle, net of tax                                                          $.29             $.09            $(.22)
Cumulative effect of change in accounting principle, net of tax                                                 (1.49)
                                                                     --------------   --------------   --------------
Net income (loss)                                                              $.29             $.09           $(1.71)
                                                                     ==============   ==============   ==============

Weighted average common and common equivalent shares:
   Basic                                                                     34,373           34,164           34,104
                                                                     ==============   ==============   ==============
   Diluted                                                                   35,489           34,880           34,104
                                                                     ==============   ==============   ==============`

See notes to consolidated financial statements.

43

---

SYSTEMAX INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(IN THOUSANDS)

`Common Stock                      Accumulated
                               Number                                Other
                             of Shares        Additional          Comprehensive  Treasury     Unearned     Comprehensive
                             Outstand          Paid-in   Retained Income (Loss),  Stock,  Restricted Stock Income (Loss),
                                ing    Amount  Capital   Earnings   Net of Tax   At Cost    Compensation     Net of Tax
                             --------- ------ ---------- -------- -------------- -------- ---------------- --------------
Balances, January 1, 2002,
    as originally reported     34,104   $382   $176,743 $134,350       $(8,038) $(48,489)
Prior period adjustment,
    see Note 2                                            (1,849)
                               ------   ----   --------  --------       ------  ---------
Balances, January 1, 2002,
    as restated                34,104    382    176,743  132,501        (8,038)  (48,489)
Change in cumulative
    translation adjustment                                               5,908                                   $5,908
Net loss as restated, see
    Note 2                                               (58,410)                                               (58,410)
                               ------   ----   --------  --------       ------  ---------                       --------
Total comprehensive loss
    as restated, see Note 2                                                                                   $ (52,502)
                                                                                                              ==========
Balances, December 31,         34,104    382    176,743   74,091        (2,130)  (48,489)
    2002 as restated
Change in cumulative
    translation adjustment                                               4,063                                   $4,063
Exercise of stock options         184            (1,740)                           2,159
Tax benefit of employee
    stock plans                                     340
Net income as restated,
see Note 2                                                 3,207                                                  3,207
                               ------   ----   --------    -----        ------  ---------                         -----
Total comprehensive income
as restated, see Note 2                                                                                          $7,270
                                                                                                                 ======
Balances, December 31, 2003    34,288    382    175,343   77,298         1,933   (46,330)
Change in cumulative
    translation adjustment                                               1,987                                   $1,987
Exercise of stock options         145              (631)                            1,700
Tax benefit of employee
    stock plans                                     188
Grant of restricted stock
    units                                         5,740                                          $(5,740)
Amortization of unearned
    restricted stock
    compensation                                                                                     574
Net income, as restated,
    see Note 2                                            10,188                                                 10,188
                               ------   ----   --------   ------        ------  ---------        --------        ------
Total comprehensive income
    as restated, see Note 2                                                                                     $12,175
                                                                                                                =======
Balances, December 31,
    2004, as restated, see
    Note 2                     34,433   $382   $180,640  $87,486        $3,920  $(44,630)        $(5,166)
                               ======   ====   ========  =======        ======  =========        ========`

See notes to consolidated financial statements.

44

---

SYSTEMAX INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(IN THOUSANDS)

`2004              2003             2002
                                                                                  ----              ----             ----
                                                                                         (As restated, see Note 2)
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
   Net income (loss)                                                           $10,188            $3,207         $(58,410)
   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                                      1,444               595           14,843
       Depreciation and amortization, net                                       11,314            13,938           13,652
       Provision for deferred income taxes                                      (2,377)           (2,816)          (3,248)
       Tax benefit of employee stock plans                                         188               340
       Provision for returns and doubtful accounts                               5,079             3,906            4,581
       Compensation expense related to equity compensation plans                 1,374
   Changes in operating assets and liabilities:
       Accounts receivable                                                      (1,982)            8,226           (6,341)
       Inventories                                                             (40,872)          (31,996)          (2,981)
       Prepaid expenses and other current assets                                 5,300             7,972           (8,422)
       Income taxes payable/receivable                                           6,335            (3,915)           7,755
       Accounts payable, accrued expenses and other current liabilities         16,767            (8,624)          (7,532)
                                                                          -------------     -------------   --------------
           Net cash provided by (used in) operating activities                  12,758            (6,607)           4,868
                                                                          -------------     -------------   --------------

CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
   Investments in property, plant and equipment                                 (8,583)           (7,123)         (15,367)
   Proceeds from disposals of property, plant and equipment                        247                11              635
   Purchase of minority interest                                                                  (2,560)
                                                                          -------------     -------------   --------------
           Net cash used in investing activities                                (8,336)           (9,672)         (14,732)
                                                                          -------------     -------------   --------------

CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
   Issuance of long-term borrowings and capital lease obligations                                                  18,879
   Proceeds (repayments) of borrowings from banks                               (5,254)           (2,951)          15,253
   Repayments of long-term debt and capital lease obligations                   (1,768)           (1,299)            (348)
   Issuance of common stock                                                        269               419
                                                                          -------------     -------------   --------------
           Net cash provided by (used in) financing activities                  (6,753)           (3,831)          33,784
                                                                          -------------     -------------   --------------
EFFECTS OF EXCHANGE RATES ON CASH                                                 (114)           (4,183)           2,611
                                                                          -------------     -------------   --------------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                            (2,445)          (24,293)          26,531
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR                                   38,702            62,995           36,464
                                                                          -------------     -------------   --------------
CASH AND CASH EQUIVALENTS - END OF YEAR                                        $36,257           $38,702          $62,995
                                                                          =============     =============   ==============
Supplemental disclosures:
       Interest paid                                                            $3,385            $2,697           $1,375
                                                                          =============     =============   ==============
       Income taxes paid                                                        $4,676           $13,840           $5,397
                                                                          =============     =============   ==============
Supplemental disclosures of non-cash investing and financing activities:
       Acquisitions of equipment through capital leases                              -            $1,576                -
                                                                          =============     =============   ==============`

