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                       SECURITIES AND EXCHANGE COMMISSION

                            WASHINGTON, D.C. 20549


                                   FORM 10-K

            [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                        SECURITIES EXCHANGE ACT OF 1934


                FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 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 0-24244



                             CHS ELECTRONICS, INC.
            (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


<TABLE>
<S>                                           <C>
                  FLORIDA                                  87-0435376
-------------------------------------------   -----------------------------------
          (STATE OR OTHER JURISDICTION OF     (I.R.S. EMPLOYER IDENTIFICATION NO.)
           INCORPORATION OR ORGANIZATION)
</TABLE>


<TABLE>
<S>                                         <C>
              2000 N.W. 84TH AVENUE
              MIAMI, FLORIDA                 33122
-----------------------------------------   --------
        (ADDRESS OF PRINCIPAL EXECUTIVE     ZIP CODE
                 OFFICES)
</TABLE>

      REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (305) 716-8273


          SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:


                                      NONE


          SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:


                         COMMON STOCK, PAR VALUE $0.001
                                   --------
                               (TITLE OF CLASS)


     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  YES 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 of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to the Form 10-K. [ ]


     The aggregate market value of the registrant's voting stock held by
non-affiliates computed by reference to the high and low sales prices in the
Nasdaq National Market on March 23, 1998, was approximately $668,627,385. As of
March 23, 1998, the registrant had outstanding 49,908,172 shares of Common
Stock, par value $0.001.


                      DOCUMENTS INCORPORATED BY REFERENCE


     Incorporated herein by this reference is the definitive proxy or
information statement for the 1998 Annual Meeting of Shareholders to be filed
by the Company with the Commission under Regulation 14A or Regulation 14C.

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<PAGE>

                                    PART I



ITEM. 1 BUSINESS


GENERAL


     CHS Electronics, Inc. ("CHS" or the "Company") is a leading international
distributor of microcomputer products, including personal computers,
peripherals, networking products and software. As of December 31, 1997, CHS
operated in 39 countries primarily in Western Europe, Eastern Europe and Latin
America, and serviced an active customer base of more than 102,000 resellers.
In 1997, approximately 90% of the products sold by the Company were
manufactured by 60 equipment and software vendors, including such market
leaders as Hewlett-Packard, Microsoft, IBM, Seagate, Compaq, Quantum, Western
Digital, Intel, 3Com, Toshiba, Epson, Sun and Creative Labs. The Company is a
focused distributor, as opposed to a broadline distributor, and seeks to
represent leading vendors within specific product categories. CHS believes that
it is the third largest distributor of microcomputer products in the world and
the largest distributor in Western Europe, Latin America and Eastern Europe.
The Company has no significant sales in the United States.


     CHS operates under a decentralized structure in which managers familiar
with the customs and needs of a particular country are delegated the authority
to make daily decisions necessary to satisfy the particular demands of their
respective markets. Unlike certain competitors which operate under a more
centralized system, the Company believes that its business model of focused
distribution through locally managed full service facilities integrating
warehousing, purchasing, sales, credit and accounting services provides
competitive and operating advantages.


     The Company's operating results have increased significantly in the
five-year period ended December 31, 1997, with net sales increasing from $146.4
million in 1993 to $4.8 billion in 1997 and operating earnings increasing from
$0.4 million in 1993, to $89.2 million in 1997.


     The world headquarters of the Company is located at 2000 N.W. 84th Avenue,
Miami, Florida 33122, where its telephone number is (305) 908-7200.


RECENT DEVELOPMENTS


     On March 9, 1998, the Company acquired an 80% interest in the Hong Kong,
Malaysia and Singapore subsidiaries of SiS Distribution Ltd. ("SiS"), a Hong
Kong based distributor, for $70.4 million, and paid $28.2 million of such
amount on such date (representing 40% of the purchase price). The Company has
the option to pay the remaining portion of the purchase price in cash or stock.
Such amount will become payable on March 9, 1999. To fund the portion of the
purchase price paid at closing on March 9, 1998, the Company entered into a $30
million short term loan with Swiss Bank Corporation as agent (the "Short Term
Loan"). The Short Term Loan matures on September 9, 1998 and bears interest at
an annual rate of four percent above the prime rate of Swiss Bank Corporation
or the London Interbank Offered Rate ("LIBOR"), increased by 0.5% for every
three month period that a portion of the loan remains outstanding. The Company
intends to repay this loan from the proceeds of an offering of $200 million of
Senior Notes due 2005. The Notes will be sold in a Rule 144A and Regulation S
private offering and will not be registered under the Securites Act of 1933, as
amended, and may not be offered or sold in the United States absent
registration or an applicable exemption from said Registration (the "Note
Offering").


     On November 17, 1997, the Company announced that it had entered into
agreements to acquire four Eastern European, one Western European and one Latin
American distribution companies with 1997 revenues totaling approximately $565
million. These acquisitions are expected to be completed by the end of the
second quarter of 1998. The companies to be acquired are: (i) TH' Systems,
which is based in the Czech Republic, distributes to 3,000 resellers in the
Czech Republic, Hungary, Poland and Slovakia and had 1997 sales of $143
million; (ii) Merisel Russia, which is a Moscow-based former


                                       1
<PAGE>

subsidiary of Merisel, Inc., distributes to 600 resellers and had 1997 sales of
$57 million; (iii) Arena and Armada, two distribution companies based in
Istanbul, Turkey serving over 3,000 resellers which had combined sales in 1997
of $131 million; (iv) ARC Spain, based in Madrid which had 1997 sales of $100
million to more than 4,000 resellers in Spain, and (v) Micro-Informatica, based
in Miami, Florida, with 1997 sales of $134 million to over 3,000 resellers in
Latin America.


     On October 3, 1997, the Company completed the acquisition of 97.4% of the
outstanding capital stock of Santech Micro Group ASA ("Santech") for
approximately $125 million. The Company expects to acquire the remainder of the
shares at the same per share price. Santech was formed as a result of the July
1996 merger of Santech ASA and Micro Software ASA. Santech is the largest
distributor of microcomputer products in Scandinavia with operations in Norway,
Sweden and Denmark and had revenues of $718 million and net losses of $11
million in 1996. The Company believes that the acquisition of Santech will more
than double the Company's sales in Scandinavia, thereby providing it with a
market leadership position in the region. Santech distributes the products of
the same vendors as other subsidiaries of the Company. The significant volume
of sales of Santech, when combined with the product purchases of the Company's
other subsidiaries in Europe, should enable the Company to negotiate more
favorable purchase terms from vendors.


     Santech's operating results during 1996 and 1997 were adversely impacted
as a result of restructuring its operations after the July 1996 merger.
Operating results were also impacted adversely by the implementation of a new
computer system in the first six months of 1997. The adverse impact included
costs associated with a reduction in the number of its product lines to under
100 and in the number of employees from 450 to 320. The Company believes that
these factors have been addressed and therefore believes that these issues
should not have a material adverse impact on Santech's or the Company's future
operations. Since its acquisition by the Company, Santech's operations have
been profitable. In the fourth quarter of 1997, Santech contributed $4.6
million in incremental EBITDA.


     On August 4, 1997, the Company purchased all of the outstanding capital
stock of Karma International S.A. ("Karma"), a distributor of personal computer
components to over 10,000 customers in Europe, the Middle East and Asia. The
purchase price for Karma was $160 million and was funded through (i) $74
million in cash and (ii) 4,813,432 shares of unregistered Common Stock. Karma's
product line includes mass storage products, CPUs, memory chips, motherboards,
sound, video and other cards and monitors. Karma is a focused distributor which
carries approximately 500 stock keeping units ("SKUs") from 14 vendors
including Quantum, Western Digital, Maxtor, Cyrix and AMD. These products
represent the basic components of a personal computer and may be used without
regard to the specific language, regulatory and technical factors of individual
markets. As a result of the universal nature of these products, Karma is able
to centralize warehousing and ship approximately 75% of its products from a
single facility in Amsterdam, The Netherlands. Karma's customers are primarily
personal computer assemblers, systems integrators and value-added resellers
("VARs"). The Company believes that Karma's principal competitive advantages
are its low cost operating model and efficient distribution system. Karma
operates in 18 countries through 28 offices in Europe, the Middle East and
Asia. Karma was organized in July 1990 and, for the twelve months ended
December 31, 1996, had net sales of approximately $700 million, operating
earnings of $18.5 million and net profits of $15.1 million.


     The acquisition of Karma provided the Company entry into the high growth
emerging markets of Asia and the Middle East and enhanced its position as a
leading distributor of mass storage products throughout Europe. The acquisition
of Karma also provided the Company with additional economies of scale with
regard to purchasing and logistics and enabled it to further broaden its
customer base. As a result of the acquisition of Karma, the Company believes
that it is the largest distributor of mass storage products in the world.
Karma's existing management continues to operate Karma as a subsidiary of CHS.
One representative of Karma was elected to the Board of Directors of CHS with
an additional member to be nominated in 1998.


     On March 20, 1997, the Company completed the acquisition of Frank & Walter
Computer GmbH ("Frank & Walter") for 3.3 million unregistered shares of Common
Stock. For the twelve months ended


                                       2
<PAGE>

December 31, 1996, Frank & Walter had net sales of approximately $686 million,
operating earnings of $10.9 million and net profits of $3.5 million. The
results of operations of Frank & Walter have been included in the Company's
financial statements since January 1, 1997. The Company believes that Frank &
Walter was, at the time of acquisition, the fourth largest distributor of
microcomputer products in Germany with over 10,000 active dealers. As a result
of this acquisition, the Company believes it is the largest distributor of
microcomputer products in Germany. Carsten Frank, the founder of Frank &
Walter, became a director of CHS and initially became the CHS executive vice
president responsible for the Company's operations in Europe. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."


INDUSTRY


     The microcomputer products distribution industry has grown significantly
in recent years, primarily due to increasing demand worldwide for computer
products and the use of distribution channels by vendors for the distribution
of their products. Historically, there have been two types of companies within
the distribution industry: those that sell directly to the end-user
("resellers") and those that sell to resellers ("distributors"). Distributors
generally purchase a wide range of products in bulk directly from vendors and
then ship products in smaller quantities to many different types of resellers,
which typically include dealers, VARs, system integrators, mail order
resellers, computer products superstores and mass merchants.


     The Company believes that the microcomputer products industry is
well-suited for distribution. The large number and diversity of resellers make
it cost efficient for manufacturers to outsource a portion of their
distribution, credit, inventory, marketing and customer support requirements to
distributors such as the Company. Similarly, due to the large number of
vendors, resellers generally cannot efficiently establish direct purchasing
relationships with each vendors and instead rely on distributors to satisfy a
significant portion of their product, financing, marketing and technical
support needs.


     The Western European, Eastern European and Latin American markets are each
highly fragmented. Different languages, cultures and technological factors
require experienced local management teams and products which meet the
requirements of the specific area. Requirements that are unique to an area
include customized manuals, approvals of safety factors by local authorities,
microcode which permits the generation of characters in local languages, and
voltage standards. These factors require distributors in these markets to carry
a variety of different SKUs to meet such demands. As a result, manufacturers
depend heavily on distributors such as the Company to meet the differing
demands of each locale.


STRATEGY


     To achieve its objectives of strengthening its position as a leading
distributor of microcomputer products in Western Europe, Eastern Europe and
Latin America and expanding its operations in Asia, the Middle East and Africa,
the Company has adopted the following strategies:


   /bullet/ OPERATE A FOCUSED DISTRIBUTION MODEL IN FRAGMENTED MARKETS. The
     Company's strategy is to operate as a focused distributor in fragmented
     markets by dealing in such markets with a limited and select group of high
     quality branded manufacturers in each major product category, such as
     Hewlett-Packard for printers, Microsoft for software and networking,
     Seagate, Quantum and Western Digital for mass storage and Hewlett-Packard,
     Compaq and IBM for personal computers. The Company believes that the
     markets for its products outside of the United States are fragmented.
     Additionally, the Company seeks to be a significant distributor for each
     of its major vendors and establish a partnering relationship with them.
     The Company believes that its strategy of focused distribution in
     fragmented markets enables it to respond more quickly to customer requests
     and gives it greater availability of products, access to new products and
     improved pricing. The Company believes this strategy also enables it to
     develop greater expertise


                                       3
<PAGE>

     in the sale and servicing of the products of these manufacturers. The
     Company also believes that its focused distribution model results in more
     effective asset management. Generally, products from leading manufacturers
     are in greater demand, resulting in more efficient inventory management,
     including greater inventory turns, lower working capital requirements and
     fewer SKUs. The largest CHS operating subsidiaries maintain between 10,000
     and 14,000 SKUs per location while broadline distributors typically carry
     more than 40,000 SKUs.


   /bullet/ PENETRATE AND FURTHER DEVELOP SELECTED MARKETS. The Company has
     focused its activities on the distribution of microcomputer products in
     Western Europe and the emerging markets of Eastern Europe and Latin
     America. Additionally, the Company intends to expand its operations in
     Asia, the Middle East and Africa. The Company believes that these regions
     are underserved with respect to the distribution of microcomputer products
     and therefore provide significant growth opportunities. The Company
     further believes that these markets are complex due to the diversity of
     language, regulatory, technical and other factors and provide attractive
     opportunities for CHS to add value to its relationships with its vendors
     and customers through the presence of its knowledgeable local management.
     The Company is considering entering the United States market in a way that
     would provide the economies of scale which the Company believes are
     necessary to operate effectively in this market. The Company believes that
     entering the United States market may provide benefits to its existing
     operations by increasing the volume of purchases which the Company makes
     from its vendors, thus assisting the Company in obtaining enhanced volume
     discounts and other opportunities available to large volume purchasers.
     There can be no assurance that the Company will be able to enter the
     United States market or that any operations in such market would be
     profitable. The Company attempts to limit its exposure to declines in any
     one area or economy by its presence in a large number of markets.


   /bullet/ OPERATE WITH A DECENTRALIZED OPERATING STRUCTURE. CHS operates
     through a decentralized structure, under which each subsidiary is managed
     autonomously. Local operating procedures are utilized as they were
     developed in response to local market conditions. The founders and
     managers of acquired companies typically remain in place to continue
     management of operations and maintenance of local customer relationships.
     This decentralized operating structure is complemented by centralized
     financial controls, which provide the Company's senior managers with
     frequent and regular status reports for each of the Company's operating
     subsidiaries. Management believes that this structure provides the Company
     with significant operating advantages including locally-refined procedures
     within each of the Company's geographic markets which have been developed
     to most effectively address the heterogeneous commercial and cultural
     characteristics of such markets.


   /bullet/ GROW THROUGH ACQUISITIONS. A major portion of the Company's growth
     is attributable to acquisitions and the Company intends to continue its
     practice of making targeted purchases of high quality distributors in
     selected markets. During the period which began January 1, 1995 and ended
     December 31, 1997, the Company made 26 acquisitions, the most significant
     of which were the acquisition of seven European and Latin American
     distribution businesses (collectively, the "Merisel Companies"), from
     Merisel, Inc. ("Merisel"), and the acquisitions of Frank & Walter, Karma
     and Santech. The Company generally seeks companies that have strong
     entrepreneurial management teams and experience in the local market and
     that could benefit from the economies of scale that the Company provides
     through its focused product lines. In order to reduce financial risk and
     enhance operating performance, in many cases the Company structures an
     acquisition with an earnout component based on the performance of the
     acquired company and generally payable in shares of Common Stock one year
     subsequent to the acquisition. The Company also makes select acquisitions
     using cash or stock without an earnout component. These local distributors
     generally are attracted to combining with CHS in order to gain personal
     financial liquidity, access to key product lines provided by CHS and
     enhanced vendor credit facilities. After an acquisition, the new CHS
     subsidiary adopts the policies and financial reporting procedures of the
     Company but operates as a relatively autonomous business unit, consistent
     with the Company's decentralized structure. The Company believes its
     acquisition strategy is


                                       4
<PAGE>

     advantageous to its vendors because, through their relationship with CHS,
     vendors may gain entry into new markets with established local
     distribution companies and can substitute the creditworthiness of CHS for
     that of the local distributor.


PRODUCTS AND CUSTOMERS


     The Company's sales consist of hardware and software products such as
local area networks, disk drives, personal computers and printers to an active
customer base, as of December 31, 1997, of more than 102,000 VARs and computer
retailers. The Company's products also include components such as random access
memory chips, central processing units and integrated circuit boards. For the
year ended December 31, 1997, the Company's product mix by category was mass
storage (21%), personal computers (17%), printers (15%), software (10%),
components (10%), networking and multimedia (10%), peripherals (9%) and other
(8%).