45

---

`Deferred stock-based compensation related to restricted unit stock
       granted                                                                  $5,740                 -                -
                                                                          =============     =============   ==============`

See notes to consolidated financial statements

46

---

SYSTEMAX INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

|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 Company began consolidating a 50%-owned joint venture in the first quarter
of 2004 in accordance with Financial Accounting Standards Board Interpretation
46 (Revised) ("FIN 46R"), "Consolidation of Variable Interest Entities (see
"Recent Accounting Pronouncements", below). The Company previously used the
equity method of accounting for this investment. The results of operations of
this investee are not material to the results of operations of the Company.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Certain items in the consolidated financial statements of prior years have been
reclassified to conform to the current year's presentation. Acquisitions of
property, plant and equipment through capital leases on the consolidated
statement of cash flows for the year ended December 31, 2003 were reclassified
from a cash flow used in investing activities and a cash flow provided by
financing activities to a non-cash investing and financing activity.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | Fiscal Year - The Company's fiscal year ends on December 31. The
Company's North American computer business has a 52 or 53 week fiscal year that
ends on the last Saturday of the calendar year. Fiscal years 2004, 2003 and 2002
consisted of 52 weeks for this business.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Foreign Currency Translation - The financial statements of the
Company's foreign entities are translated into U.S. dollars, the reporting
currency, using year-end exchange rates for balance sheet items and average
exchange rates for the statement 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, including overnight bank
deposits, with an original maturity date of three months or less to be cash
equivalents.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

47

---

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

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

| | The Company recognizes revenue for its software sales in accordance with
Emerging Issues Task Force ("EITF") Issue No. 00-21, "Revenue Arrangements with
Multiple Deliverables". Hosting and service revenues are recognized on a monthly
basis over the terms of the contracts. Professional services and other revenues,
when sold with hosting services, are recognized as the services are rendered
when the services have value to the customer on a stand-alone basis and there is
objective evidence of fair value of each deliverable. If an arrangement does not
qualify for separate accounting, the revenues are recognized over the term of
the hosting agreement.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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,
                                                               2004                2003                2002
                                                               ----                ----                ----
               Balance, beginning of year                   $10,000             $11,275             $11,120
               Charged to expense                             5,079               3,906               4,581
               Deductions                                    (3,761)             (5,181)             (4,426)
                                                             ------              ------              ------
               Balance, end of year                         $11,318             $10,000             $11,275
                                                            =======             =======             =======`

| | Advertising Costs - Advertising costs, consisting primarily of
catalog preparation, printing and postage expenditures are amortized over the
period of catalog distribution, generally one to six months, 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 $43.8 million in 2004, $43.7
million in 2003 and $44.1 million in 2002 are included in the accompanying
Consolidated Statements of Operations. Effective January 1, 2003 the Company
adopted 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 $19.2 million for the year ended December 31,
2004 and $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.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

48

---

| | Prepaid expenses at December 31, 2004 and 2003 include deferred advertising
costs of $5.6 million and $4.2 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 were
approximately $411,000 for the year ended December 31, 2004, $800,000 for the
year ended December 31, 2003 and $1,036,000 for the year ended December 31,
2002.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Derivative Financial Instruments - In accordance with the
provisions of SFAS 133, "Accounting for Derivative Instruments and Hedging
Activities", as amended, all of the Company's derivative financial
instruments are recognized as either assets or liabilities in the consolidated
balance sheets based on their fair values. Changes in the fair values are
reported in earnings or other comprehensive income depending on the use of the
derivative and whether it qualifies for hedge accounting. Derivative instruments
are designated and accounted for as either a hedge of a recognized asset or
liability (fair value hedge) or a hedge of a forecasted transaction (cash flow
hedge). For derivatives designated as effective cash flow hedges, changes in
fair values are recognized in other comprehensive income. Changes in fair values
related to fair value hedges as well as the ineffective portion of cash flow
hedges are recognized in earnings (see Note 6).
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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 securities 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
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. In 2004, 1,116,000 of equivalent common shares and in 2003, 715,000 of
equivalent common shares were included for the diluted calculation. The weighted
average number of stock options outstanding excluded from the computation of
diluted earnings per share was 587,000 in 2004, 697,000 in 2003 and 1,149,000 in
2002 due to their antidilutive effect.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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 $12,175,000 in 2004, $7,270,000 in 2003 and $(52,502,000) in
2002, net of tax effects on foreign currency translation adjustments of
$(1,180,000) in 2004, $(3,030,000) in 2003 and $3,483,000 in 2002.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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 8. 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):
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

`2004              2003             2002
                                                                               ----              ----             ----
     Net income (loss) - as reported                                        $10,188            $3,207         $(58,410)
     Add: Stock-based employee compensation expense included in
         reported net income, net of related tax effects                        886
     Deduct: Stock-based employee compensation expense
         determined under fair value based method, net of
         related tax effects                                                  1,295               544              713
                                                                              -----               ---              ---
     Pro forma net income (loss)                                             $9,779            $2,663         $(59,123)
                                                                             ======            ======         ========`

49

---

`Basic net income (loss) per common share:
     Net income (loss) - as reported                                           $.30             $ .09           $(1.71)
                                                                               ====             =====           ======
     Net income (loss) - pro forma                                             $.28             $ .08           $(1.73)
                                                                               ====             =====           ======

     Diluted net income (loss) per common share:
     Net income (loss) - as reported                                           $.29             $ .09          $(1.71)
                                                                               ====             =====          ======
     Net income (loss) - pro forma                                             $.28             $ .08          $(1.73)
                                                                               ====             =====          ======`

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

`2004             2003             2002
                                                                    ----             ----             ----
               Expected dividend yield                                0%               0%               0%
               Risk-free interest rate                              5.5%             5.9%             5.6%
               Expected volatility                                 46.0%            76.0%            71.0%
               Expected life in years                               2.36             2.41             2.52`

| | The weighted average contractual life of the stock options outstanding was 7.4
years at December 31, 2004, 7.7 years at December 31, 2003 and 7.8 years at
December 31, 2002.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | In January 2003, the Financial Accounting Standards Board ("FASB") issued
Interpretation 46 ("FIN 46"), "Consolidation of Variable Interest
Entities," which requires the consolidation of variable interest entities
("VIE"), as defined, by their primary beneficiaries if the entities do not
effectively disperse risks among parties involved. In December 2003, the
FASB issued FIN 46-R to address certain FIN 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 VIEs 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. The Company has adopted FIN 46R and
began consolidating a 50%-owned joint venture in the first quarter of 2004. This
consolidation did not have a material impact on the Company's consolidated
financial position, results of operations or cash flows.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In November 2004, the FASB issued SFAS 151, "Inventory Costs, an amendment of
ARB No. 43, Chapter 4." SFAS 151 clarifies that abnormal inventory costs such as
costs of idle facilities, excess freight and handling costs, and wasted
materials (spoilage) are required to be recognized as current period charges.
SFAS 151 also requires that the allocation of fixed production overheads to the
costs of conversion be based on the normal capacity of the production facility.
The provisions of SFAS 151 will be effective for fiscal years beginning after
June 15, 2005. The Company is currently evaluating the provisions of SFAS 151
and does not expect that the adoption will have a material impact on the
Company's consolidated financial position or results of operations.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In December 2004, the FASB issued SFAS 123 (revised 2004) (SFAS 123R),
"Share-Based Payment." SFAS 123R replaced SFAS 123 and superseded APB 25. SFAS
123R will require the Company to expense share-based payments, including
employee stock options, based on their fair value. The Company is required to
adopt the provisions of SFAS 123R effective as of the beginning of its first
quarter in 2006. SFAS 123R provides alternative methods of adoption which
include prospective application and a modified retroactive application. The
Company is evaluating the available alternatives of adoption of SFAS 123R. The
Company believes the adoption of SFAS 123R will have a financial statement
impact which could be significant.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In December 2004, the FASB issued FASB Staff Position (FSP) 109-1, "Application
of FASB Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on
Qualified Production Activities Provided by the American Jobs Creation Act of
2004." FSP 109-1 states that qualified domestic production activities should be
accounted for as a special deduction under SFAS 109, "Accounting for Income
Taxes," and not be treated as a rate reduction. Accordingly, any benefit from
the deduction should be reported in the period in which the deduction is claimed
on the tax return. The Company is currently evaluating the effect that the
deduction will have, if any, in subsequent years.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In December 2004, the FASB also issued FSP 109-2, "Accounting and Disclosure
Guidance for the Foreign Earnings Repatriation Provision within the American
Jobs Creation Act of 2004." FSP 109-2 provides guidance under SFAS 109 with
respect to recording the potential impact of the repatriation provisions of the
American Jobs Creation Act of 2004 ("Jobs Act"). FSP 109-2 temporarily allows
companies that are evaluating whether to repatriate foreign earnings under the
Jobs Act to delay recognizing any related taxes until that decision is made.
This pronouncement also requires companies that are considering repatriating
earnings to disclose the status of their evaluation and the potential amounts
being considered for repatriation. The Company has completed its evaluation of
this legislation and FSP 109-2 and will not repatriate any foreign earnings.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

50

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

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

| | The Company restated its presentation of long-term debt to classify its entire
United Kingdom term loan payable as of December 31, 2004 as current, as it was
not in compliance with the financial covenants  see Note 7(b).
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The restated results also include changes resulting from a correction in the
application of the Company's revenue recognition policy. The Company determined
during its internal review of 2004 results that a change in its revenue
recognition policy for sales of product was required in order to comply with
Staff Accounting Bulletin No. 104 "Revenue Recognition " ("SAB
104"), as interpreted by the SEC Staff. Based on the Company's practices
with respect to its terms of shipment, revenue that had been recognized at time
of shipment based upon FOB shipping point terms should have been recognized at
time of receipt by customers, when title and risk of loss both transferred. The
effect of this change resulted in a restatement of the results of operations for
the three years presented and the balance sheets as of December 31, 2004 and
2003. Opening retained earnings as of January 1, 2002 was reduced by $1,849,000.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As a result, the accompanying financial statements for the years ended December
31, 2004 and 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:
     Accounts receivable, net                                                 $152,435                $136,931
     Inventories, net                                                          133,905                 147,707
     Deferred income tax assets, net                                            10,132                  10,915
     Total current assets                                                      362,023                 360,564
     TOTAL ASSETS                                                              446,719                 445,260
     Retained earnings                                                         (78,757)                (77,298)
     Total shareholders' equity                                               (210,085)               (208,626)
     TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                               (446,719)               (445,260)

     As of December 31, 2004:
     Accounts receivable, net                                                 $153,724                $137,706
     Inventories, net                                                          176,227                 192,774
     Prepaid expenses and other current assets                                  24,888                  22,096
     Deferred income tax assets, net                                             8,812                   9,594
     Total current assets                                                      399,908                 398,427
     Deferred income tax assets - noncurrent, net                               18,268                  18,645
     TOTAL ASSETS                                                              484,300                 483,196
     Short-term  borrowings,  including  current  portions  of
         long-term debt                                                        (16,560)                (25,020)
     Accounts payable                                                         (161,864)               (165,761)`