     The Company purchases its products directly from hardware manufacturers
and software publishers in large quantities. As a focused distributor, the
Company focuses on a small number of leading vendors in each product category
and on a small number of high volume items of that manufacturer or publisher.
As a result, the Company carries fewer individual products than broadline
distributors and works with fewer vendors. The largest Company operating
subsidiaries maintain between 10,000 and 14,000 SKUs per location while
broadline distributors typically carry more than 40,000 SKUs.


     The Company's customers typically rely on distributors as their principal
source of microcomputer products and financing. The Company's backlog of orders
is not considered material to an understanding of its business. No single
customer accounted for more than one percent of the Company's net sales in the
year ended December 31, 1997.


VENDOR RELATIONS


     The Company obtains its products from its vendors under non-exclusive
distribution agreements, which are subject to renewal annually and may be
canceled by either party on short notice. Under these agreements, the Company
has the right to purchase products at discounts from the list prices. The
amounts of the discounts are determined each year at the time of renewal on the
basis of the projected sales of the Company for the following year and vary for
each vendor. The Company is not required to make additional product payments if
it fails to achieve its projected sales level for the year, but its product
discounts in the following year may be reduced because of the lower sales
levels. In 1997, 90% of the products distributed by the Company were purchased
from 60 vendors; 35%, 34% and 19% of its net sales during the years ended
December 31, 1995, 1996 and 1997, respectively, were derived from the sale of
products supplied by Hewlett-Packard. An additional 12% of sales during 1996
and 10% of net sales during the 1997 were derived from the Company's next
largest supplier, Microsoft. The Company's agreements with vendors provide a
form of price protection specifying that if the list price of a product is
reduced by the vendor, the Company will typically receive a credit in the
amount of the reduction in distributor cost for each item of the product in
inventory.


     The Company also has stock rotation arrangements with substantially all of
its vendors. Stock rotation permits the Company to return inventory for full
credit in an amount equal to a certain percentage of the Company's purchases
from the supplier over a specific period. In certain cases, the Company must
purchase inventory at least equal in value to that returned. These agreements
permit the Company to maintain higher inventory levels while limiting the
amount of committed working capital related to slow-moving items.


     Vendors deliver products against purchase orders tendered by the Company.
The Company will often request specific delivery dates in its purchase orders
and lead times for delivery from vendors are typically short. Delivery is,
however, subject to availability, and vendors have no liability to the Company
for failure to meet a delivery date. The Company experiences delivery delays
and inventory


                                       5
<PAGE>

shortages from time to time. In the opinion of management, these delays and
shortages are common to other distributors of microcomputer products in
general, and do not have a significant adverse impact on the Company's
operations.


     The Company's vendors have increased available credit to the Company
commensurate with its growth. Many of the Company's vendors provide discounts
for prompt payment. Generally, the Company is required to make payment within
14 to 90 days following delivery of products. With some vendors, the Company
can earn a discount for early payment of between 1.5% and 3% of the invoice
amount. To the extent sufficient funds are available, the Company attempts to
take advantage of these discounts.


     Several of the Company's vendors also provide for volume rebates based on
achieving a predetermined goal of products sold during a quarter period. The
Company has experienced increases in such amounts in recent periods in
connection with its growth.


     Generally, the Company's vendors have the right to terminate their
respective distribution agreements on short notice to the Company. In some
cases, the Company must be given a reasonable opportunity to cure any violation
of the agreement before it may be terminated. The Company similarly has the
right to terminate its distribution agreements on short notice to the vendor.
The Company is of the opinion that its relationships with its vendors are good,
and has no reason to believe that its current material distribution agreements
will be terminated or not renewed in the foreseeable future.


SALES, MARKETING AND CUSTOMER SUPPORT


     In order to address the individual customs, practices and business
conventions within countries effectively, each operating subsidiary of the
Company maintains general autonomy with respect to sales, marketing and
customer support. Oversight and strategic direction are provided by senior
management of the Company.


     SALES. The Company markets its products to resellers, who either package
the Company's products with other computer equipment or sell the products on an
individual basis to end-users. As of December 31, 1997, the Company distributed
products to approximately 69,000 active resellers in Western Europe, 22,000 in
Latin America and 11,000 in Eastern Europe.


     Each operating subsidiary maintains a sales staff organized to interface
effectively with its respective customer base. As of December 31, 1997,
approximately 41% of the Company's employees were involved in sales activities.
 


     The Company's customers typically place orders with a sales
representative. Almost all orders are for pick-up or next day delivery. The
Company's computer systems generally allow the representative to check customer
credit limits, current inventory levels and pricing.


     MARKETING. The Company utilizes a variety of programs to market its major
vendors' products, including direct mailings, periodic advertising by
facsimile, advertisements in industry trade publications, product brochures,
seminars and participation in selected trade shows. Marketing programs are
effectuated at the subsidiary level and are designed to build awareness of the
Company, its products and their collective capability. Each operating
subsidiary maintains staff to provide marketing support.


     Funds for the Company's advertising budget generally are obtained from
cooperative advertising reimbursements and market development funds provided by
vendors. Cooperative reimbursements have typically represented approximately 1%
to 2% of the dollar amount of products purchased from those major vendors.
Marketing programs designed for cooperative reimbursement are vendor and
product specific and are designed with vendor approval. Market development
funds are provided to create market awareness of vendors' products. Cooperative
advertising reimbursements and market development funds are recorded in the
Company's financial statements as a reduction of selling, general and
administrative expenses.


                                       6
<PAGE>

     CUSTOMER SUPPORT. Under several vendor agreements, the Company is required
to maintain a staff of qualified and trained sales, repair, and support
employees who are able to provide information and advice to resellers, provide
warranty repair service and train resellers on the vendor's products, their
applications, configurations with other computer products, and installation and
support requirements. The employees of the Company fulfilling these functions
are required to complete training courses provided by the vendor.


     In addition, the Company supports all products with a full manufacturer's
warranty and maintains an industry standard return policy, similar to that of
its competitors.


INTERNAL AUDIT


     The Company currently maintains 8 internal auditors on its staff; six for
Europe and Karma, one for Latin America, and the Director of Internal Audit.
The Company has two auditors that specialize in inventory audits. The inventory
auditors report directly to the President. The other auditors report directly
to the director of internal audit who reports to the Chief Financial Officer of
the Company and to the Audit Committee of the Board of Directors. The Company
intends to expand its internal audit staff consistent with its growth. During
1997, there were 83 internal and 31 inventory audits performed with respect to
the Company.


COMPETITION


     The Company operates in an industry which is characterized by intense
competition based on price, product availability, provision of credit to
customers, delivery time, customer support services and breadth of product
line. Competition exists in a variety of forms including direct sales by
vendors, mail order sales, international distributors, and local distributors.
Some of the Company's competitors have greater financial and administrative
resources than the Company. The Company believes availability of products is a
key element of competitiveness and attempts to differentiate itself from its
competition by providing a select number of name brands in each product line
and maintaining a sufficient inventory of select products to meet demand. The
Company enhances its competitive position by providing responsive customer
service through support and employee training programs. The Company believes
that its vendors and their products are respected in the industry for high
quality and performance.


     Vendor contracts frequently limit sales of their products to specific
geographic areas. Although these restrictions limit the ability of the
Company's subsidiaries to sell outside of their jurisdictions, competition in
the subsidiary's area is also reduced.


EMPLOYEES


     At December 31, 1997, the Company employed approximately 4,260 full-time
employees of whom 400 were located in the United States. Of the total number of
employees, approximately 1,760 worked in marketing and sales, 800 worked in
warehousing and delivery and 1,700 were employed in other positions, including
administration. Employees in certain countries are represented by labor
councils mandated by government regulations which determine compensation and
benefits. With these exceptions, none of the Company's employees are
represented by unions. Severance costs associated with termination of
employment in many countries are higher than in the United States. There has
been no disruption of operations due to a labor dispute. Management considers
its employee relations to be good.


                                       7
<PAGE>

ITEM 2. PROPERTIES


     The corporate headquarters of the Company is located at 2000 N.W. 84th
Avenue, Miami, Florida, which is also the principal operational facility for
its Latin America regional operations and the operations of CHS Latin America,
Inc. The Company's subsidiaries operate through approximately 70 locations
totalling approximately three million square feet. Most locations consist of an
administrative office utilized by the subsidiary and an adjoining or nearby
warehouse and distribution facility.


     In each of the countries, the size set forth above includes sales,
administrative and warehousing functions and may be composed of multiple
facilities. The Company considers its existing facilities to be adequate for
its foreseeable needs.


ITEM 3. LEGAL PROCEEDINGS


     The Company is involved in litigation relating to claims arising out of
its operations in the normal course of business. The Company is not currently
engaged in any legal proceedings that are expected, individually or in the
aggregate, to have a material adverse effect on the Company.


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS


     None

                                       8
<PAGE>

                                    PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

     The following table sets forth for the periods indicated the high and low
closing sales prices of the Company's Common Stock (symbol: CHSE) from January
1, 1996 through June 6, 1996 on the Nasdaq Small-Cap Market and thereafter on
the Nasdaq National Market. The Company effected a one-for-two reverse stock
split on March 14, 1996. On September 15, 1997, the Company effected a
three-for-two forward split for all shareholders of record as of September 2,
1997. All prior amounts have been adjusted to reflect the effects of such
splits. Such prices are based on inter-dealer bid and asked prices, without
markup, markdown, commissions, or adjustments and may not represent actual
transactions.

<TABLE>
<CAPTION>
                                                HISTORIC PRICES
                                            ------------------------
 FISCAL YEAR              PERIOD                HIGH          LOW
-------------   -------------------------   -----------   ----------
<S>             <C>                         <C>           <C>
    1996        First Quarter ...........    $  11.00      $  5.33
                Second Quarter ..........       12.33         6.58
                Third Quarter ...........        9.67         6.67
                Fourth Quarter ..........       13.00         6.83
    1997        First Quarter ...........       16.08        10.33
                Second Quarter ..........       17.75        11.50
                Third Quarter ...........       29.75        17.21
                Fourth Quarter ..........       30.75        14.75
</TABLE>

     The last reported sale price of the Common Stock as reported on the Nasdaq
National Market on March 23, 1998 was $18.25 per share. As of March 23, 1998,
the outstanding Common Stock was held of record by 343 shareholders. The
Company believes that it has in excess of 400 beneficial owners.


     The Company has never paid cash dividends on its Common Stock and does not
anticipate paying cash dividends in the foreseeable future, but intends instead
to retain any future earnings for reinvestment in its business. Any future
determination to pay cash dividends will be at the discretion of the Board of
Directors and will be dependent upon the Company's financial condition, results
of operations, capital requirements and such other factors as the Board of
Directors deems relevant. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."


     In the first quarter of 1997, the Company issued 274,855 shares of its
Common Stock in connection with its acquisition of Wyrsch Trading A.G., a Swiss
limited liability company, and 3,300,000 shares of its Common Stock in
connection with its acquisition of Frank & Walter Computer GmbH, a German
corporation. In the third quarter of 1997, the Company issued 4,813,432 shares
of its Common Stock in connection with its acquisition of Karma International,
S.A., a Luxembourg corporation, and 283,288 shares of its Common Stock in
connection with its acquisition of CompExpress Informatica Ltda, a Brazilian
corporation. Each of the aforementioned issuances of Common Stock were made
without registration under the Securities Act of 1933, as amended (the
"Securities Act"), in reliance upon the exemptions from registration afforded
by Section 4(2) of the Securities Act.


     In January 1998, the Company implemented a Common Stock Purchase Rights
Plan and distributed one right (a "Right") for each share of the Company's
Common Stock outstanding. Each Right has an initial exercise price of $100 for
one-one thousandth of a share of the Company's Series A junior participating
preferred stock. The Rights are not exercisable or transferable, apart from the
Company's Common Stock, until after a person or group acquires, or has the
right to acquire, beneficial ownership of 15% or more of the Company's Common
Stock (which threshold may, under certain circumstances, be reduced to 10%) or
announces a tender or exchange offer to acquire such percentage of the
Company's Common Stock. Upon such occurrence, each Right (other than Rights
owned by such person or group) will entitle the holder to purchase from the
Company, or the particular acquiring person or group under certain
circumstances and conditions, the number of shares of the Company's, or such
person's or group's, Common Stock having a market value equal to twice the
exercise price of the Right. The Rights are redeemable by the Company's Board
of Directors under certain circumstances.


                                       9
<PAGE>

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA


     The following tables set forth certain financial data for each year in the
five year period ended December 31, 1997. The information presented as of and
for the years ended December 31, 1993, 1994, 1995, 1996 and 1997, is derived
from the audited consolidated financial statements of the Company, which
statements have been audited by Grant Thornton LLP, independent public
accountants. The following data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's Consolidated Financial Statements and Notes
thereto included elsewhere herein.



<TABLE>
<CAPTION>
                                                                      TWELVE MONTHS ENDED DECEMBER 31,
                                                   -----------------------------------------------------------------------
                                                       1993          1994          1995           1996            1997
                                                   -----------   -----------   -----------   -------------   -------------
                                                               (IN THOUSANDS, EXCEPT PER SHARE AND OTHER DATA)
<S>                                                <C>           <C>           <C>           <C>             <C>
INCOME STATEMENT DATA:
Net sales ......................................    $146,408      $359,169      $936,703      $1,855,540      $4,756,383
Cost of goods sold .............................     136,968       333,983       868,716       1,724,432       4,409,714
                                                    --------      --------      --------      ----------      ----------
Gross profit ...................................       9,440        25,186        67,987         131,108         346,669
Operating expenses .............................       9,075        21,798        57,188         102,235         257,508
                                                    --------      --------      --------      ----------      ----------
Operating income ...............................         365         3,388        10,799          28,873          89,161
Interest income ................................        (229)         (250)       (1,757)         (3,199)        (11,470)
Interest expense ...............................       1,076         2,070         6,454          11,712          35,618
                                                    --------      --------      --------      ----------      ----------
Earnings (loss) before income taxes and
  minority interest in subsidiaries ............        (482)        1,568         6,102          20,360          65,013
Provision for income taxes .....................         241           603         1,797           6,086          13,988
Minority interest ..............................          --            --            --           2,108           2,634
                                                    --------      --------      --------      ----------      ----------
Net earnings (loss) ............................    $   (723)     $    965      $  4,305      $   12,166      $   48,391
                                                    ========      ========      ========      ==========      ==========
Net earnings (loss) per share--basic ...........        (.21)          .14           .41             .80            1.44
Net earnings (loss) per share--diluted .........        (.21)          .14           .37             .78            1.32
Weighted average shares
  outstanding--basic ...........................       3,403         7,039        10,618          15,244          33,527
OTHER DATA:
Number of countries ............................           2            10            15              28              39
Inventory turns ................................          23            10            10              10               9
Days receivable ................................          31            32            35              36              33
</TABLE>


<TABLE>
<CAPTION>
                                                              AT DECEMBER 31,
                                      ---------------------------------------------------------------
                                          1993         1994         1995        1996         1997
                                      -----------   ----------   ---------   ---------   ------------
<S>                                   <C>           <C>          <C>         <C>         <C>
BALANCE SHEET DATA:
Cash and cash equivalents .........         603        8,368       11,171      35,137        68,806
Working capital (deficit) .........      (1,426)      14,004        9,843      31,506       278,771
Total assets ......................      29,058      164,468      265,804     861,949     1,968,822
Total debt ........................       6,949       23,302       55,239     201,259       371,066
Shareholders' equity ..............       1,930       19,870       29,892     104,533       667,764
</TABLE>


                                       10
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
   OF OPERATIONS


     THE FOLLOWING INFORMATION SHOULD BE READ IN CONJUNCTION WITH THE
CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY AND THE NOTES THERETO
CONTAINED ELSEWHERE HEREIN.


"FORWARD-LOOKING" INFORMATION


     This Form 10-K contains certain "forward-looking statements" within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), which represent the Company's expectations of beliefs,
including, but not limited to, statements concerning gross margins, the effect
of Karma's results on operating expenses and sales of the Company's products.
These statements by their nature involve substantial risks and uncertainties,
certain of which are beyond the Company's control, and actual results may
differ materially depending on a variety of important factors, including the
level of acquisition opportunities available to the Company and the Company's
ability to efficiently price and negotiate such acquisitions on a favorable
basis, the financial condition of the Company's customers, the failure to
properly manage growth and successfully integrate acquired companies and
operations, changes in economic conditions, demand for the Company's products
and changes in competitive environment.