51

---

`Accrued expense and other current liabilities                             (60,756)                (59,639)
     Total current liabilities                                                (239,180)               (250,420)
     Long-term debt                                                            (17,099)                 (8,639)
     Additional paid in capital                                               (180,530)               (180,640)
     Accumulated other comprehensive income, net of tax                         (4,093)                 (3,920)
     Retained earnings                                                         (91,307)                (87,486)
     Total shareholders' equity                                               (226,516)               (222,632)
     TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                               (484,300)               (483,196)`

`Year ended Dec. 31, 2004      Year ended Dec. 31, 2003       Year ended Dec. 31, 2002

                                      As previously                  As previously                 As previously
                                        reported       As restated     reported       As restated    reported        As restated
Net sales                                $1,927,835     $1,928,147      $1,657,778     $1,655,736     $1,551,517      $1,551,936
Cost of sales                             1,637,452      1,641,681       1,392,745      1,390,840      1,285,929       1,285,592
Gross profit                                290,383        286,466         265,033        264,896        265,588         266,344
Income (loss) from operations                22,916         18,999           9,287          9,150         (7,781)         (7,025)
Income (loss) before income taxes            20,473         16,556           7,698          7,561         (9,007)         (8,251)
Provision (benefit) for income taxes          7,923          6,368           4,352          4,354         (1,039)           (812)
Income (loss) before cumulative
effect of change in accounting
principle, net of tax                        12,550         10,188           3,346          3,207         (7,968)         (7,439)
Net income (loss)                            12,550         10,188           3,346          3,207        (58,939)        (58,410)

Net income (loss) per common share,
basic:
Income (loss) before cumulative
effect of change in accounting
principle, net of tax                          $.37           $.30            $.10           $.09          $(.23)          $(.22)
Net income (loss)                              $.37           $.30            $.10           $.09         $(1.73)         $(1.71)
Net income  (loss) per common share,
diluted:
Income (loss) before cumulative
effect of change in  accounting
principle, net of tax                          $.35           $.29            $.10           $.09          $(.23)          $(.22)
Net income (loss)                              $.35           $.29            $.10           $.09         $(1.73)         $(1.71)`

| | The Company has also restated its segment disclosures to separately show
segments which were previously combined  see Note 12.
| | -------------------------------------------------------------------------------------------------------------------------------

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

| | Effective January 1, 2002, the Company adopted SFAS 142 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 goodwill was impaired 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
Statement of Operations for the year ended December 31, 2002. The adoption of
SFAS 142 had no cash flow impact on the Company.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

52

---

| | 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 during that quarter.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

`2004              2003
                                                                                      ----              ----
     Land and buildings                                                            $48,580           $46,898
     Furniture and fixtures, office, computer and other equipment and software      71,653            78,327
     Leasehold improvements                                                         11,187            14,010
                                                                                    ------            ------
                                                                                   131,420           139,235
     Less accumulated depreciation and amortization                                 65,857            70,588
                                                                                    ------            ------
     Property, plant and equipment, net                                            $65,563           $68,647
                                                                                   =======           =======`

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

| | The Company leased one warehouse and office facility from affiliates during the
year ended December 31, 2004 (see Note 10) and vacated a second warehouse and
office facility leased from affiliates during 2002. Rent expense under those
leases aggregated approximately $612,000 (2004), $612,000 (2003) and $1,071,000
(2002).
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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 September 30, 2006. 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 (5.25% at
December 31, 2004) plus 0.25% to 0.75% or the bank's daily LIBOR rate (4.15% at
December 31, 2004) 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, 2004. As of December 31, 2004, availability under the agreement was
$54.6 million and there were outstanding letters of credit of $9.1 million. As
of December 31, 2003, availability under the agreement was $49.0 million and
there were outstanding letters of credit of $8.0 million. There were no
outstanding advances as of December 31, 2004 and December 31, 2003.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The Company also has a £15,000,000 ($28,484,000 at the December 31, 2004
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. 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, 2004 there were £5.3 million ($10.0 million) of borrowings outstanding
under this line with interest payable at a rate of 5.87%. At December 31, 2003
there were £7.5 million ($13.3 million at the December 31, 2003 exchange
rate) of borrowings outstanding under this line with interest payable at a rate
of 5.85%.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The Company's Netherlands subsidiary maintains a 5 million ($6.7 million
at the December 31, 2004 exchange rate) credit facility with a local financial
institution. Borrowings under the facility are secured by the subsidiary's
accounts receivable and are subject to a borrowing base limitation of 85% of the
eligible accounts. At December 31, 2004 there were 3.5 million ($4.8
million) of borrowings outstanding under this line with interest payable at a
rate of 5.0%. At December 31, 2003 there were 4.5 million ($5.7 million at
the December 31, 2003 exchange rate) of borrowings outstanding under this line
with interest payable at a rate of 5.0%. The facility expires in November 2005.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

53

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| | The weighted average interest rate on short-term borrowings was 6.0% in 2004,
5.2% in 2003 and 6.3% in 2002.
| | ------------------------------------------------------------------------------------------------------------

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

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

`2004             2003
                                                                    ----             ----
                                                           (As restated,
                                                             see Note 2)
         Mortgage note payable (a)                               $ 8,012          $ 8,170
         Term loan payable (b)                                     9,713           10,338
         Capitalized equipment lease obligations                   1,185            1,591
                                                                   -----            -----
                                                                  18,910           20,099
         Less: current portion                                    10,271            1,746
                                                                  ------            -----
                                                                 $ 8,639          $18,353
                                                                 =======          =======`

| | (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 ($313,000) plus interest.
The outstanding borrowing bears interest at the 12 month LIBOR plus 160 basis
points (5.25% at December 31, 2004 and December 31, 2003). The term loan
agreement also contains certain financial and other covenants related to the
Company's United Kingdom subsidiaries. As of December 31, 2004, the Company was
not in compliance with the financial covenants and has classified the entire
obligation as current. 
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, 2004, the notional amount of the interest rate
collar was £5,115,000 ($9,713,000). The collar was in a neutral position as
of December 31, 2004 and in a loss position of approximately $39,000 as of
December 31, 2003, 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, 2004, 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, 2004 are
as follows (in thousands):
| | ----------------------------------------------------------------------------------------------------------

`2005         2006         2007         2008         2009     After 2009
                                            ----         ----         ----         ----         ----     ----------
          Maturities                     $10,271         $565         $494         $334         $229         $7,017`

|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, 2004, 2003 and 2002, management approved and
implemented restructuring actions which included workforce reductions and
facility consolidations. The following table summarizes the amounts recognized
by the Company as restructuring and other charges for the periods presented (in
thousands):
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

`Years ended December 31,                                         2004          2003          2002
       ------------------------                                         ----          ----          ----
       2004 United States Streamlining Plan                           $3,743`

54

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`2003 United States Warehouse Consolidation Plan                   642          $713
       2002 United Kingdom Consolidation Plan                            467         2,173        $4,051
       Software development write-off                                                             13,243
       Litigation settlement on software development                                (1,272)
       Other severance and exit costs                                  2,504           112             -
                                                                       -----           ---        ------
       Total restructuring and other charges                          $7,356        $1,726       $17,294
                                                                      ======        ======       =======`

| | 2004 United States Streamlining Plan
In the first quarter of 2004, the Company implemented a plan to streamline the
back office and warehousing operations in its United States computer businesses.
The Company recorded $3.7 million of costs related to this plan, including $3.2
million for severance and benefits for approximately 200 terminated employees
and $483,000 of non-cash costs for impairment of the carrying value of fixed
assets.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The following table summarizes the components of the
restructuring charges, the cash payments, non-cash activities, and the remaining
accrual as of December 31, 2004 (in thousands):
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

`Severance and         Asset            Other
                                              Personnel Costs    Write-downs      Exit Costs        Total
                                              ---------------    -----------      ----------        -----
       Charged to expense in 2004                      $3,153           $483            $107       $3,743
       Amounts utilized                                (2,520)          (483)            (95)      (3,098)
                                                       ------           ----             ---       ------
       Accrued at December 31, 2004                      $633           $  -             $12         $645
                                                         ====           ====             ===         ====`

| | 2003 United States Warehouse Consolidation Plan
In the fourth quarter of 2003, the Company implemented a plan to consolidate the
warehousing facilities in its United States computer supplies business. In 2004
the Company recorded $642,000 of additional exit costs related to this plan. The
table below displays the activity and liability balance of the reserve for this
initiative (in thousands):
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

`Severance and          Other
                                              Personnel Costs     Exit Costs        Total
                                              ---------------     ----------        -----
       Accrued at December 31, 2003                      $ 63           $650         $713
       Charged to expense in 2004                                        642          642
       Amounts utilized                                   (63)          (659)        (722)
                                                          ---           ----         ----
       Accrued at December 31, 2004                       $ -           $633         $633
                                                          ===           ====         ====`

| | 2002 United Kingdom Consolidation Plan
In 2002 the Company implemented a restructuring plan to consolidate the
activities of three United Kingdom locations into a new facility constructed for
the Company. In the third quarter of 2004, the Company recorded additional costs
related to this plan. The table below displays the activity and liability
balance of the reserve for this initiative (in thousands):
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

`Other
                                            Exit Costs
                                            ----------
       Accrued at December 31, 2003             $2,312
       Charged to expense in 2004                  467
       Amounts utilized                         (2,028)
                                                ------
       Accrued at December 31, 2004               $751
                                                  ====`

| | Other severance and exit costs
During 2004, the Company recorded $2.5 million of restructuring costs in Europe
in connection with facility exit costs and workforce reductions, including a
consolidation of United Kingdom sales offices in the first quarter of 2004,
resulting in the elimination of 50 jobs. These costs were comprised of $1.4
million of employee severance costs and $0.7 million of other exit costs,
primarily asset write-downs.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

55

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

| | 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 10).
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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, 2004 and 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
1,590,474 options were outstanding under this plan as of December 31, 2004.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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 52,000 options were outstanding under this plan
as of December 31, 2004.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The 1999 Long-term Stock Incentive Plan, as amended("1999 Plan") -
This plan was adopted on October 25, 1999 with substantially the same terms and
provisions as the 1995 Long-term Stock Incentive Plan. A maximum of 5.0 million
shares may be granted under this plan. The maximum number of shares granted per
type of award to any individual may not exceed 1,500,000 in any calendar year
and 3,000,000 in total. No award shall be granted under this plan after December
31, 2009. Restricted stock grants and common stock awards reduce stock options
otherwise available for future grant. A total of 1,598,777 options were
outstanding under this plan as of December 31, 2004.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The following table reflects the plan activity for the years ended December 31,
2004, 2003 and 2002:
| | ----------------------------------------------------------------------------------------------------

`For Shares         Option Prices
                                                         ----------         -------------
                    Outstanding, January 1, 2002          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
                    Granted                                 780,267        $ 5.30 to $ 6.34
                    Exercised                              (144,168)       $ 1.76 to $ 3.05
                    Cancelled                              (216,150)       $ 1.76 to $18.41
                                                           --------        ----------------
                    Outstanding, December 31, 2004        3,241,251        $ 1.76 to $18.41
                                                          =========`

| | The following table summarizes information for the three years ended December
31, 2004 concerning currently outstanding and exercisable options:
| | ------------------------------------------------------------------------------------------------------------------------------------------------