     The Company cautions that the factors described above could cause actual
results or outcomes to differ materially from those expressed in any
forward-looking statements of the Company made by or on behalf of the Company.
Any forward-looking statement speaks only as of the date on which such
statement is made, and the Company undertakes no obligation to update any
forward-looking statement or statements to reflect events or circumstances
after the date on which such statement is made or to reflect the occurrence of
unanticipated events. New factors emerge from time to time, and it is not
possible for management to predict all of such factors. Further, management
cannot assess the impact of each such factor on the business or the extent to
which any factor, or combination of factors, may cause actual results to differ
materially from those contained in any forward-looking statements.


OVERVIEW


     CHS distributes microcomputer products, including personal computers,
peripherals, networking products and software in 39 countries, primarily in
Western Europe, Eastern Europe and Latin America. The Company has pursued and
expects to continue to pursue an aggressive strategy of growth through
acquisitions of distributors in these and other regions. Together with growth
in its existing business, such acquisitions have enabled the Company to
significantly increase net sales and achieve strong operating results. From
1993 to 1997, the Company's net sales increased from $146.4 million to $4.8
billion. The Company attributes these increases in sales to its acquisitions,
increased consumer demand for the Company's products and an expansion of the
range of products offered.


     The Company derives all of its operating income and cash flow from its
operating subsidiaries, most of which are organized and operated outside the
United States. Generally, the Company purchases its inventory with a
combination of United States dollars and local currency and sells in local
currency. The Company seeks to limit its exposure to the risk of currency
fluctuations through hedging. See "--Currency Risk Management."


                                       11
<PAGE>

     The following table sets forth acquisitions made by the Company, the
service areas of the operations acquired and the dates as of which the results
of operations of the acquired company were included in the Company's financial
statements during 1995 to 1997.



<TABLE>
<CAPTION>
                                                                                      DATE INCLUDED IN
SUBSIDIARY(1)                                     SERVICE AREA                      FINANCIAL STATEMENTS
-----------------------------------------------   ------------------------------   ---------------------
<S>                                               <C>                              <C>
CHS Nexsys(2) .................................   Colombia                         December 1997
CHS Ledakon ...................................   Colombia                         November 1997
CHS Romak .....................................   Ireland                          October 1997
CompExpress ...................................   Brazil                           October 1997
Santech .......................................   Norway, Sweden, Denmark          October 1997
Ameritech Argentina(3) ........................   Argentina                        August 1997
Ameritech Exports(3) ..........................   Latin America                    August 1997
Atlantis Skupina(4) ...........................   Slovenia                         August 1997
Karma .........................................   Europe, Middle East and Asia     August 1997
Lars Krull ....................................   Denmark, Norway, Sweden          August 1997
CHS Dinexim ...................................   Latin America                    May 1997
CHS Access and Agora ..........................   Czech Republic                   May 1997
CHS International High Tech Marketing .........   Africa                           April 1997
Frank & Walter ................................   Germany                          January 1997
CHS Estonia ...................................   Estonia                          January 1997
Infocentro de Chile(4) ........................   Chile                            January 1997
CHS Merisel United Kingdom(5) .................   United Kingdom                   October 1996
CHS Merisel France(5) .........................   France                           October 1996
CHS Merisel Switzerland(5) ....................   Switzerland                      October 1996
CHS Merisel Germany(5) ........................   Germany                          October 1996
CHS Merisel Austria(5) ........................   Austria                          October 1996
CHS Merisel Latin America(5) ..................   Latin America                    October 1996
CHS Merisel Mexico(5) .........................   Mexico                           October 1996
CHS Ecuador(4) ................................   Ecuador                          June 1996
CHS Russia ....................................   Russia                           June 1996
CHS Switzerland ...............................   Switzerland                      April 1996
CHS Peru ......................................   Peru                             March 1996
CHS Hungary(4) ................................   Hungary                          February 1996
CHS Poland ....................................   Poland                           November 1995
CHS Czechia(6) ................................   Czech Republic                   October 1995
CHS Sweden ....................................   Sweden                           July 1995
CHS Finland ...................................   Finland                          July 1995
CHS BEK .......................................   Latin America                    July 1995
</TABLE>

----------------
(1) The names are those by which the Company refers to its subsidiaries and are
    not necessarily the legal names of the entities.
(2) The Company owns 65% of this company.

(3) Deemed by the Company to be part of one acquisition.

(4) The Company owns 51% of this company.

(5) Deemed by the Company to be part of one acquisition.

(6) The Company acquired a 16% interest in CHS Czechia in January 1993 and
    acquired the remaining 84% in October 1995.

                                       12
<PAGE>

RESULTS OF OPERATIONS


     The following table sets forth, for the periods presented, the percentage
of net sales represented by certain items in the Company's Consolidated
Statements of Earnings:



<TABLE>
<CAPTION>
                                                YEARS ENDED DECEMBER 31,
                                         ---------------------------------------
                                             1995          1996          1997
                                         -----------   -----------   -----------
<S>                                      <C>           <C>           <C>
Net sales ............................       100.0%        100.0%        100.0%
Cost of goods sold ...................        92.7          92.9          92.7

Gross profit .........................         7.3           7.1           7.3
Operating expenses ...................         6.1           5.5           5.4

Operating earnings ...................         1.2           1.6           1.9
Interest income ......................         (.2)          (.1)          (.2)
Interest expense .....................          .7            .6            .7

Earnings before income taxes .........          .7           1.1           1.4
Income taxes .........................          .2            .3            .3
Minority interest ....................          --            .1            .1

Net earnings .........................          .5%           .7%          1.0%
</TABLE>

1997 COMPARED TO 1996


     NET SALES. Net sales increased $2.9 billion, or 156.3%, from $1.9 billion
in 1996 to $4.8 billion in 1997 due principally to acquisitions and, to a
lesser extent, internal growth. Of the increase in net sales, newly acquired
subsidiaries (including existing CHS companies for the first nine months of
1997 which were integrated with companies acquired from Merisel) contributed
$2.5 billion. Net comparable sales of subsidiaries consolidated for both 1996
and 1997 grew $371.3 million or 28.0%. This growth is attributed to increased
consumer demand for microcomputer products offered by the Company.


     GROSS PROFIT. Gross profit increased $215.6 million, or 164.4%, from
$131.1 million in 1996 to $346.7 million in 1997 due principally to
acquisitions and, to a lesser extent, internal growth. Gross profit on a
comparable basis for subsidiaries consolidated for both 1996 and 1997 increased
$42.4 million, or 48.3%. Newly acquired subsidiaries (including existing CHS
companies for the first nine months of 1997 which were integrated with
companies acquired from Merisel) contributed $173.1 million of increased gross
profit.


     Gross margin increased from 7.1% in 1996 to 7.3% in 1997. The change in
gross margin was due to increased early payment discounts and vendor rebates
offset to some extent by lower gross margins of the recently acquired Karma
operations. The Company utilized more early payment discount opportunities as a
result of the cash generated by its public equity offering in July 1997.
Additionally, the Company's growth has resulted in more favorable volume
rebates with certain key vendors. The increase in gross margin attributable to
early payment discounts (0.2%) and volume rebates (1.4%) was offset by the fact
that the Karma operation has a lower gross margin due to the nature of the
products sold. The Company expects that 1998 gross margins will be lower than
in 1997 due to the impact of having the Karma operations included in the entire
year and due to continued competitive pressures. Although the Company has been
achieving higher gross margins (10.5% and 9.3% in 1996 and 1997, respectively)
in its Eastern European operations than in other areas, the Company expects
gross margins in Eastern Europe to continue to decline due to increased
competition and a Company strategy to increase sales through more competitive
pricing. The Company expects that the impact on gross profit due to decreased
gross margins in this geographic area will be fully offset by increased sales.


     OPERATING EXPENSES. Operating expenses as a percentage of net sales
declined from 5.5% in 1996 to 5.4% in 1997. Included were the expenses of
maintaining a minimally utilized warehouse in the Netherlands in 1997 and $1.4
million in Merisel restructuring expenses in 1996. In 1998 the warehouse is
expected to be utilized for distribution of universal products (E.G., mass
storage and components). The


                                       13
<PAGE>

comparative operating expense ratios without these items would have been 5.4%
for 1997 and 5.4% for 1996. The Company expects that the inclusion of Karma's
results for a full year will result in operating expenses being a lower
percentage of net sales based on the lower operating expenses of Karma.
Operating expenses for both periods include the results of foreign currency
transactions. Such results were a net gain of $1.2 million in 1997 and $1.6
million in 1996.

     NET INTEREST EXPENSE. Net interest expense increased $15.6 million, or
183.7%, from $8.5 million in 1996 to $24.1 million in 1997. The increase is
directly related to the increase in average loan amounts outstanding.

     INCOME TAXES. Income taxes as a percentage of earnings before income taxes
and minority interest in subsidiaries decreased from 29.9% in 1996 to 21.5% in
1997. The change is due to a higher proportion of income earned in
jurisdictions with lower tax rates and the use of net operating loss
carryforwards, offset, to a certain extent, by losses in subsidiaries with no
tax benefit and non deductible goodwill amortization. The Company expects to
have an effective tax rate lower than the statutory United States tax rate in
1998 principally due to its ability to use remaining net operating loss
carryforwards from certain subsidiaries and the proportion of income expected
in jurisdictions with lower tax rates.


1996 COMPARED TO 1995

     NET SALES. Net sales increased $918.8 million, or 98.1%, from $936.7
million in 1995 to $1.9 billion in 1996 due principally to acquisitions and, to
a lesser extent, internal growth. Of the increase in net sales, subsidiaries
not included in both 1995 and 1996 contributed $640.7 million. Net comparable
sales of subsidiaries consolidated for both 1995 and 1996 grew $278.1 million
or 29.7%. This growth is attributed to increased consumer demand for
microcomputer products offered by the Company and the expansion of sales by the
Company's subsidiaries to include a full range of products.

     GROSS PROFIT. Gross profit increased $63.1 million, or 92.8%, from $68.0
million in 1995 to $131.1 million in 1996 due principally to acquisitions and,
to a lesser extent, internal growth. Gross profit on a comparable basis for
subsidiaries consolidated for both 1995 and 1996 increased $13.6 million, or
20.0%. Subsidiaries not included in both 1995 and 1996 contributed $49.5
million of gross profit.

     Gross margin decreased from 7.3% in 1995 to 7.1% in 1996. The decrease was
due to lower gross margins from subsidiaries located in Western Europe,
particularly those operations acquired from Merisel, which, as a result of high
volumes of sales by those entities, had a significant impact on the Company's
gross margin as a whole. The Company attributes the decrease in gross margins
to competitive pressures in this region, especially in Germany. The Company's
subsidiaries in Germany had the lowest gross margins of all its European
subsidiaries in 1996. The Company expects that overall gross margin may
continue to decline in 1997 due to continued competitive pricing pressures and
the fact that the gross margins of the acquired Merisel companies have been
generally lower than that of the Company and will be included in the
consolidation for the full year. In addition, the acquisition of Frank &
Walter, which operates in Germany, where gross margins are generally lower,
will also impact overall gross margin. The gross margin of the combined Merisel
companies for the nine months ended September 30, 1996 was 7.0%.

     OPERATING EXPENSES. Operating expenses as a percentage of net sales
declined from 6.1% in 1995 to 5.5% in 1996. The decline was due to efficiencies
gained through increased sales volume and the Company's efforts to control
costs. The reduction was achieved even though a provision of $1.4 million was
made for restructuring costs incurred by CHS (consisting of severance costs for
CHS employees, write-off of CHS leasehold improvements and lease termination
costs of CHS closed facilities) to implement consolidation in markets in which
a CHS company previously existed and a company was acquired from Merisel. The
operating expense ratio without such charge would have been 5.4% for the year.

     NET INTEREST EXPENSE. Net interest expense increased $3.8 million, or
81.2%, from $4.7 million in 1995 to $8.5 million in 1996. The increase is
directly related to the increase in average loan amounts outstanding.


                                       14
<PAGE>

     INCOME TAXES. Income taxes as a percentage of earnings before income taxes
and minority interest in subsidiaries increased slightly from 29.4% in 1995 to
29.9% in 1996. Management does not believe this change is significant. The
difference between this tax rate and the statutory United States tax rate is
due to the utilization of net operating loss carryforwards and lower foreign
tax rates, offset to some extent by losses in subsidiaries with no tax benefit
and non-deductible goodwill amortization.


SEASONALITY


     The Company typically experiences variability in its net sales and net
income on a quarterly basis as a result of many factors, including the
condition of the microcomputer industry in general, shifts in demand for
software and hardware products and industry announcements of new products or
upgrades. Sales in Europe in the first and fourth quarters of each year are
typically higher than in the second and third quarters. In Latin America, sales
in the third and fourth quarters of each year are typically higher than in the
first and second quarters.


LIQUIDITY AND CAPITAL RESOURCES


     Net cash of $248.5 million and $99.1 million was used in operating
activities in the years ended December 31, 1997 and 1996, respectively. In both
years, cash was used principally due to increases in inventories, trade
accounts receivable and amounts due from affiliates, offset in 1996 by
increases in accounts payable. In 1997, cash was also used to lower accounts
payable and accrued expenses. Net cash used in investing activities in 1997 and
1996 included $19.5 million and $11.6 million, respectively, related to fixed
asset additions. In addition, $201.5 million and $26.9 million were used in
acquisitions during the years ended December 31, 1997 and 1996, respectively.
Net cash of $507.2 million and $163.3 million was provided by financing
activities in the years ended December 31, 1997 and 1996, respectively, due
principally to proceeds of equity public offerings totalling $428.2 million in
1997 and $50.6 million in 1996. Furthermore, net borrowings from banks totalled
$74.7 million and $112.5 million in the years ended December 31, 1997 and 1996,
respectively.


     Certain of the Company's United States based subsidiaries are parties to a
Loan and Security Agreement providing for revolving credit advances and the
issuance of letters of credit against eligible accounts receivable and
inventory up to a maximum of $60 million. Amounts outstanding bear interest, at
the election of the borrowers, at either a variable market rate based on the
prime rate of the lender or LIBOR. The agreement limits the ability of the
borrowers to pay dividends to the Company. The agreement matures in October
1999 and is secured by a lien on essentially all of the borrowers' assets. The
agreement contains certain restrictive covenants. During November and December
1997, the borrowers were in violation of requirements to deposit receipts in
specified accounts. The lender has waived these violations. The Company has
guaranteed this indebtedness.


     The Company's subsidiaries typically enter into revolving credit
agreements with financial institutions in their countries of operations. At
December 31, 1997, the aggregate amount available under these agreements was
$445.4 million and $348.3 million was then outstanding. Such agreements are
usually for a term of one year and are secured by the receivables of the
borrower. The weighted average interest rate at December 31, 1997 was 7.3%. The
Company typically guarantees these loans. The Company has also guaranteed the
obligations of certain of its subsidiaries to manufacturers.


     The Company derives all of its operating income and cash flow from its
subsidiaries and relies on payments from, and intercompany borrowings with, its
subsidiaries to generate the funds necessary to meet its obligations. In
certain countries, exchange controls may limit the ability of the Company's
subsidiaries to make payments to the Company. Restrictions in financing or
credit arrangements may also limit access to such earnings. Certain of the
Company's subsidiaries are parties to financing agreements that limit the
ability of such subsidiaries to make payments to the Company. In the year ended
December 31, 1997, the contribution of such subsidiaries to the Company's
consolidated EBITDA was 16%. Claims of creditors of the Company's subsidiaries
will generally have priority as to the assets and cash flow of such
subsidiaries over the claims of the Company or its creditors. See Note F to the
Consolidated Financial Statements.


                                       15
<PAGE>

     The Company has completed a risk assessment of the ability of its
information systems to operate in light of the "year 2000 problem." Based on
the assessment, the Company has developed an action plan, which principally
consists of replacing existing non-compliant systems with new systems. The
Company believes it is feasible to acquire such new systems before the year
2000 and that the cost of such systems are within its capital cost budget and
financing capabilities.

     The Company's principal need for additional cash in 1998 will be for the
purchase of additional inventory to support growth and to take greater
advantage of available cash discounts offered by certain of the Company's
vendors for early payment and to pay amounts due to sellers of businesses. The
Company anticipates funding this cash requirement partially through the Note
Offering, the New Credit Facility and its subsidiaries' existing bank credit
lines and through additional credit facilities, but there can be no assurance
that financing will be available on terms acceptable to the Company. The
unavailability of such financing could adversely affect the growth of the
Company.


INFLATION

     The Company operates in certain countries that have experienced high rates
of inflation and hyperinflation. However, inflation did not have any meaningful
impact on the Company's results of operations during the year ended December
31, 1997 nor during the three-year period ended December 31, 1997, and the
Company does not expect that it will have a material impact during 1998.


ASSET MANAGEMENT

     INVENTORY. The Company's goal is to achieve high inventory turns and
maintain a low number of SKUs and thereby reduce the Company's working capital
requirements and improve return on equity. The Company's strategy to achieve
this goal is to both manage its inventory effectively and achieve high order
fill rates.

     To reduce the risk of loss to the Company due to vendor price reductions
and slow moving or obsolete inventory, the Company's contracts with its vendors
generally provide price protection and stock rotation privileges, subject to
certain limitations. Price protection allows the Company to offset the accounts
payable owed to a particular vendor if such vendor reduces the price of
products the Company has purchased within a specified period of time and which
remain in inventory. Stock rotation permits the Company to return to the vendor
for full credit, with an offsetting purchase order for new products,
predetermined amounts of inventory purchased within a specified period of time.
Such credit is typically used to offset existing invoices due without incurring
re-stocking fees.

     ACCOUNTS RECEIVABLE. The Company manages its accounts receivable to
balance the needs of its customers to purchase on credit with its desire to
minimize its credit losses. Bad debt expense as a percentage of the Company's
net sales for each of the years ended 1996 and 1997 was 0.2%. The Company's
credit losses have been minimized by its extensive credit approval process and
the use of credit insurance and factoring by its Western European subsidiaries.
In its sales to customers in Latin America, the Company often receives
post-dated checks at the time of sale. Customers who qualify for credit are
typically granted payment terms appropriate to the customs of each country.


CURRENCY RISK MANAGEMENT

     FUNCTIONAL CURRENCY. The Company's functional currency, as defined by
Statement of Financial Accounting Standards ("SFAS") No. 52, is the United
States dollar. Most of the Company's subsidiaries use their respective local
currencies as their functional currency and translate assets and liabilities
using the exchange rates in effect at the balance sheet date and results of
operations using the average exchange rates prevailing during the year.
Translation effects are reflected in the cumulative foreign currency
translation adjustment in equity. The Company's exposure under these
translation rules, which is unhedged, may affect the carrying value of its
foreign net assets and therefore its equity and net tangible book value, but
not its net income or cash flow. Exchange differences arising from transactions
and balances in currencies other than the functional currency are recorded as
expense or income in the subsidiaries and the Company and affect the Statements
of Earnings.


                                       16
<PAGE>

     HEDGING AND CURRENCY MANAGEMENT ACTIVITIES. The Company attempts to limit
its risk of currency fluctuations through hedging where possible. In the year
ended December 31, 1997, a significant amount of the purchases of products by
the Company were made in United States dollars and approximately 88% of Company
sales were made in currencies other than the United States dollar. The primary
currencies in which sales were made were the German mark (29% of sales), the
French franc (10%) and the British pound (9%). At December 31, 1997,
approximately $271.6 million of accounts payable were attributable to foreign
currency liabilities denominated in currencies other than the subsidiaries'
functional currencies. Of these, $229.3 million were denominated in United
States dollars and $26.2 million were denominated in German marks.
Approximately 39% of these liabilities were unhedged. The most significant
unhedged amounts were recorded in Czechian korunas ($24.7 million), Hong Kong
dollars ($21.7 million), Polish zlotys ($14.2 million), Argentine pesos ($13.6
million), and Mexican pesos ($10.6 million).


     CHS Finance, a wholly owned subsidiary of the Company, engages in central
treasury functions including hedging activities related to foreign currency for
the Company and short-term working capital loans to the Company's subsidiaries
to enable them to take advantage of early payment discounts offered by certain
vendors. These loans are denominated in the functional currency of the
borrowing subsidiary or United States dollars. Generally, CHS Finance hedges
its receivables denominated in currencies other than its functional currency,
the Swiss franc. It attempts to limit the amount of unhedged receivables to an
amount which approximates the total unhedged liabilities. The Company intends
to review this policy periodically and may modify it in the future.


     Through both hedging activities coordinated by CHS Finance and subsidiary
hedging activities, the Company makes forward purchases of United States
dollars in an attempt to hedge certain European currencies and reduce exposure
to fluctuations in exchange rates. Additionally, in certain countries in
Eastern Europe and in Latin America where it is not practical to make forward
purchases, to minimize exposure to currency devaluations, the Company has
adopted a policy of attempting to match accounts receivable with accounts
payable and to limit holdings of local currencies. In these countries, the
Company attempts to sell products at the United States dollar equivalent rate.
Factors which affect exchange rates are varied and no reliable prediction
methods are available for definitively determining future exchange rates. In
general, countries make an effort to maintain stability in rates for trade
purposes. There can be no assurance that these asset management programs will
be effective in limiting the Company's exposure to these risks.


NEW ACCOUNTING PRONOUNCEMENTS


     The Financial Accounting Standards Board issued SFAS No. 130,
"Comprehensive Income" in June 1997. SFAS No. 130 requires that changes in the
amounts of items that bypass the income statement and are only reported within
a balance in shareholders' equity be included in a separate financial
statement. The only item that qualifies as a component of comprehensive income
currently bypassing the statement of income is the foreign currency translation
adjustment. SFAS No. 130 becomes effective for fiscal years beginning after
December 15, 1997. The Company believes that the adoption of this standard will
not have an effect on the Company's financial position or result of operations.
 


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


     The consolidated financial statements of the Company appear beginning at
page F-1.


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.


     None.

                                       17
<PAGE>

                                   PART III


ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT


     (a)  Directors of the Company.


     The information required regarding the identification of the Company's
directors is incorporated by reference to the information contained in the
Proxy Statement for the 1998 Annual Meeting of Shareholders of the Company.


     (b)  Executive Officers of the Company.


     The executive officers of the Company, as well as certain key employees,
and their ages as of December 31, 1997, are as follows:



<TABLE>
<CAPTION>
              NAME                 AGE                                 POSITION
-------------------------------   -----   -----------------------------------------------------------------
<S>                               <C>     <C>
Claudio Osorio ................    39     Chairman of the Board, Chief Executive Officer and President
Alvin Perlman .................    70     Executive Vice President--Vendor and Banking Relations
                                            and Director
Carsten Frank .................    34     Executive Vice President--Asian Region and Director
Clifford Dyer .................    59     Executive Vice President--Latin American Region
Craig Toll ....................    49     Vice President of Finance, Chief Financial Officer and Treasurer
Antonio Boccalandro ...........    30     Chief Officer of Mergers and Acquisitions, Secretary
                                            and Director
Pasquale Giordano(1) ..........    47     Executive Vice President--European Region
Arturo Osorio(1) ..............    28     Chief Operating Officer--Latin American Region
Alvi Mazon(1) .................    31     Chief Operating Officer--Karma Operations
Zbynek Kraus ..................    44     General Manager of Czech Republic Operation and Director
</TABLE>

----------------
(1) Each of these persons is a key employee, but not an executive officer of
    the Company.


     CLAUDIO OSORIO (full name--Claudio Eleazar Osorio Rodriguez), the founder
of the Company's current business and operations, has served as the Chairman of
the Board, President, and Chief Executive Officer of the Company since 1993.
Mr. Osorio has served as President of Comtrad since 1988. He is a director of
Comtrad and the President and a director of CHI.


     ALVIN PERLMAN has been a director of the Company since 1993 and Executive
Vice President--Vendor and Banking Relations since August 1997. From 1994 until
August 1997 he was the Executive Vice President--Latin American Region of the
Company. He has served for the past five years as the Chief Executive Officer of
Zemex Electronics, Inc., d/b/a CHS Promark, and was the sole owner of CHS
Promark prior to its acquisition by the Company in June 1994. Mr. Perlman served
as a director of CHI from November 1994 until October 1997.


     CARSTEN FRANK has been a director of the Company since May 1997 and has
been Executive Vice President--Asian Region of the Company since March 1, 1998.
From March 1997 until February 28, 1998, he was the Executive Vice
President--European Region of the Company. Mr. Frank founded Frank & Walter in
1988 and has served as such company's Managing Director since its formation.
Frank & Walter was acquired by the Company in March 1997.


     CLIFFORD DYER has been the Executive Vice President--Latin American Region
of the Company since August 1997. From January 1997 until July 1997 he was the
Chief Operating Officer--Latin American Region. From February 1987 until it was
acquired by the Company in October 1996, Mr. Dyer was President of Merisel
Latin America, Inc. and was responsible for all Latin American


                                       18
<PAGE>

operations. He was the founder in 1982 of the predecessor company to Merisel
Latin America, Inc. Prior to 1982, Mr. Dyer was President of GTE Venezuela and
held directorships in various companies.


     CRAIG TOLL has been the Vice President of Finance of the Company since
August 1997 and has been the Chief Financial Officer of the Company since July
1994 and its Treasurer since June 1995. Mr. Toll was self-employed as a
consultant to CHS Promark from April 1994 to June 1994. For over five years
prior to April 1994, Mr. Toll was a partner in the accounting firm of Deloitte
& Touche.


     ANTONIO BOCCALANDRO has been the Chief Officer of Mergers and Acquisitions
of the Company since August 1997 and has been a director and the Secretary of
the Company since 1993. He was Treasurer of the Company from December 1993 to
June 1995. He has also been employed in various capacities by Comtrad since
1988. Mr. Boccalandro became a director of Comtrad in 1990 and he has been a
director of CHI since June 1994.


     PASQALE GIORDANO has been the Executive Vice President--European Region of
the Company since March 1, 1998. From January 1, 1997 until February 28, 1998
he was Chief Operating Officer--European Region. From January 1989 through
December 31, 1996, Mr. Giordano was the President and Chief Operating Officer
of CHS Promark. Prior to such service, he was a Vice President of CHS Promark
in charge of its New York office. From 1988 until he joined CHS Promark in
1989, Mr. Giordano was Vice President of the electronics division of Abraham &
Strauss, a division of Federated Department Stores, Inc.


     ARTURO OSORIO has been the Chief Operating Officer of the Latin American
Region since September 1997. Mr. Osorio was the General Manager and Northern
Regional Director for CHS Promark from 1994 to 1996 and Director of Sales from
1996 to August 1997. Mr. Osorio occupied various positions in sales and
management for Comtrad from 1988 to 1994.


     ALVI MAZON has been the Chief Operating Officer--Karma Operations of the
Company since August 1997. From September 1990 through July 1997, Mr. Mazon was
the Managing Director of Karma.


     ZBYNEK KRAUS has been a director of the Company since March 1996 and,
since 1993, the General Manager of the Company's Czech Republic operation. From
January to December 1996, Mr. Kraus served as Vice President--East European
Region of the Company. From 1990 to 1993, he was an owner and the sales
director of the Czech Republic operation.


ITEM 11. EXECUTIVE COMPENSATION


     The information required in response to this item is incorporated by
reference to the information contained in the Proxy Statement for the 1998
Annual Meeting of Shareholders of the Company.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT


     The information required in response to this item is incorporated by
reference to the information contained in the Proxy Statement for the 1998
Annual Meeting of Shareholders of the Company.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS


     The information required in response to this item is incorporated by
reference to the information contained in the Proxy Statement for the 1998
Annual Meeting of Shareholders of the Company.


                                       19
<PAGE>

                                    PART IV


ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K


     (a)  Documents Filed as Part of this Report.


        (1)  Financial Statements


           See "Item 8. Financial Statements and Supplementary Data" for
Financial Statements included under this Annual Report on Form 10-K.


        (2)  Financial Statement Schedules


        (3)


<TABLE>
<CAPTION>
 EXHIBIT    DESCRIPTION
---------   --------------------------------------------------------------------------------------------
<S>         <C>
 3.1        Articles of Incorporation(1)
 3.2        Bylaws(1)
10.1        Plan of Acquisition dated June 30, 1994(2)
10.2        Form of Registration Agreement(2)
10.3        Agreement and Plan of Exchange dated June 30, 1994(2)
10.4        Purchase and Sale Agreement dated June 30, 1994(2)
10.5        Repurchase Option Agreement dated June 30, 1994(2)
10.6        Stockholders Agreements dated June 30, 1994(2)
10.7        Employment Agreement for Alvin Perlman(2)
10.8        Notes Payable to Comtrad, Inc., dated May 23, November 14, and December 29, 1994(2)
10.9        Revolving Credit Agreement with The First National Bank of Boston, dated March 1, 1993,
            as amended (2)
10.10       Reseller Agreement with Hewlett Packard dated March 1, 1994(2)
10.11       Reseller Agreement with Hewlett Packard dated November 1, 1994(2)
10.12       Stock Incentive Plan(2)
10.13       Lease for Miami, Florida Facility dated June 29, 1993(2)
10.14       Real Estate Leasing Contract for Nenndorf, Germany Facility dated November 12, 1994(2)
10.15       Loan and Security Agreement by and between Congress Financial Corporation (Florida), as
            Lender and Zemex Electronics International, Inc. as Borrower, dated February 5, 1996,
            together with the guarantee thereof by the Company(1)
10.16       Credit Agreement by and between MashreqBank PSC, New York Branch, as lender and the
            Company, as borrower, dated July 10, 1995(1) and Amendment dated as of August 17,
            1995(3)
10.17       Employment Agreement between the Company and Claudio Osorio dated March 22, 1996(3)
10.18       Employment Agreement between the Company and Craig Toll dated March 22, 1996(3)
10.19       Form of Indemnity Agreement between the Company and each of the Directors of the
            Company and Craig Toll(3)
10.20       Noncompetition Agreement dated April 11, 1996 among the Company, Comtrad, Inc. and
            Comtrad Holdings, Inc.(3)
10.21       Purchase and Sale Agreement between Comtrad, Inc. and the Company dated December 8,
            1993 (CHS Germany)(2)
10.22       Agreement and Plan of Exchange between the Company and Comtrad, Inc., dated April 25,
            1995 (CHS Belgium, CHS England, CHS France and CHS Portugal)(3)
10.23       Agreement and Plan of Exchange between the Company and Comtrad Holdings, Inc. dated
            October 13, 1995 (CHS BEK)(3)
10.24       Agreement and Plan of Exchange between the Company, CHS Czechia s.r.o., Comtrad, Inc.
            and Zbynek Kraus dated October 27, 1995 (CHS Czechia)(3)
</TABLE>

                                       20
<PAGE>


<TABLE>
<CAPTION>
 EXHIBIT    DESCRIPTION
---------   ----------------------------------------------------------------------------------------------
<S>         <C>
10.25       Stock Purchase Agreement between the Company and Comtrad Holdings, Inc. dated
            December 29, 1995 (CHS Poland)(3)
10.26       Stock purchase agreement between the Company and Comtrad, Inc. dated December 29,
            1995 (CHS Sweden)(3)
10.27       Stock Purchase Agreement between the Company and Comtrad, Inc. dated December 29,
            1995 (CHS Finland)(3)
10.28       Purchase Agreement dated January 31, 1996 between the Company and Comtrad Holdings,
            Inc. and the individual persons comprising the "KVENTA QUOTAHOLDERS" (CHS
            Hungary)(4)
10.29       Stock Purchase Agreement between the Company, Contrad Holdings, Inc. and Comtrad, Inc.
            dated March 27, 1996 (CHS Baltic, CHS Bulgaria, CHS Romania, CHS Croatia, CHS Brazil
            and CHS Slovakia)(3)
10.30       Purchase Agreement dated March 1996 between Zemex Electronics International and Cosapi
            Organizacion Empresarial S.A. (CHS Peru)(3)
10.31       Stock Purchase Agreement dated March 29, 1996 between the Company and Hugo Wyrsch
            (CHS Switzerland)(3)
10.32       Loan Agreement dated 29 March 1996 among CHS Finance SA, Singer and Friedlander
            Limited and certain banks named in the Agreement(3)
10.33       Purchase Agreement by and among CHS Electronics, Inc., as Buyer, and Merisel, Inc. and
            Merisel Europe, Inc. as Sellers dated as of August 29, 1996 as amended by First Amendment
            to Purchase Agreement dated as of October 4, 1996(4)
10.34       Second Amendment to Purchase Agreement by and among CHS Electronics, Inc. as Buyer
            and Merisel, Inc. and Merisel Europe, Inc. as Sellers dated as of December 27, 1996(5)
10.35       Settlement Agreement and Release by and among CHS Electronics, Inc. as Buyer and
            Merisel, Inc. and Merisel Europe, Inc. as Sellers dated February 13, 1997(5)
10.36       Agreement as of October 31, 1996 between CHS Electronics, Inc. and Comtrad, Inc.(5)
10.37       Stock Exchange Agreement dated December 19, 1996 between CHS Electronics, Inc. and
            Frank & Walter Computer GmbH(5)
10.38       Modification of Re-Purchase Option Agreement dated July 1996(6)
10.39       Amendment to Stock Purchase Agreement dated October 16, 1996 between CHS
            Electronics, Inc. and Hugo Wyrsch(6)
10.40       Employment Agreement between the Company and Carsten Frank dated December 19,
            1996(6)
10.41       First Amendment to Employment Agreement of Claudio Osorio dated May 12, 1997(6)
10.42       Amended and Joinder to Loan and Security Agreement between Zemex Electronics
            International, Inc. and Merisel Latin America, Inc. as Borrowers and Congress Financial
            Corporation (Florida) as Lender dated October 4, 1996(6)
10.43       Shareholder Letter Agreement dated December 19, 1996 among Carsten Frank, Comtrad,
            Inc. and Comtrad Holdings, Inc.(6)
10.44       Share Exchange Agreement dated June 20, 1997 among the Company and the shareholders
            of Karma International S.A.(6)
21          Subsidiaries of the Company(7)
23.1        Consent of Independent Certified Public Accountants(7)
27.1        Financial Data Schedule(7)
27.2        Financial Data Schedule(7)
27.3        Financial Data Schedule(7)
</TABLE>

----------------
(1) Incorporated herein by this reference from the Company's Annual Report on
    Form 10-K for the year ended December 31, 1995.