56

---

`2004                         2003                        2002
                                         ------------------------     ------------------------    ------------------------
                                                 Weighted-Average             Weighted Average            Weighted Average
                                         Shares   Exercise Price      Shares   Exercise Price     Shares   Exercise Price
                                         ------   --------------      ------   --------------     ------   -------------
     Outstanding at beginning of year. 2,821,302      $ 3.70        2,091,315      $ 5.01       1,675,491      $ 6.05
     Granted .........................   780,267      $ 5.38        1,072,700      $ 1.80         591,375      $ 3.05
     Exercised .......................  (144,168)     $ 2.28         (184,341)     $ 2.27
     Cancelled .......................  (216,150)     $ 6.82         (158,372)     $ 9.68        (175,551)     $ 8.36
                                        --------                     --------                    --------
     Outstanding at end of year ...... 3,241,251      $ 3.96        2,821,302      $ 3.70       2,091,315      $ 5.01
                                       =========                    =========                   =========

     Options exercisable at year end.. 1,756,517                    1,483,287                   1,093,294
     Weighted average fair value per
        option granted during the year     $1.61                        $0.81                       $0.67


     As of December 31, 2004:
          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           1,934,184              7.44             $  2.14      1,159,633        $  2.37
     $  5.01 to $ 15.00           1,248,967              7.68             $  6.15        538,784        $  7.17
     $ 15.01 to $ 18.41              58,100              1.46             $ 17.63         58,100        $ 17.63
                                     ------                                               ------        -------
     $  1.76 to $ 18.41           3,241,251              7.42             $  3.96      1,756,517        $  4.35
                                  =========                                            =========`

| | During the year ended December 31, 2004, the Company granted 1,000,000
restricted stock units under the 1999 Plan to a key employee. A restricted stock
unit represents the right to receive a share of the Company's common stock. The
grant is conditioned upon shareholder approval at the next annual meeting (which
approval has been assured as a result of a concurrent signed agreement whereby
the Company's three controlling shareholders agreed to vote for approval) and
satisfaction of certain performance conditions based on earnings before
interest, taxes and depreciation and amortization expense in fiscal 2004, which
have been met. The restricted stock units vest at the rate of 20% on May 31,
2005 and 10% per year on April 6, 2006 and each year thereafter. The restricted
stock units have none of the rights as other shares of common stock until common
stock is distributed, other than rights to cash dividends. Compensation expense
for restricted stock awards is recognized based on the intrinsic value method
defined by APB 25. The total market value of the shares granted has been
recorded as "Unearned Restricted Stock Compensation" and is reported as a
separate component in the consolidated statements of shareholders' equity and is
being expensed over the vesting period.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

`Years Ended December 31                          2004                2003             2002
         -----------------------                          ----                ----             ----
         United States                                 $33,268             $18,287          $(5,948)
         Foreign                                       (16,712)            (10,726)          (2,303)
                                                       -------             -------           ------
         Total                                         $16,556              $7,561          $(8,251)
                                                       =======              ======          =======`

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

`Years Ended December 31                          2004                2003             2002
         -----------------------                          ----                ----             ----
         Current:
              Federal                                   $8,622              $5,247          $(3,037)
              State                                        565                 709              758
              Foreign                                     (442)              1,214            4,715
                                                          ----               -----            -----
              Total current                              8,745               7,170            2,436
                                                         -----               -----            -----`

57

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`Deferred:
              Federal                                      725               1,934           (3,683)
              State                                       (899)               (864)            (604)
              Foreign                                   (2,203)             (3,886)           1,039
                                                        ------              ------            -----
              Total deferred                            (2,377)             (2,816)          (3,248)
                                                        ------              ------           ------

         TOTAL                                          $6,368              $4,354            $(812)
                                                        ======              ======            =====`

| | 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                                          2004             2003           2002
           -----------------------                                          ----             ----           ----
           Income tax (benefit) at Federal statutory rate                 $5,795           $2,646        $(2,888)
           State and local income taxes (benefits) and
               changes in valuation allowances, net of
               federal tax benefit                                          (172)            (100)           100
           Foreign taxes at rates different from the U.S.
               rate and changes in valuation allowances for
               foreign deferred tax assets, net                            2,375              434          2,620
           Non-deductible goodwill impairment                                                 900
           Tax credits                                                      (599)            (660)          (909)
           Adjustment for prior year taxes                                  (588)           1,311
           Other items, net                                                 (443)            (177)           265
                                                                            ----             ----            ---
                                                                          $6,368           $4,354          $(812)
                                                                          ======           ======          =====`

58

---

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

`2004           2003
                                                                                  ----           ----
           Current:
                 Deductible assets                                               $(699)         $(640)
                 Accrued expenses and other liabilities                          9,885         11,643
                 Non-deductible assets                                           1,179            837
                 Other                                                            (358)          (436)
                 Valuation allowances                                             (413)          (698)
                                                                                  ----           ----
                     Total current                                               9,594         10,706
                                                                                 -----         ------

           Non-current:
                 Net operating loss and credit carryforwards                    17,419         18,170
                 Foreign currency translation adjustments                       (2,816)        (1,635)
                 Accelerated depreciation                                        1,622         (1,539)
                 Intangible and other assets                                    12,031         13,630
                 Other                                                           1,032
                 Valuation allowances                                          (10,643)       (12,953)
                                                                               -------        -------
                     Total non-current                                          18,645         15,673
                                                                                ------         ------

           TOTAL                                                               $28,239        $26,379
                                                                               =======        =======`

| | The Company has not provided for federal income taxes applicable to the
undistributed earnings of its foreign subsidiaries of $11.1 million as of
December 31, 2004, since these earnings are indefinitely reinvested. The Company
has foreign net operating loss carryforwards which expire from 2005 through 2019
except for carryforwards in the United Kingdom and the Netherlands, 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.
During the year ended December 31, 2004 valuation allowances increased
$1,373,000 as a result of additional losses incurred and decreased $3,968,000
for carryforward losses and tax credits utilized for which valuation allowances
had been previously provided.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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 4).
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | At December 31, 2004, the future minimum annual lease payments for related and
third-party leases were as follows (in thousands):
| | ---------------------------------------------------------------------------------------------------------------------------------

`Third Party   Related Party
                                                         Capitalized      Operating      Operating
                                                           Leases          Leases          Lease         Total
                                                           ------          ------          -----         -----
         2005                                                $403          $8,170           $612        $9,185
         2006                                                 388           7,597            612         8,597
         2007                                                 299           6,960            612         7,871
         2008                                                 125           5,691                        5,816
         2009                                                               5,326                        5,326
         2010-2014                                                          6,924                        6,924
                                                              ---           -----            ---         -----

         Total minimum lease payments                       1,215          40,668         $1,836        43,719
         Less: sublease rental income                                       1,741                        1,741
                                                                            -----                        -----
         Lease obligation net of subleases                                $38,927                      $41,978
                                                                          =======                      =======`

59

---

`Less amount representing interest                     30
                                                               --
         Present value of minimum capitalized lease
         payments (including current portion of $387)      $1,185
                                                           ======`

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

`December 31,
                                                                     2004         2003
                                                                     ----         ----
                 Furniture and fixtures,  office, computer
                     and other equipment                           $1,680       $1,680
                 Less: Accumulated amortization                       503          123
                                                                      ---          ---
                                                                   $1,177      $ 1,557
                                                                   ======      =======`

| | Annual rent expense aggregated approximately $7,887,000, including $612,000 to
related parties, for 2004, $7,693,000, including $612,000 to related parties,
for 2003 and $8,164,000, including $1,071,000 to related parties, for 2002.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | Contingency - The Company is required to collect sales tax on
certain of its sales. In accordance with current laws, approximately 17% of the
Company's 2004 domestic sales and 16% of the 2003 and 2002 domestic sales were
subject to sales tax. Changes in law could require the Company to collect sales
tax in additional states and subject the Company to liabilities related to past
sales.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Employee Benefit Plans - The Company's U.S. subsidiaries
participate in a defined contribution 401(k) plan covering substantially all
U.S. employees. Employees may invest 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 $436,000 in 2004, $408,000 in 2003
and $442,000 in 2002.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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, 2004, the Company had no
outstanding forward exchange contracts.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Fair Value of Financial Instruments - Financial instruments
consist primarily of investments in cash and cash equivalents, trade 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, 2004 and
2003, 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 $9.0 million at December 31, 2004 and $8.8 million at December 31,
2003.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

60

---

| | 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 (As restated)
|--- | ---------------------------------------------

| | The Company operates in one primary business as a reseller of business products
to commercial and consumer users. The Company operates and is internally managed
in two operating segments, Computer Products and Industrial Products. The
Company has also separately disclosed its costs associated with the development
of the Company's new web-hosted software application, for which no revenues have
been recognized. The Company's chief operating decision-maker is the Company's
Chief Executive Officer. The Company evaluates segment performance based on
income from operations before net interest, foreign exchange gains and losses,
restructuring and other charges and income taxes. Corporate costs not identified
with the disclosed segments and restructuring and other charges are grouped as
"Corporate and other expenses". The chief operating decision-maker reviews
assets and makes capital expenditure decisions for the Company on a consolidated
basis only. The accounting policies of the segments are the same as those of the
Company described in Note 1.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

`Year Ended December 31,
                                                                   -----------------------
                                                               2004                2003             2002
                                                               ----                ----             ----
       Net Sales:
       ----------
       Computer products                                 $1,776,517          $1,523,815       $1,414,455
       Industrial products                                  151,630             131,921          137,481
                                                            -------             -------          -------
           Consolidated                                  $1,928,147          $1,655,736       $1,551,936
                                                         ==========          ==========       ==========

       Depreciation expense:
       ---------------------
       Computer products                                     $9,081             $12,118          $11,493
       Industrial products                                    1,789               1,555            1,965
       Software application                                     178
       Corporate                                                266                 265              194
                                                                ---                 ---              ---
           Consolidated                                     $11,314             $13,938          $13,652
                                                            =======             =======          =======

       Operating Income (Loss):
       ------------------------
       Computer products                                    $16,873              $9,574          $19,747
       Industrial products                                   10,782               5,036            1,864
       Software application                                  (4,954)             (2,501)
       Corporate and other expenses                          (3,702)             (2,959)         (28,636)
                                                             ------              ------          -------
           Consolidated income (loss) from
           operations                                       $18,999              $9,150          $(7,025)
                                                            =======              ======         =======`

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

`Year Ended December 31,
                                                                   -----------------------
                                                               2004                2003             2002
                                                               ----                ----             ----
       Net Sales:
       ----------
       United States:
       Industrial products                                 $151,630            $131,921         $137,481
       Computer products                                  1,011,118             866,383          810,191
                                                          ---------             -------          -------
       United States total                                1,162,748             998,304          947,672
       Other North America                                   69,704              26,384           16,583
       Europe                                               695,695             631,048          587,681
                                                            -------             -------          -------
           Consolidated                                  $1,928,147          $1,655,736       $1,551,936
                                                         ==========          ==========       ==========`