(2) Incorporated herein by this reference from the Company's registration
    statement on Form 10 filed with the Securities and Exchange Commission on
    May 26, 1994 and the amendments thereto filed on August 1, 1994, September
    9, 1994, December 2, 1994 and January 12, 1995.

(3) Incorporated herein by this reference from the Company's Registration
    Statement on Form S-1 (File No. 333-03864).

(4) Incorporated herein by this reference from the Company's Current Report on
    Form 8-K filed on October 18, 1996.

                                       21
<PAGE>

(5) Incorporated herein by this reference from the Company's Annual Report on
    Form 10-K for the year ended December 31, 1996.

(6) Incorporated herein by this reference from the Company's Registration
    Statement on Form S-3 (File No. 333-29779).

(7) Filed herewith.



     (b) Reports on Form 8-K


     During the last quarter of the period covered by this Report, the Company
filed a current report on Form 8-K dated October 13, 1997, as amended by Form
8-K/A dated October 31, 1997, which included information pursuant to Item 2,
Acquisition or Disposition of Assets, relating to the acquisition of the assets
described in such report.


                                       22
<PAGE>

                                  SIGNATURES


     Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, as amended (the "Act"), the registrant has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized.



                                        CHS ELECTRONICS, INC.



                                      By: /s/ Claudio Osorio
                                          -------------------------------------
                                          Claudio Osorio
                                          President


     Dated: March 24, 1998


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



<TABLE>
<CAPTION>
            SIGNATURE                               TITLE                          DATE
--------------------------------   ---------------------------------------   ---------------
<S>                                <C>                                       <C>
/s/  Claudio Osorio                President and Director                    March 24, 1998
               Claudio Osorio      (principal executive officer)

/s/  Alvin Perlman                 Executive Vice President and Director     March 24, 1998
               Alvin Perlman

/s/  Carsten Frank                 Executive Vice President--European        March 24, 1998
               Carsten Frank       Region and Director

/s/  Antonio Boccalandro           Secretary and Director                    March 24, 1998
           Antonio Boccalandro

/s/  Craig Toll                    Chief Financial Officer and Treasurer     March 24, 1998
             Craig Toll            (principal financial officer and
                                   principal accounting officer)

/s/  Otto Gerlach                  Director                                  March 24, 1998
            Otto Gerlach

/s/  Bernd Karre                   Director                                  March 24, 1998
             Bernd Karre

/s/  Zybnek Kraus                  Director                                  March 24, 1998
                Zbynek Kraus

/s/  Pierino Lardi                 Director                                  March 24, 1998
            Pierino Lardi

/s/  Donald D. Winstead            Director                                  March 24, 1998
            Donald D. Winstead
</TABLE>

                                       23
<PAGE>

                         INDEX TO FINANCIAL STATEMENTS



<TABLE>
<CAPTION>
                                                                PAGE
                                                               -----
<S>                                                            <C>
CHS Electronics, Inc.--Historical Financial Statements

  Report of Independent Certified Public Accountants .........  F-2

  Consolidated Balance Sheets ................................  F-3

  Consolidated Statements of Earnings ........................  F-4

  Consolidated Statements of Shareholders' Equity ............  F-5

  Consolidated Statements of Cash Flows ......................  F-6

  Notes to the Consolidated Financial Statements .............  F-8
</TABLE>

 

                                      F-1
<PAGE>

              REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS



Board of Directors and Shareholders
CHS Electronics, Inc.


     We have audited the accompanying consolidated balance sheet of CHS
Electronics, Inc. as of December 31, 1997 and 1996, and the related
consolidated statements of earnings, shareholders' equity, and cash flows for
each of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.


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


     In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of CHS
Electronics, Inc. as of December 31, 1997 and 1996, and the consolidated
results of its operations and its consolidated cash flows for each of the three
years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.




GRANT THORNTON LLP


Miami, Florida
March 12, 1998


                                      F-2
<PAGE>

                             CHS ELECTRONICS, INC.

                          CONSOLIDATED BALANCE SHEETS
                       (In thousands, except share data)



<TABLE>
<CAPTION>
                                                                                     DECEMBER 31,
                                                                             -----------------------------
                                                                                 1996            1997
                                                                             ------------   --------------
<S>                                                                          <C>            <C>
                                 ASSETS
CURRENT ASSETS:
 Cash ....................................................................     $ 35,137       $   68,806
 Accounts receivable:
  Trade, less allowance for doubtful accounts of $14,830 in 1996 and
    $18,347 in 1997.......................................................      340,098          659,757
  Affiliates .............................................................        3,241           24,604
                                                                               --------       ----------
                                                                                343,339          684,361
 Inventories .............................................................      321,770          693,503
 Prepaid expenses and other current assets ...............................       39,374           65,255
                                                                               --------       ----------
   Total current assets ..................................................      739,620        1,511,925
PROPERTY AND EQUIPMENT, NET ..............................................       30,947           61,468
COST IN EXCESS OF ASSETS ACQUIRED, NET ...................................       78,780          381,830
OTHER ASSETS .............................................................       12,602           13,599
                                                                               --------       ----------
                                                                               $861,949       $1,968,822
                                                                               ========       ==========
                    LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
 Notes payable ...........................................................     $155,932       $  309,510
 Accounts payable, trade .................................................      452,569          771,535
 Accrued liabilities .....................................................       44,873           83,309
 Amounts due to sellers under acquisition agreements .....................       49,200           54,866
 Income taxes payable ....................................................        5,120           12,711
 Deferred income taxes ...................................................          420            1,223
                                                                               --------       ----------
   Total current liabilities .............................................      708,114        1,233,154
LONG TERM DEBT ...........................................................       45,327           61,556
MINORITY INTEREST ........................................................        3,975            6,348
SHAREHOLDERS' EQUITY:
 Preferred stock, authorized 5,000,000 shares; 0 shares outstanding ......           --               --
 Common stock, authorized 100,000,000 shares at $.001 par value;
   outstanding 18,600,576 shares at December 31, 1996 and 48,910,999
   shares at December 31, 1997 ...........................................           19               49
 Additional paid-in capital ..............................................       92,843          621,021
 Retained earnings .......................................................       16,724           65,115
 Cumulative foreign currency translation adjustment ......................       (5,053)         (18,421)
                                                                               --------       ----------
   TOTAL SHAREHOLDERS' EQUITY ............................................      104,533          667,764
                                                                               --------       ----------
                                                                               $861,949       $1,968,822
                                                                               ========       ==========
</TABLE>

              The accompanying notes are an integral part of these statements.


                                      F-3
<PAGE>

                             CHS ELECTRONICS, INC.

                      CONSOLIDATED STATEMENTS OF EARNINGS
                       (In thousands, except share data)



<TABLE>
<CAPTION>
                                                                                   YEAR ENDED DECEMBER 31,
                                                                         -------------------------------------------
                                                                             1995           1996            1997
                                                                         -----------   -------------   -------------
<S>                                                                      <C>           <C>             <C>
Net sales (including sales to affiliates of $21,063 in 1995) .........    $936,703      $1,855,540      $4,756,383
Cost of goods sold ...................................................     868,716       1,724,432       4,409,714
                                                                          --------      ----------      ----------
  Gross profit .......................................................      67,987         131,108         346,669
Operating expenses ...................................................      57,188         102,235         257,508
                                                                          --------      ----------      ----------
  Operating income ...................................................      10,799          28,873          89,161
Other (income) expense:
 Interest income .....................................................      (1,757)         (3,199)        (11,470)
 Interest expense ....................................................       6,454          11,712          35,618
                                                                          --------      ----------      ----------
                                                                             4,697           8,513          24,148
                                                                          --------      ----------      ----------
Earnings before income taxes and minority interest
  in subsidiaries ....................................................       6,102          20,360          65,013
Income taxes .........................................................       1,797           6,086          13,988
Minority interest in subsidiaries ....................................          --           2,108           2,634
                                                                          --------      ----------      ----------
  Net earnings .......................................................    $  4,305      $   12,166      $   48,391
                                                                          ========      ==========      ==========
Net earnings per common share--basic .................................    $    .41      $      .80      $     1.44
                                                                          ========      ==========      ==========
Net earnings per common share-diluted ................................    $    .37      $      .78      $     1.32
                                                                          ========      ==========      ==========
</TABLE>

              The accompanying notes are an integral part of these statements.


                                      F-4
<PAGE>

                             CHS ELECTRONICS, INC.

                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

                      THREE YEARS ENDED DECEMBER 31, 1997
                                (In thousands)



<TABLE>
<CAPTION>
                                                                                                CUMULATIVE
                                                                                                  FOREIGN
                                                         ADDITIONAL                              CURRENCY
                                               COMMON     PAID-IN     RETAINED     DEFERRED     TRANSLATION
                                                STOCK     CAPITAL     EARNINGS   COMPENSATION   ADJUSTMENT      TOTAL
                                              -------- ------------- ---------- -------------- ------------ ------------
<S>                                           <C>      <C>           <C>        <C>            <C>          <C>
Balance at January 1, 1995 ..................    $ 7     $19,625      $   253       $ (138)     $     123    $  19,870
Adjustment 3 for 2 forward stock split ......      3          (3)          --           --             --           --
Deferred compensation recognized ............     --          --           --          138             --          138
Issuance of common stock
  in acquisitions ...........................      1       5,351           --           --             --        5,352
Net earnings ................................     --          --        4,305           --             --        4,305
Foreign currency translation
  adjustment ................................     --          --           --           --            227          227
                                                 ---     ---------    -------       ------      ---------    ---------
Balance at December 31, 1995 ................     11      24,973        4,558           --            350       29,892
Common stock or other consideration
  issued in acquisitions (Note B) ...........     --      16,982           --           --             --       16,982
Common stock issued in public offering ......      7      50,607           --           --             --       50,614
Stock options exercised .....................      1         281           --           --             --          282
Net earnings ................................     --          --       12,166           --             --       12,166
Foreign currency translation
  adjustment ................................     --          --           --           --         (5,403)      (5,403)
                                                 ---     ---------    -------       ------      ---------    ---------
Balance at December 31, 1996 ................     19      92,843       16,724           --         (5,053)     104,533
Common stock issued in acquisitions
  (Note B) ..................................      8      95,720           --           --             --       95,728
Common stock issued in public offering ......     21     428,195           --           --             --      428,216
Stock options exercised .....................      1       4,263           --           --             --        4,264
Net earnings ................................     --          --       48,391           --             --       48,391
Foreign currency translation adjustment .....     --          --           --           --        (13,368)     (13,368)
                                                 ---     ---------    -------       ------      ---------    ---------
Balance at December 31, 1997 ................    $49     $621,021     $65,115       $   --      $ (18,421)   $ 667,764
                                                 ===     =========    =======       ======      =========    =========
</TABLE>

              The accompanying notes are an integral part of these statements.


                                      F-5
<PAGE>

                             CHS ELECTRONICS, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (In thousands)



<TABLE>
<CAPTION>
                                                                                  YEAR ENDED DECEMBER 31,
                                                                        --------------------------------------------
                                                                            1995            1996            1997
                                                                        ------------   -------------   -------------
<S>                                                                     <C>            <C>             <C>
Increase in cash and cash equivalents:
Cash flows from operating activities:
Net earnings ........................................................    $   4,305      $   12,166      $   48,391
Adjustments to reconcile net earnings to net cash (used in)
  operating activities:
 Depreciation and amortization ......................................        2,456           6,632          21,789
 Deferred compensation amortized ....................................          148              --              --
 Minority interest in net earnings ..................................           --           2,108           2,634
 Changes in assets and liabilities excluding effects of acquisitions:
  Accounts receivable--trade, net ...................................      (37,724)       (118,694)       (121,163)
  Accounts receivable--affiliates, net ..............................      (12,285)         (2,398)        (21,363)
  Inventories .......................................................      (32,204)       (129,357)       (139,923)
  Prepaid expenses and other current assets .........................       (1,742)        (22,345)          5,404
  Accounts payable, trade ...........................................       51,818         173,244         (10,773)
  Accrued liabilities and income taxes ..............................        3,175         (20,481)        (33,511)
                                                                         ---------      ----------      ----------
 Net cash (used in) operating activities ............................      (22,053)        (99,125)       (248,515)
Cash flows from investing activities:
  Purchase of fixed assets ..........................................       (6,866)        (11,624)        (19,511)
  Cash provided from (used in) acquisitions, net ....................        1,317         (26,876)       (201,517)
                                                                         ---------      ----------      ----------
 Net cash (used in) investing activities ............................       (5,549)        (38,500)       (221,028)
Cash flows from financing activities:
  Proceeds from public offering .....................................           --          50,614         428,216
  Proceeds from stock options exercised .............................           --             281           4,263
  Net borrowing from banks ..........................................       29,855         112,453          74,699
                                                                         ---------      ----------      ----------
 Net cash provided by financing activities ..........................       29,855         163,348         507,178
Effect of exchange rate changes on cash .............................          550          (1,757)         (3,966)
                                                                         ---------      ----------      ----------
INCREASE IN CASH AND CASH EQUIVALENTS ...............................        2,803          23,966          33,669
Cash at beginning of year ...........................................        8,368          11,171          35,137
                                                                         ---------      ----------      ----------
Cash at end of year .................................................    $  11,171      $   35,137      $   68,806
                                                                         =========      ==========      ==========
</TABLE>

(CONTINUED)

                                      F-6
<PAGE>

                             CHS ELECTRONICS, INC.

               CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
                                (In thousands)



<TABLE>
<CAPTION>
                                                           YEAR ENDED DECEMBER 31,
                                                     -----------------------------------
                                                        1995        1996         1997
                                                     ---------   ----------   ----------
<S>                                                  <C>         <C>          <C>
 Supplemental disclosure of cash flow information:
  Cash paid during the period for:
   Interest ......................................    $4,944      $10,064      $30,454
   Income taxes ..................................    $1,753      $ 3,892      $10,585
</TABLE>

Non cash investing and financing activities:

These statements of cash flows do not include non-cash investing and financing
transactions associated with the common stock issued for various acquisitions.
The components of the transactions in each year are as follows:


<TABLE>
<CAPTION>
                                                                         YEAR ENDED DECEMBER 31,
                                                                  -------------------------------------
                                                                     1995         1996          1997
                                                                  ----------   ----------   -----------
<S>                                                               <C>          <C>          <C>
Fair value of assets acquired including cash acquired .........    $19,216      $14,691      $689,550
Less: Common stock or other consideration issued ..............      7,152        3,278       232,748
                                                                   -------      -------      --------
Liabilities assumed ...........................................    $12,064      $11,413      $456,802
                                                                   =======      =======      ========
</TABLE>

In 1996, $13.7 million was credited to additional paid-in capital representing
additional consideration paid by Comtrad, Inc. under acquisition agreements for
subsidiaries now held by the Company.

In 1995, a $5.2 million reduction in receivable from affiliate was charged to
additional paid-in capital.


        The accompanying notes are an integral part of these statements.

                                      F-7
<PAGE>

                             CHS ELECTRONICS, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                      THREE YEARS ENDED DECEMBER 31, 1997


NOTE A--SUMMARY OF ACCOUNTING POLICIES


1. NATURE OF OPERATIONS


     The Company is an international distributor of computer equipment,
peripherals and software. The products are sold, principally to resellers,
primarily in Western Europe, South America and Eastern Europe.


2. PRINCIPLES OF CONSOLIDATION


     The consolidated financial statements include the accounts of the Company
and its subsidiaries, wholly owned and majority owned. All significant
intercompany accounts and transactions have been eliminated in consolidation.