61

---

`Dec 31, 2004        Dec 31, 2003
                                                       ------------        ------------
       Long-lived Assets:
       ------------------
       North America - principally United States            $34,654             $36,571
       Europe                                                30,909              32,076
                                                             ------              ------
           Consolidated                                     $65,563             $68,647
                                                            =======             =======`

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

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

| | As described in Note 2, subsequent to the issuance of the Company's financial
statements in its Form 10-K for the period ended December 31, 2004, the Company
discovered errors related to accounting for inventory at a subsidiary company.
These errors were the result of recording errors, which had the effect of
overstating inventories and income for the three months and year to date periods
ended March 31, 2004, June 30, 2004, September 30, 2004 and December 31, 2004.
In addition, during its review of its consolidated financial statements for
2004, the Company determined that a correction in the application of its revenue
recognition policy was required.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As a result, the condensed consolidated financial statements for the periods
ended March 31, 2004 and 2003, June 30, 2004 and 2003, September 30, 2004 and
2003 and December 31, 2004 and 2003 have been restated from the amounts
previously reported to properly reflect these items. A summary of the effects of
the restatement on the quarterly financial data is as follows (in thousands,
except per share data):
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

`Three months ended:             March 31, 2004          June 30, 2004        September 30, 2004        December 31, 2004
                                --------------          -------------        ------------------        -----------------
                               As                      As                      As                       As
                           Previously              Previously              Previously               Previously
                            Reported  As Restated   Reported  As Restated   Reported  As Restated    Reported  As Restated
                            --------  -----------   --------  -----------   --------  -----------    --------  -----------
Sales                       $485,736    $484,507    $430,990    $433,267    $460,271    $457,984     $550,838    $552,389
Cost of sales               $411,597    $408,067    $363,854    $365,740    $387,786    $386,735     $474,215    $481,139
Gross profit                 $74,139     $76,440     $67,136     $67,527     $72,485     $71,249      $76,623     $71,250
Income from operations        $4,522      $6,823      $2,062      $2,453      $5,043      $3,807      $11,289      $5,916
Income before income
    taxes                     $3,875      $6,176      $1,636      $2,027      $4,328      $3,092      $10,634      $5,261
Provision for income taxes    $1,940      $2,486      $1,441      $1,965      $2,155      $1,759       $2,387        $158
Net income                    $1,935      $3,690        $195         $62      $2,173      $1,333       $8,247      $5,103

Net income per common
    share:
Basic                           $.06        $.11        $.01        $.00        $.06        $.04         $.24        $.15
Diluted                         $.05        $.10        $.01        $.00        $.06        $.04         $.23        $.14


Three months ended:             March 31, 2003          June 30, 2003        September 30, 2003        December 31, 2003
                                --------------          -------------        ------------------        -----------------
                               As                      As                      As                       As
                           Previously              Previously              Previously               Previously
                            Reported  As Restated   Reported  As Restated   Reported  As Restated    Reported  As Restated
                            --------  -----------   --------  -----------   --------  -----------    --------  -----------
Sales                       $426,461    $425,255    $388,798    $389,240    $405,011    $403,911     $437,508    $437,330
Cost of sales               $354,610    $353,877    $325,879    $326,142    $338,947    $337,923     $373,309    $372,898
Gross profit                 $71,851     $71,378     $62,919     $63,098     $66,064     $65,988      $64,199     $64,432
Income (loss) from
operations                    $7,938      $7,465     $(1,323)    $(1,144)     $2,514      $2,438         $158        $391
Income (loss) before
    income taxes              $7,724      $7,251     $(1,642)    $(1,463)     $1,972      $1,896        $(356)      $(123)
Provision (benefit) for
    income taxes              $3,127      $2,995        $646        $706        $798        $783        $(219)      $(130)
Net income (loss)             $4,567      $4,256     $(2,288)    $(2,169)     $1,174      $1,113        $(137)         $7`

62

---

`Net income (loss) per
    common share:


Basic                           $.13        $.12       $(.07)      $(.06)       $.03        $.03         $.00        $.00
Diluted                         $.13        $.12       $(.07)      $(.06)       $.03        $.03         $.00        $.00`

63

---

* * * * * * *

SYSTEMAX INC.

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

For the years ended December 31:
(in thousands)

`Balance at    Additions
                                                    Beginning of   Charged to                               Balance at
Description                                            Period       Expenses      Write-offs     Other     End of Period
                                                       ------       --------      ----------     -----     -------------
Allowance for sales returns and doubtful accounts
2004                                                   $10,000        $5,079       ($3,761)                   $11,318
2003                                                   $11,275        $3,906       ($5,181)                   $10,000
2002                                                   $11,120        $4,581       ($4,426)                   $11,275

Reserve for excess and obsolete inventory
2004                                                    $9,022        $8,065       $(4,591)       $137        $12,633
2003                                                    $8,262        $5,318       $(4,879)       $321         $9,022
2002                                                    $8,966        $2,469       $(3,441)       $268         $8,262

Allowance for deferred tax assets
2004
   Current                                                $698                       ($285)                      $413
   Noncurrent                                          $12,953        $1,147       ($3,683)        226        $10,643
2003
   Current                                              $1,570                       ($872)                      $698
   Noncurrent                                          $12,705          $785         ($976)       $439        $12,953
2002
   Current                                                            $1,570                                   $1,570
   Noncurrent                                           $8,681        $4,035          ($11)                   $12,705

Product warranty provisions
2004                                                    $2,642          $168         ($799)                    $2,011
2003                                                    $2,849          $473         ($680)                    $2,642
2002                                                    $2,400        $1,266         ($817)                    $2,849`

64

---

EXHIBIT INDEX

|23
31.1
31.2
32.1
32.2 | Consent of experts and counsel: Consent of Independent Public
Accountants
Certification of the Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
Certification of the Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
Certification of the Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
Certification of the Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|---------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------