3. FOREIGN CURRENCY TRANSLATION


     For purposes of preparation of its financial statements, the Company uses
local currencies as the functional currencies except in highly inflationary
countries. For subsidiaries where the local currency is the functional
currency, assets and liabilities are translated into United States dollars at
the exchange rate in effect at the end of the year. Revenues and expenses of
these subsidiaries are translated at the average exchange rate during the year.
The aggregate effect of translating the financial statements of foreign
subsidiaries is included in a separate component of shareholders' equity
entitled cumulative foreign currency translation adjustment. In the normal
course of business, the Company advances funds to certain of its foreign
subsidiaries, which are not expected to be repaid in the foreseeable future.
Translation adjustments resulting from these advances are included in
cumulative foreign currency translation adjustment. For entities in highly
inflationary countries, the U.S. dollar is considered the functional currency
and a combination of current and historical rates are used in translating
assets, liabilities, revenues and expenses. The related exchange adjustments
are included in earnings.


4. CASH EQUIVALENTS


     For the purpose of the consolidated statements of cash flows, the Company
considers all highly liquid investments purchased with an original maturity of
three months or less to be cash equivalents.


5. CONCENTRATION OF CREDIT RISK


     The Company's credit risk on trade receivables is diversified over a wide
geographic area and many customers. The largest customer accounts for less than
1% of sales. The Company performs ongoing credit evaluations of its customers.
In South America, the Company obtains guarantees from its customers in some
cases. The Company uses credit insurance in several locations (covering $281
million in receivables at December 31, 1997) and factoring without recourse in
other locations to mitigate risk. The Company provides for estimated credit
losses at time of sale based upon factors surrounding the credit risk of
specific customers, historical trends and other information.


6. INVENTORIES


     Inventories, consisting of finished products, are stated at the lower of
cost or market, with cost being determined principally by current replacement
cost, which approximates the first-in first-out method.

                                      F-8
<PAGE>

                             CHS ELECTRONICS, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                THREE YEARS ENDED DECEMBER 31, 1997--(CONTINUED)


NOTE A--SUMMARY OF ACCOUNTING POLICIES--(CONTINUED)

7. PROPERTY AND EQUIPMENT

     Property and equipment are stated at cost. Depreciation and amortization
are provided for in amounts sufficient to relate the cost of depreciable assets
to operations over their estimated service lives. Leasehold improvements and
capital leases are amortized over the lives of respective leases or the service
lives of the improvements whichever is shorter.

     The straight-line and accelerated methods of depreciation are followed for
financial reporting purposes. The useful lives are as follows:



<TABLE>
<CAPTION>
                                                 YEARS
                                                ------
<S>                                             <C>
  Buildings .................................   30-50
  Leasehold improvements ....................    3-7
  Computer equipment ........................    2-5
  Office equipment and furniture ............    3-10
</TABLE>

     Expenditures for renewals and improvements that significantly extend the
useful life of an asset are capitalized. The costs of software used in business
operations are capitalized and amortized over their expected useful lives.
Expenditures for maintenance and repairs are charged to operations when
incurred. When assets are sold or retired, the cost of the asset and the
related accumulated depreciation are removed from the accounts and any gain or
loss is recognized at such time.


8. INCOME TAXES

     The Company utilizes the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 109, ACCOUNTING FOR INCOME TAXES. Under the liability
method specified by SFAS No. 109, deferred tax assets and liabilities are
determined based on the difference between the financial statement and tax
bases of assets and liabilities as measured by the current enacted tax rates
which will be in effect when these differences reverse. Deferred tax expense is
the result of changes in deferred tax assets and liabilities.

     The Company intends to invest the undistributed earnings of substantially
all of its foreign subsidiaries indefinitely. At December 31, 1996 and 1997,
the cumulative amount of undistributed earnings on which the Company has not
recognized United States income taxes was approximately $13 million and $53
million, respectively. However, it is anticipated that United States income
taxes on such amounts would be partially offset by available foreign income tax
credits.


9. REVENUE RECOGNITION

     The Company recognizes sales upon shipment, as there is no significant
post-sale obligation and collectibility is reasonably assured. Income from
vendor rebates, discounts, and cooperative advertising is recognized when
earned, as a reduction of the cost of inventory sold or as a reduction of
operating expenses.


10. COST IN EXCESS OF ASSETS, ACQUIRED, NET

     The cost in excess of assets acquired is being amortized to earnings over
a 20 year period on a straight-line basis. The Company evaluates its goodwill
in accordance with SFAS No. 121, "ACCOUNTING

                                      F-9
<PAGE>

                             CHS ELECTRONICS, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                THREE YEARS ENDED DECEMBER 31, 1997--(CONTINUED)


NOTE A--SUMMARY OF ACCOUNTING POLICIES--(CONTINUED)

FOR IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED
OF," to determine potential impairment by comparing the carrying value to
undiscounted future cash flows of the related assets. The Company modifies or
adjusts the value of a subsidiary's goodwill if an impairment is indicated by
the difference between the undiscounted cash flows and the carrying value. The
Company considers a history of operating losses to be a primary indicator of
potential impairment. Assets are grouped and evaluated for impairment at the
lowest level for which there are identifiable cash flows that are largely
independent of cash flows of other groups of assets. Assets are generally
grouped at the country level of operations. The Company deems an asset to be
impaired if a forecast of undiscounted future operating cash flows directly
related to the asset, including disposal value if any, is less than its
carrying amount. All of the Company's goodwill is identified with the assets
acquired and falls under the scope of SFAS No. 121. Accumulated amortization
was $2.2 million and $10.8 million at December 31, 1996 and 1997, respectively.
 



11. EARNINGS PER COMMON SHARE


     The Company has adopted SFAS No. 128, EARNINGS PER SHARE. In accordance
with this statement, basic earnings per share is computed by dividing net
earnings by the weighted averaged number of common shares outstanding. Diluted
earning per share includes the dilution caused by common stock options and the
shares that would be issued in existing earn outs based upon applying the earn
out multiple to annualized actual earnings and dividing by the market price at
period end. The weighted average number of shares for basic earnings per share
was 10,618,183, 15,243,672, and 33,527,256 in 1995, 1996, and 1997
respectively. The weighted average number of shares used in the diluted
computation was 11,521,859, 15,656,178, and 36,592,368 in 1995, 1996, and 1997
respectively. All share and per share information has been restated for a three
to two stock split effective in September 1997.


     The following table illustrates the reconciliation of the income and
weighted average number of shares of the basic and diluted earnings per share
computations (amounts in thousands, except per share amounts):



<TABLE>
<CAPTION>
                                                        YEAR ENDED DECEMBER 31, 1997
                                                 ------------------------------------------
                                                     NET          WEIGHTED        PER SHARE
                                                  EARNINGS     AVERAGE SHARES      AMOUNT
                                                 ----------   ----------------   ----------
<S>                                              <C>          <C>                <C>
   Net earnings ..............................    $48,391
                                                  =======
   Net earnings per share--basic .............     48,391          33,527          $ 1.44
                                                                                   ======
   Effect of dilutive shares:
   Stock options outstanding .................         --           1,434
   Earnout contingencies .....................         --           1,631
                                                  -------          ------
     Net earnings per share--diluted .........    $48,391          36,592          $ 1.32
                                                  =======          ======          ======
</TABLE>


                                      F-10
<PAGE>

                             CHS ELECTRONICS, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                THREE YEARS ENDED DECEMBER 31, 1997--(CONTINUED)


NOTE A--SUMMARY OF ACCOUNTING POLICIES--(CONTINUED)

<TABLE>
<CAPTION>
                                                        YEAR ENDED DECEMBER 31, 1996
                                                 ------------------------------------------
                                                     NET          WEIGHTED        PER SHARE
                                                  EARNINGS     AVERAGE SHARES      AMOUNT
                                                 ----------   ----------------   ----------
<S>                                              <C>          <C>                <C>
   Net earnings ..............................    $12,166
                                                  =======
   Net earnings per share--basic .............     12,166          15,244          $ .80
                                                                                   =====
   Effect of dilutive shares:
   Stock options outstanding .................         --             412
                                                  =======          ======
     Net earnings per share--diluted .........    $12,166          15,656          $ .78
                                                  =======          ======          =====
</TABLE>


<TABLE>
<CAPTION>
                                                        YEAR ENDED DECEMBER 31, 1995
                                                 ------------------------------------------
                                                     NET          WEIGHTED        PER SHARE
                                                  EARNINGS     AVERAGE SHARES      AMOUNTS
                                                 ----------   ----------------   ----------
<S>                                              <C>          <C>                <C>
   Net earnings ..............................     $4,305
                                                   ======
   Net earnings per share--basic .............      4,305          10,618          $ .41
                                                                                   =====
   Effect of dilutive shares:
   Stock options outstanding .................         --             904
                                                   ------          ------
     Net earnings per share--diluted .........     $4,305          11,522          $ .37
                                                   ======          ======          =====
</TABLE>

12. STOCK OPTIONS


     Options granted under the Company's 1994 Stock Option Plan, the 1996 and
1997 Chief Executive Officer stock option plans and the 1996 Directors and
Officers stock option plan are accounted for under APB Opinion 25, ACCOUNTING
FOR STOCK ISSUED TO EMPLOYEES. As to grants requiring shareholder approval, the
Company considers the date of grant to be the date of action by the Board of
Directors when, on such date, shareholder approval is deemed to be perfunctory.
 


13. USE OF ESTIMATES


     In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure
of contingent assets and liabilities at the date of the financial statements
and revenues and expenses during the reported period. Actual results could
differ from those estimates.


NOTE B--ACQUISITIONS


     In 1997 the Company made 15 acquisitions, of which three were significant.
On October 3, 1997, the Company completed the acquisition of Santech Micro
Group ASA ("Santech"), pursuant to which it acquired 97.4% of the capital stock
of Santech for approximately $125 million. The Company expects to acquire the
remainder of the shares at the same per share price. Santech is the largest
distributor of microcomputer products in Scandinavia with operations in Norway,
Sweden and Denmark and had revenues of $718 million in 1996. Santech
distributes the products of the same vendors as other

                                      F-11
<PAGE>

                             CHS ELECTRONICS, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                THREE YEARS ENDED DECEMBER 31, 1997--(CONTINUED)


NOTE B--ACQUISITIONS--(CONTINUED)

subsidiaries of the Company. The acquisition of Santech has been accounted for
under the purchase method and, accordingly the results of Santech have been
included in the consolidated operating results since the date of acquisition.
The acquisition of Santech resulted in the recognition of $109.1 million of
goodwill.


     Santech's operating results during 1996 and 1997 were adversely impacted
as a result of restructuring its operations after a July 1996 merger. Operating
results were also impacted adversely by the implementation of a new computer
system in the first six months of 1997. The adverse impact included costs
associated with reduction in the number of its product lines and the number of
employees from 450 to 320. The Company believes that these factors have been
addressed and that these issues should not have a material adverse impact on
Santech's or the Company's future operations.


     On August 4, 1997, the Company completed the acquisition of Karma
International S.A. ("Karma"). Karma is a distributor of personal computer
components to over 10,000 customers in Europe, the Middle East and Asia. The
purchase price for Karma was $160 million and was funded through (i) $74
million in cash and (ii) 4,813,432 shares of unregistered Common Stock. Karma's
product line includes mass storage products, CPUs, memory chips, motherboards,
sound, video and other cards and monitors. Karma operates in 18 countries
through 28 offices in Europe, the Middle East Asisa. Karma had net sales of
approximately $700 million in 1996. Karma existing management continues to
operate Karma as a subsidiary of CHS. One representative of Karma was elected
to the Board of Directors of CHS with an additional member to be nominated in
1998. The acquisition of Karma has been accounted for under the purchase method
and, accordingly the results of Karma have been included in the consolidated
operating results since the date of acquisition. The acquisition of Karma
resulted in the recognition of $123.0 million of goodwill.


     On March 20, 1997, the Company completed the acquisition of Frank & Walter
Computer GmbH ("Frank & Walter") for 3,300,000 unregistered shares of Common
Stock. Frank & Walter had net sales of approximately $686 million in 1996. The
results of operations of Frank & Walter have been included in the Company's
financial statements since January 1, 1997. The Company believes that Frank &
Walter was, at the time of acquisition, the fourth largest computer distributor
in Germany with over 10,000 active dealers. As a result of this acquisition,
the Company believes it is the largest distributor of microcomputer products in
Germany. Carsten Frank, the founder of Frank & Walter, has become a director of
CHS and the CHS executive vice president responsible for the Company's European
operations. The acquisition of Frank & Walter has been accounted for under the
purchase method and, accordingly the results of Frank & Walter have been
included in the consolidated operating results since the date of acquisition.
The amounts preliminarily allocated to assets acquired and liabilities assumed
resulted in a recognition of $27.6 million of goodwill. During 1997 an
appraisal of certain acquired assets was performed. As a result of the
appraisal, goodwill was decreased by $1.0 million.


     The Company completed other acquisitions during 1997 which were considered
not to be significant. Such acquisitions have been accounted for under the
purchase method and accordingly, the results of such acquired entities have
been included in the consolidated operating results since their acquisition
dates.


     In 1996 the Company acquired eighteen companies in as many countries. The
largest acquisition was of seven companies comprising the European and Latin
American businesses of a competitor,

                                      F-12
<PAGE>

                             CHS ELECTRONICS, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                THREE YEARS ENDED DECEMBER 31, 1997--(CONTINUED)


NOTE B--ACQUISITIONS--(CONTINUED)

Merisel, Inc. These seven companies were acquired for cash and debt
assumptions. The total consideration paid was approximately $148 million
consisting of $30 million of cash and $118 million of debt assumed or
refinanced. The Company financed the acquisition primarily through borrowing or
factoring at each subsidiary acquired. Approximately $11 million was owed to
Merisel at December 31, 1996. The acquisition has been accounted for as a
purchase, effective as of September 30, 1996. Therefore, operations of these
companies are included only in the 1996 fourth quarter. The cost of the
acquisition has been allocated to the assets acquired based on their fair
values. This initially resulted in approximately $10.5 million of goodwill. In
the second and third quarters of 1997, certain reserves initially established
were determined not to be required, resulting in a reduction of goodwill to
$4.6 million.


     The Company has now completed the consolidation of the former Merisel and
CHS operations in the five countries where each had operations. The Company
accrued approximately $12.8 million for the consolidation activities. The
reserve consists of severance costs--$.4 million, lease termination--$4.1
million, writeoff of leasehold improvements and computer systems--$4.9 million,
and accounts receivable and other costs--$3.4 million. Through December 31,
1997, $8.8 million has been charged against this reserve. The Company's
original intent to dispose of the former Merisel warehouse located in the
Netherlands has been revised as a result of the Karma acquisition and the
Company now intends to relocate Karma's existing warehouse in the Netherlands
to the former Merisel warehouse.


     In June 1996, the Company acquired 100% of an unaffiliated company in
Russia for consideration based on a multiple of that company's net income in
1996. The acquisition was initially recorded at no consideration, which
approximated the value of net assets acquired. Subsequently, the agreement was
modified to measure the value of the Company based 50% on 1996 results and 50%
on 1997 results. The 1996 portion is payable in cash and was paid in 1997 and
the 1997 portion is payable in cash or stock at the seller's option. In 1996
and 1997, $20.6 and $25.3 million was recorded as purchase price and goodwill.


     In April 1996, the Company acquired 100% of an unaffiliated company in
Switzerland for consideration based on the acquired company's results in 1996.
The consideration was based on a multiple of 1996 net earnings but not less
than $1.7 million. The acquisition was initially recorded at $1.7 million
resulting in no goodwill. Subsequently, the agreement was modified to base the
price on results through September 30, 1996. In the 1996 fourth quarter,
274,855 shares of common stock were issued and goodwill of $870,000 was
recorded.


     In March 1996, the Company acquired six companies from Comtrad, Inc., an
affiliate, for a reduction of indebtedness of $7.8 million. These acquisitions
have been accounted for as an exchange between entities under common control in
a manner similar to a pooling of interests. Accordingly, these acquisitions
have been included in the accompanying financial statements from the date
acquired by Comtrad. The companies in Bulgaria, Croatia, Lithuania and Romania
were started by Comtrad in 1993 and 1994 for a minimal investment and have
insignificant operations. They are treated as if Comtrad acquired them on
December 31, 1994. Sixty-five percent of a company in Slovakia was acquired in
early 1994 for a minimal investment and 1994 results were insignificant. The
remaining 35% was acquired by Comtrad for a contingent payment in shares of
common stock to be based on 1996 results. This acquisition has been recorded as
of December 31, 1994 based on the cost of the 65% interest acquired

                                      F-13
<PAGE>

                             CHS ELECTRONICS, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                THREE YEARS ENDED DECEMBER 31, 1997--(CONTINUED)


NOTE B--ACQUISITIONS--(CONTINUED)

with the remaining cost to be recorded as goodwill when known. The contingent
amount, which was insignificant, was recorded in 1997. Comtrad acquired the
Brazil company in November 1994 for Comtrad common shares valued at $762,000.
The acquisition was recorded by the Company as of December 31, 1994 at this
value, resulting in goodwill of $2.5 million. An additional amount of $240,000
was paid by Comtrad in 1996 to complete its acquisition of this company, which
had the effect of increasing goodwill to $2.8 million.


     In February 1996, the Company acquired 51% of an unaffiliated company in
Hungary for consideration based on 51% of the book value of equity at December
31, 1996 plus a multiple of 51% of 1996 net earnings. Based on 1996 results,
the purchase price was fixed at $17.6 million resulting in goodwill of $15.8
million. The sellers elected to receive the proceeds in cash rather than stock.
In the second quarter of 1997 the agreement was modified to measure the value
of the company based 75% on 1996 results and 25% on 1997 results. The 1996
amount was paid in 1997. As a result, goodwill in 1996 was reduced by $3.8
million. The 1997 amount, estimated at $5.6 million, was recorded in 1997 and
increased goodwill.


     In 1995, the Company acquired nine companies in as many countries. Eight
of these were acquired from Comtrad Holdings, Inc. ("CHI") or Comtrad (a wholly
owned subsidiary of CHI) and have been accounted for as an exchange between
entities under common control in a manner similar to a pooling of interests.
Accordingly, these acquisitions have been included in the accompanying
financial statements from the date acquired by Comtrad or CHI. The acquisition
of the company in the Czech Republic was partially (16%) from Comtrad and
partially from an individual. The portion from Comtrad was valued at Comtrad's
basis of $758,000. The portion purchased from the unrelated individual has been
accounted for as a purchase. Results of the remaining 84% of the Czech Republic
company have been included in the accompanying financial statements from
October 1, 1995. Information about the pooled acquisitions is shown below:




<TABLE>
<CAPTION>
                                                                       CHS            COMTRAD OR CHI
COMPANY                    SERVICE AREA       CONSIDERATION     ACQUISITION DATE     ACQUISITION DATE
----------------------   ----------------   ----------------   ------------------   -----------------
<S>                      <C>                <C>                <C>                  <C>
   CHS England           United Kingdom        2,625,000             April 1995       September 1994
   CHS France            France                 shares               April 1995       September 1994
   CHS Belgium           Belgium                                     April 1995       September 1994
   CHS Portugal          Portugal                                    April 1995         January 1993

   CHS BEK               South America      431,250 shares         October 1995            July 1995
   CHS Czechia (16%)     Czech Republic     138,000 shares         October 1995         January 1993
   CHS Finland           Finland            $2,300,000            December 1995            July 1995
   CHS Sweden            Sweden             $2,400,000            December 1995            July 1995
   CHS ABC Data          Poland             $2,300,000            December 1995        November 1995
</TABLE>

     The Company acquired 84% of the Czech Republic company from an individual
by issuing 483,000 shares which were valued at their market value of
$3,246,000. This produced goodwill of $2.4 million.

                                      F-14
<PAGE>

                             CHS ELECTRONICS, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                THREE YEARS ENDED DECEMBER 31, 1997--(CONTINUED)


NOTE B--ACQUISITIONS--(CONTINUED)

     The following represents the unaudited pro forma results of operations
assuming all significant 1997 and 1996 acquisitions had taken place on January
1, 1996 (amounts in thousands, except per share amounts):



<TABLE>
<CAPTION>
                                                    YEAR ENDED DECEMBER 31,
                                               ---------------------------------
                                                     1996              1997
                                               ---------------   ---------------
                                                (IN THOUSANDS, EXCEPT PER SHARE
                                                             DATA)
<S>                                            <C>               <C>
   Sales ...................................     $ 4,996,399       $ 5,708,679
   Net earnings ............................           2,295            19,553
   Net earnings per share--basic ...........     $       .07       $       .47
   Net earnings per share--diluted .........     $       .07       $       .44
</TABLE>

     Pro forma adjustments have been made to eliminate non-recurring loss in
the operations acquired from Merisel and to add goodwill amortization and
interest expense on the amounts payable to selling stockholders at 7.5%. The
pro forma information is not necessarily indicative of the actual results of
operation that would have occurred had the acquisitions taken place on January
1, 1996, or of results which may occur in the future.


NOTE C--ALLOWANCE FOR DOUBTFUL ACCOUNTS



<TABLE>
<CAPTION>
                                                     YEAR ENDED DECEMBER 31,
                                             ----------------------------------------
                                                 1995          1996          1997
                                             -----------   -----------   ------------
                                                          (IN THOUSANDS)
<S>                                          <C>           <C>           <C>
   Allowance for doubtful accounts:
    Beginning balance ....................    $  3,358      $  4,388      $  14,830
    Provision for bad debt ...............       3,035         3,412         11,636
    Write-offs ...........................      (2,161)       (3,775)       (14,162)
    Acquired through acquisition .........         156        10,805          6,043
                                              --------      --------      ---------
    Ending balance .......................    $  4,388      $ 14,830      $  18,347
                                              ========      ========      =========
</TABLE>


                                      F-15
<PAGE>

                             CHS ELECTRONICS, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                THREE YEARS ENDED DECEMBER 31, 1997--(CONTINUED)

NOTE D--PROPERTY AND EQUIPMENT



<TABLE>
<CAPTION>
                                                                   DECEMBER 31,
                                                              ----------------------
                                                                 1996        1997
                                                              ---------   ----------
                                                                  (IN THOUSANDS)
<S>                                                           <C>         <C>
   Land and buildings .....................................    $ 3,167     $19,358
   Furniture and fixtures .................................     15,126      22,047
   Leasehold improvements .................................      4,914       7,330
   Computers and office equipment .........................     25,000      43,470
   Vehicles and other .....................................      5,414       3,497
                                                               -------     -------
                                                                53,621      95,702
   Less accumulated depreciation and amortization .........     22,674      34,234
                                                               -------     -------
                                                               $30,947     $61,468
                                                               =======     =======
</TABLE>

NOTE E--INCOME TAXES


     The components of earnings before income taxes and minority interest in
subsidiaries consist of the following:



<TABLE>
<CAPTION>
                            YEAR ENDED DECEMBER 31,
                        --------------------------------
                          1995        1996        1997
                        --------   ---------   ---------
                                 (IN THOUSANDS)
<S>                     <C>        <C>         <C>
   Domestic .........    $  741     $ 1,361     $ 3,450
   Foreign ..........     5,361      18,999      61,563
                         ------     -------     -------
   Total ............    $6,102     $20,360     $65,013
                         ======     =======     =======
</TABLE>

     The provision for income taxes consists of the following:



<TABLE>
<CAPTION>
                                  YEAR ENDED DECEMBER 31,
                            ------------------------------------
                               1995         1996         1997
                            ----------   ---------   -----------
                                       (IN THOUSANDS)
<S>                         <C>          <C>         <C>
   Current:
    U.S Federal .........     $  525      $1,721       $ 2,243
    U.S. State ..........         41         228           329
    Foreign .............      1,357       4,520         8,493
                              ------      ------       -------
                               1,923       6,469        11,065
                              ------      ------       -------
   Deferred:
    U.S Federal .........         67        (258)         (569)
    U.S. State ..........          5         (47)          (92)
    Foreign .............       (198)        (78)        3,584
                              ------      ------       -------
                                (126)       (383)        2,923
                              ------      ------       -------
      Total .............     $1,797      $6,086       $13,988
                              ======      ======       =======
</TABLE>


                                      F-16
<PAGE>

                             CHS ELECTRONICS, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                THREE YEARS ENDED DECEMBER 31, 1997--(CONTINUED)



NOTE E--INCOME TAXES--(CONTINUED)

     Deferred tax assets (liabilities) are comprised of the following:



<TABLE>
<CAPTION>
                                                                     DECEMBER 31,
                                                              ---------------------------
                                                                  1996           1997
                                                              ------------   ------------
                                                                    (IN THOUSANDS)
<S>                                                           <C>            <C>
   Net operating losses of foreign subsidiaries ...........    $  11,405      $  16,839
   Employee compensation not currently deductible .........          131             --
   Inventory differences ..................................       (3,009)        (7,424)
   Allowances for bad debts ...............................        1,788          1,115
   Accruals not currently deductible ......................          305          1,896
   Other ..................................................          (34)            27
                                                               ---------      ---------
                                                                  10,586         12,453
   Valuation allowance ....................................      (11,006)       (13,676)
                                                               ---------      ---------
     Total ................................................    $    (420)     $  (1,223)
                                                               =========      =========
</TABLE>

     The major elements contributing to the difference between taxes at the
U.S. federal statutory tax rate and the effective tax rate are as follows:



<TABLE>
<CAPTION>
                                                                                   YEAR ENDED DECEMBER 31,
                                                                            --------------------------------------
                                                                               1995         1996          1997
                                                                            ---------   -----------   ------------
                                                                                        (IN THOUSANDS)
<S>                                                                         <C>         <C>           <C>
   Income taxes at the United States statutory rate .....................    $2,070      $  6,922      $  22,104
   Foreign income subject to tax at other than statutory rate ...........      (212)       (1,356)       (15,690)
   State or local income taxes, less effect of federal benefits .........        55           168            156
   Losses without tax benefit ...........................................       613         1,329          5,127
   Goodwill amortization ................................................       190           255          2,834
   Utilizations of net operating losses of foreign subsidiaries .........      (826)       (1,196)          (759)
   Other ................................................................       (93)          (36)           216
                                                                             ------      --------      ---------
   Income taxes at the effective tax rate ...............................    $1,797      $  6,086      $  13,988
                                                                             ======      ========      =========
</TABLE>

     At December 31, 1997, the Company has net operating loss carry forwards in
certain foreign jurisdictions that expire as follows:



<TABLE>
<S>                                  <C>
      2001 .......................   $ 4,474,000
      2002 .......................     1,140,000
      Thereafter .................    14,730,000
      No expiration date .........    30,436,000
                                     -----------
        Total ....................   $50,780,000
                                     ===========
</TABLE>

     In assessing the realization of net operating loss carryforwards,
management considers whether it is more likely than not that some portion or
all of these net operating loss carryforwards will not be

                                      F-17
<PAGE>

                             CHS ELECTRONICS, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                THREE YEARS ENDED DECEMBER 31, 1997--(CONTINUED)



NOTE E--INCOME TAXES--(CONTINUED)

realized. The ultimate realization of these net operating loss carryforwards
and other deferred tax assets are dependent upon the generation of future
taxable income during the periods prior to the expiration of the operating loss
carryforwards. Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income, and tax planning strategies in
making this assessment. Based upon the level of historical taxable income and
projections for future taxable income over the operating loss carryforward
periods, management believes it is more likely than not the Company will not
realize the benefits of all of these net operating loss carryforwards and other
deferred tax assets. Accordingly, a valuation allowance has been established
since the full realization of such benefits was not likely. Subsequently
recognized tax benefits relating to the valuation allowance for deferred tax
assets as of December 31, 1997 will be allocated to income from continuing
operations or goodwill.


NOTE F--NOTES PAYABLE AND LONG TERM DEBT


     Several of the Company's subsidiaries have short-term credit lines with
local banks. As of December 31, 1997, the aggregate amount available under
these agreements was $385.4 million, and $302.0 million was outstanding under
these facilities. Generally, borrowings under such lines are collateralized by
receivables or inventory. The lines are principally of one year duration and
are renewable by the banks. Some of these lines contain restrictions on
dividends to the parent company. In 1997, the maximum and average amounts
outstanding were $395.2 million and $289.2 million, respectively. The weighted
average interest rate at December 31, 1997 was 7.3%.

                                      F-18
<PAGE>

                             CHS ELECTRONICS, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                THREE YEARS ENDED DECEMBER 31, 1997--(CONTINUED)


NOTE F--NOTES PAYABLE AND LONG TERM DEBT--(CONTINUED)

     The Company's long-term debt consists of the following:



<TABLE>
<CAPTION>
                                                                                         DECEMBER 31,
                                                                                    -----------------------
                                                                                       1996         1997
                                                                                    ----------   ----------
                                                                                        (IN THOUSANDS)
<S>                                                                                 <C>          <C>
   Two subsidiaries serving Latin America share a $60 million revolving
    credit agreement with a financial institution. The agreement, which
    expires October 1999, provides for advances and letters of credit based
    upon eligible accounts receivable and inventories. Interest is at a
    variable market rate based on the prime rate of the lender or LIBOR,
    at the borrower's option. All of the the borrowers' assets, including
    accounts receivable and inventories totaling $89.6 million at
    December 31, 1997, are pledged as collateral. The agreement contains
    certain restrictive covenants, including limitations on transactions with
    affiliated companies and employee loans. The agreement also limits the
    ability of these companies to pay dividends to the Company to 50% of
    the borrowers' net income. ..................................................    $34,374      $46,286
   Capitalized leases, collateralized by computer equipment, bearing interest
    ranging from 5% to 16% with maturities through
    September, 2002. ............................................................     10,626       10,983
   Mortgages on buildings, interest ranging from 5.9% to 9.0%, with
    maturities through 2009, collateralized by a building with net book
    value at December 31, 1997 of $14.6 million. ................................      2,455        6,114
   Other notes, bearing interest of 5.9% at December 31, 1997,
    collateralized by inventories and accounts receivable totaling
    $54.9 million at December 31, 1997...........................................         --        5,204
   Other debt ...................................................................         --          494
                                                                                     -------      -------
   Total ........................................................................     47,455       69,081
   Less current portion of long-term debt, included in notes payable ............      2,128        7,515
                                                                                     -------      -------
   Total long-term debt .........................................................    $45,327      $61,556
                                                                                     =======      =======
</TABLE>

     During November and December 1997, the borrowers were in violation of
requirements to deposit funds in specific accounts pursuant to the $60 million
revolving credit agreement. The lender has waived these violations.

                                      F-19
<PAGE>

                             CHS ELECTRONICS, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                THREE YEARS ENDED DECEMBER 31, 1997--(CONTINUED)


NOTE F--NOTES PAYABLE AND LONG TERM DEBT--(CONTINUED)

     Scheduled maturities of long-term debt are as follows (in thousands):



<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
--------------------------
<S>                          <C>
      1998 ...............    $ 7,515
      1999 ...............     51,795
      2000 ...............      5,095
      2001 ...............      2,858
      2002 ...............        968
      Thereafter .........        844
</TABLE>

NOTE G--CONCENTRATIONS


     The Company's operations are substantially all outside the United States.
In 1997, the largest amount of sales occurred in Germany, which comprised 29%
of total sales. The Company also had sales of almost 9% in each of France and
England. While these countries are considered politically stable, there is risk
that economic difficulties in any of these countries could adversely affect the
Company's business. The Company also has operations in less politically stable
countries.


     Most of the Company's sales are made in local currencies other than the
U.S. dollar in 1997. The largest amounts of sales were in German marks (29%),
French francs (10%) and British pounds (9%). In some countries, certain
purchases and the resulting payables are in currencies (principally the U.S.
dollar) different than the functional currency. Further, certain subsidiaries
have loans receivable or payable denominated in currencies other than their
functional currency. Transaction gains and losses on these receivables and
liabilities are included in the determination of earnings for the relevant
periods. In 1995, 1996 and 1997 foreign currency gains were $74,000, $1,559,000
and $1,219,000, respectively.


     The Company enters into foreign exchange contracts to hedge groups of
foreign currency transactions on a continuing basis for periods consistent with
its committed exposure. The foreign exchange contracts are valued at market and
generally have maturities which do not exceed six months. Gains and losses on
foreign exchange contracts are intended to offset losses and gains on assets,
liabilities and transactions being hedged. As a result, the Company does not
anticipate any material adverse effect due to exchange rate movements over the
short term period covered by these contracts. At December 31, 1997, the face
value of foreign exchange forward contracts against trade payables was $104.9
million, which approximated the fair market value of the contracts. At December
31, 1997, approximately $271.6 million of accounts payable were attributable to
foreign currency liabilities denominated in currencies other than the
subsidiaries' functional currencies (principally $229.3 million in U.S. dollars
and $26.2 million in German marks). The largest unhedged amounts of trade
payables were in subsidiaries in Hong Kong, Czech Republic, Poland, Argentina
and Mexico.


     In some countries there are risks of continuing periodic devaluations or
of large devaluations. In these countries, no hedging mechanism exists. The
Company has risks in these countries that such devaluations could cause
economic loss and negatively impact future sales since its product cost would
increase in local terms after such devaluations. The Company attempts to limit
its economic loss through structural mechanisms of limiting its holdings of
local currency and receivables to the amount of its local currency payables.

                                      F-20
<PAGE>

                             CHS ELECTRONICS, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                THREE YEARS ENDED DECEMBER 31, 1997--(CONTINUED)



NOTE G--CONCENTRATIONS--(CONTINUED)

     The Company has a major supplier, Hewlett-Packard (HP), whose products
accounted for 35%, 34%, and 19% and of sales for 1995, 1996 and 1997
respectively. No other vendor accounted for more than 10% of sales in any year
except in 1996, in which one vendor was 12%. HP has the right to terminate its
distribution agreement with any Company subsidiary if the subsidiary is unable
to cure, within a reasonable period of time, any violation of the agreement
after having received notice from HP of the violation. Each Company subsidiary
has the right to terminate the HP agreement on 90 days notice. Each Company
subsidiary believes that its relationship with HP is good, and has no reason to
believe that its distribution arrangement will not be a long-term relationship.
No assurance can be given, however, that HP will renew each Company
subsidiary's agreement at the time of its annual review or in subsequent years.
Management has not formulated alternative plans of action in the event the HP
contracts are terminated. The amounts outstanding to HP at December 31, 1996
and 1997 were $70 million and $80 million, respectively.


NOTE H--LEASE OBLIGATIONS AND OTHER CONTINGENCIES


     The Company leases equipment, offices, sales and warehouse space under
non-cancelable leases. The following is a schedule by years of the minimum
rental commitments remaining on leased property and equipment (in thousands)
with terms greater than one year:



<TABLE>
<CAPTION>
 YEAR ENDING
DECEMBER 31,                          TOTAL
--------------------------------   ----------
<S>                                <C>
        1998 ...................    $12,416
        1999 ...................     12,489
        2000 ...................     11,625
        2001 ...................     10,837
        2002 ...................      4,305
      Subsequent years .........      7,716
</TABLE>

     Total rental expense was $2,503,000, $6,715,000 and $14,542,000 for the
years ended December 31, 1995, 1996 and 1997, respectively.


     Rental expense includes approximately $734,000 annually for monthly rent
due on a CHS facility in Germany under a lease agreement dated November 1993
with a term of 17 years. CHS Germany has the option to purchase the leased
property at both the end of the seventh year of the lease term, and at the end
of the lease, for the net book value of the property as calculated under
applicable German tax laws. The option prices at the end of the seventh and
seventeenth year would approximate $5.6 million and $2.8 million, respectively.
In addition, the lessor has the right to adjust the minimum rental payments at
the end of 1999 if certain economic conditions prevail.


     The Company is involved in litigation relating to claims arising out of
its operations in the normal course of business. The Company is not currently
engaged in any legal proceedings that are expected, individually or in the
aggregate, to have a material adverse effect on the Company.

                                      F-21
<PAGE>

                             CHS ELECTRONICS, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                THREE YEARS ENDED DECEMBER 31, 1997--(CONTINUED)

NOTE I--RELATED PARTY TRANSACTIONS


     A member of the Board of Directors and shareholder of the Company also
serves as a member of the Board of Directors of a company which supplies
product to the Company. This Company also has ownership interests in other
companies which do business with the Company. Transactions with these related
parties in 1997 were as follows (in thousands):



<TABLE>
<S>                                                           <C>
       Sales to such related parties ......................    $102,724
       Purchases from such related parties ................    $ 57,376
       Commissions paid to such related parties ...........    $ 10,116
       Rebates received from such related parties .........    $ 11,163
</TABLE>

     The rebates received pertain to vendor rebates passed from such related
parties to the Company. The net amount of trade receivable due from such
parties at December 31, 1997 was $12,193,000.


     At December 31, 1996 and 1997, the Company carried a receivable from
Comtrad and Comtrad Holdings, Inc. (CHI) in an amount of $3.2 million and $17.4
million, respectively. In 1997 this receivable is in the form of a promissory
note which Comtrad and CHI has agreed to collateralize with 5,487,203 shares of
CHS owned by Comtrad and CHI. Interest rate charged on the promissory note is
at prime rate. The amount is due on demand. Interest charged to Comtrad was
$438,000, $86,000 and $684,000 in 1995, 1996 and 1997 respectively. In 1995 the
Company owed amounts to Comtrad which were subsequently extinguished. Interest
paid to Comtrad was $126,000 in 1995.


     In 1996, the Company purchased a company in Romania from Comtrad for
$375,000. Subsequently, the Company loaned $800,000 to the subsidiary to enable
it to purchase an office building. In December 1996, the Company sold this
subsidiary back to Comtrad for the original purchase price plus an amount equal
to the losses from April to date of sale ($200,000). No gain was recognized on
the sale, which had the impact of increasing the amount due from Comtrad by
$1.4 million.


     In 1995 the Company billed Comtrad $495,000 for actual costs of salaries,
space and other administrative costs it incurred on Comtrad's behalf. In 1995,
Comtrad billed the Company $887,000 for the Company's share of actual costs
incurred by Comtrad for salaries, space and other administrative expenses for
shared employees.


     A director of the Company served the Company as a management consultant
under a consulting agreement specifying payments of $4,000 per month. The
agreement was terminated at the end of 1996. In 1995 and 1996, $48,000 and
$48,000 respectively was paid under this agreement.


NOTE J--COMMON STOCK AND STOCK OPTION PLANS


     In September 1997, the Board approved a 3 for 2 stock split. All share
information has been restated to reflect all stock splits. In March 1996, the
shareholders approved a reincorporation as a Florida company, a reverse 1 for 2
stock split and the authorization of 5,000,000 shares of preferred stock in
such class or series and with such rights as approved by the Board of
Directors. Under Florida law, a majority vote by the holders of the preferred
stock as well as the holders of common stock is necessary to vote affirmatively
on matters of mergers, sales of substantially all the Company's assets,
exchanges of stock or changes in the articles of incorporation.

                                      F-22
<PAGE>

                             CHS ELECTRONICS, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                THREE YEARS ENDED DECEMBER 31, 1997--(CONTINUED)


NOTE J--COMMON STOCK AND STOCK OPTION PLANS--(CONTINUED)

     In August 1997, the Company completed a public offering of common shares
in which the Company sold 21,208,134 shares and selling shareholders sold
1,216,866 shares. The Company's shares were sold at $21.17 per share which
raised $428.2 million for the Company net of expenses and commissions.


     In June 1996, the Company completed a public offering of common shares in
which the Company sold 6,887,308 shares and selling shareholders sold 2,600,191
shares. The Company shares were sold at $8 per share which raised $50.6 million
for the Company net of expenses and commissions. As part of the offering the
underwriter received warrants entitling the purchase of 450,000 shares of stock
in a 4 year period beginning in June 1997 at a price starting at $8.80 and
increasing each year.


     In August 1994, a Stock Incentive Plan was adopted by the Company's Board
of Directors and subsequently approved by the Company's shareholders in June
1995. The maximum number of shares issuable under the Plan has been amended
several times and is 2,620,500 at December 31, 1997. Certain of the grants
(785,500 at December 31, 1997) are intended to qualify as incentive stock
options and the remaining are non-qualified options. All options were issued
with an exercise price equal to the market price and have a life of 10 years.
Vesting periods are generally 25% a year for four years.


     In 1997 the Board of Directors and subsequently the shareholders approved
the Directors and Officers 1997 Stock Option Plan. The Plan authorizes options
covering up to 1,350,000 shares of CHS Stock to be granted to executive
officers and Directors. The options are to be granted at fair market value and
generally vest over 3 years. In 1997, 1,275,000 options were granted under this
Plan.


     In 1997 the Board of Directors and subsequently the shareholders approved
the 1997 CEO Stock Option Plan. The plan authorizes options covering up to
750,000 shares of CHS Stock to be issued to the CEO upon approval by the Board
of a business acquisition. The options are granted at market value and vest
based on the earnings of the acquired company. In 1997 all the options
authorized by this plan were granted.


     In June 1996, the Board of Directors, and subsequently the shareholders,
approved the 1996 Chief Executive Officer Option Plan. The Plan provides for
options covering up to 750,000 shares of CHS stock to be issued to the CEO upon
the approval by the Board of Directors of a qualifying acquisition, as defined
or of any acquisition if recommended by the Compensation Committee and approved
by the Board. A qualifying acquisition is one where greater than 50% of the
purchase price is comprised of common stock calculated by an earn out formula.
The options are granted at market value and vest based on the earnings of the
acquired company. In 1996 and 1997, all the options authorized by this plan
were granted.


     In December 1994, when the estimated fair value was $4.00, the Board
granted the Company's Chief Executive Officer non-qualified options to purchase
84,120 shares for which the exercise price is $.67 per share. The vesting
period was two years and the options expire in ten years. The compensation
element of $280,400 has been amortized to compensation expense in the
accompanying financial statements.

                                      F-23
<PAGE>

                             CHS ELECTRONICS, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                THREE YEARS ENDED DECEMBER 31, 1997--(CONTINUED)


NOTE J--COMMON STOCK AND STOCK OPTION PLANS--(CONTINUED)

     The Company accounts for its stock options under APB 25. No compensation
cost has been recognized as the exercise price of each options does not exceed
the fair value of the underlying stock at the date of grant. Had compensation
cost for the plan been determined based on the fair value of the options at the
grant dates consistent with the method of SFAS No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION, the Company's net earnings per share would have been
reduced to the pro forma amounts indicated below.



<TABLE>
<CAPTION>
                                                              1996               1997
                                                        ----------------   ----------------
<S>                            <C>                      <C>                <C>
   Net earnings                As reported ..........     $ 12,166,000       $ 48,391,000
                               Pro forma ............       11,777,000         44,362,000
   Net earnings per share--
    basic                      As reported ..........     $        .80       $       1.44
                               Pro forma ............              .77               1.32
   Net earnings per share--
    diluted                    As reported ..........     $        .78       $       1.32
                               Pro forma ............              .75               1.21
</TABLE>

     The fair value of each option grant is estimated on the date of grant
using the Black-Scholes options pricing model with the following
weighted-average assumptions used for grants in 1996 and 1997, respectively;
dividend yield of 0% for each year; expected volatility of 70% in 1996 and
67.9% in 1997; risk-free interest rates 6.06% in 1996 and ranging from 5.68% to
6.47% in 1997; and expected lives of 4.5 years for each year.


     A summary of the status of the Company's stock option plans as of December
31, 1995, 1996 and 1997 and changes during the years ending on those dates is
presented below.



<TABLE>
<CAPTION>
                                                        1995                        1996                        1997
                                              -------------------------   -------------------------   -------------------------
                                                              WEIGHTED                    WEIGHTED                     WEIGHTED
                                                               AVERAGE                     AVERAGE                     AVERAGE
                                                              EXERCISE                    EXERCISE                     EXERCISE
                                                 SHARES         PRICE        SHARES         PRICE         SHARES        PRICE
                                              ------------   ----------   ------------   ----------   -------------   ---------
<S>                                           <C>            <C>          <C>            <C>          <C>             <C>
Outstanding at beginning of year ..........      603,008      $  3.53        846,132       $ 4.60       2,314,299     $  8.01
Granted ...................................      334,500      $  6.39      1,583,720         9.75       3,191,381       18.09
Exercised .................................           --           --        (61,611)        4.57        (705,469)      10.40
Cancelled .................................      (91,376)        4.11        (53,942)       10.28        (182,398)       8.36
                                                 -------      -------      ---------       ------       ---------     -------
Outstanding at end of year ................      846,132         4.60      2,314,299         8.01       4,617,813     $ 15.17
                                                 =======      =======      =========       ======       =========     =======
Options exercisable at year end ...........      208,283      $  3.33        773,442       $ 5.89       1,095,037     $  4.58
Weighted--average fair value of
  options granted during the year .........                     N/A                         N/A                       $ 10.61
</TABLE>


                                      F-24
<PAGE>

                             CHS ELECTRONICS, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                THREE YEARS ENDED DECEMBER 31, 1997--(CONTINUED)


NOTE J--COMMON STOCK AND STOCK OPTION PLANS--(CONTINUED)

     The following information applies to options outstanding at December 31,
1997:



<TABLE>
<S>                                                          <C>
     Number outstanding ..................................       4,617,813
     Range of exercise prices ............................   $ 4.00-$25.46
     Weighted-average exercise price .....................   $       15.17
     Weighted-average remaining contractual life .........       9.2 years
</TABLE>


                                      F-25
<PAGE>

                             CHS ELECTRONICS, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                THREE YEARS ENDED DECEMBER 31, 1997--(CONTINUED)

NOTE K--SEGMENT INFORMATION


     The Company's business activities involve the operating segments of
distribution of microcomputer equipment and software products. The operating
segments are the distribution of universal products (products that represent
the basic components of a personal computer without regard to the specific
local language, regulatory and technical factors of individual markets) and
localized products. The accounting policies of the segments are the same as
those described in the Summary of Significant Accounting Policies (Note A). The
segments are managed separately since each requires different business and
marketing strategies. The geographic areas in which the localized product
segments operate are Western Europe, Eastern Europe and Latin America. Net
sales, operating income (before interest and income taxes) and identifiable
assets by segment were as follows (in thousands):


<TABLE>
<CAPTION>
                                             LOCALIZED PRODUCTS
                                 -------------------------------------------
                                    WESTERN        EASTERN         LATIN        UNIVERSAL
                                     EUROPE         EUROPE        AMERICA       PRODUCTS     ELIMINATIONS     CONSOLIDATED
                                 -------------   -----------   -------------   ----------   --------------   -------------
<S>                              <C>             <C>           <C>             <C>          <C>              <C>
1995
 Net sales ...................    $  542,438      $ 65,320      $  328,945      $     --      $      --       $  936,703
                                                                                                              ==========
 Operating income ............         7,358           252           3,934            --             --           11,544
 Corporate expenses ..........                                                                                      (745)
                                                                                                              ----------
                                                                                                                  10,799
                                                                                                              ==========
 Identifiable assets .........       169,442        33,283          85,409            --        (22,677)         265,457
 Corporate assets ............                                                                                       347
                                                                                                              ----------
                                                                                                              $  265,804
                                                                                                              ==========
1996
 Net sales ...................    $1,063,997      $215,518      $  576,025      $     --      $      --       $1,855,540
                                                                                                              ==========
 Operating income ............         9,559        11,440          10,663            --             --           31,662
 Corporate expenses ..........                                                                                    (2,789)
                                                                                                              ----------
                                                                                                                  28,873
                                                                                                              ==========
 Identifiable assets .........       528,568       110,656         207,734            --             --          846,958
 Corporate assets ............                                                                                    14,991
                                                                                                              ----------
                                                                                                              $  861,949
                                                                                                              ==========
1997
 Net sales ...................    $2,676,905      $389,553      $1,118,504      $571,421      $      --       $4,756,383
                                                                                                              ==========
 Operating income ............        42,867        18,871          17,891        14,501             --           94,130
 Corporate expenses ..........                                                                                    (4,969)
                                                                                                              ----------
                                                                                                                  89,161
                                                                                                              ==========
 Identifiable assets .........       894,248       189,918         280,814       472,689             --          837,669
 Corporate assets ............                                                                                   110,571
                                                                                                              ----------
                                                                                                              $1,948,240
                                                                                                              ==========
</TABLE>


                                      F-26
<PAGE>

                             CHS ELECTRONICS, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                THREE YEARS ENDED DECEMBER 31, 1997--(CONTINUED)

NOTE L--SUBSEQUENT EVENTS


     In January 1998, the Company implemented a Common Stock Purchase Rights
Plan and distributed one right (a "Right") for each share of the Company's
Common Stock outstanding. Each Right has an initial exercise price of $100 for
one-one thousandth of a share of the Company's Series A junior participating
preferred stock. The Rights are not exercisable or transferable, apart from the
Company's Common Stock, until after a person or group acquires, or has the
right to acquire, beneficial ownership of 15% or more of the Company's Common
Stock (which threshold may, under certain circumstances, be reduced to 10%) or
announces a tender or exchange offer to acquire such percentage of the
Company's Common Stock. Upon such occurrence, each Right (other than Rights
owned by such person or group) will entitle the holder to purchase from the
Company, or the particular acquiring person or group under certain
circumstances and conditions, the number of shares of the Company's, or such
person's or group's, Common Stock having a market value equal to twice the
exercise price of the Right. The Rights are redeemable by the Company's Board
of Directors under certain circumstances.


NOTE M--SUMMARIZED QUARTERLY FINANCIAL DATA FOR 1996 AND 1997 (UNAUDITED)



<TABLE>
<CAPTION>
                                              FIRST         SECOND         THIRD            FOURTH
                                             QUARTER       QUARTER        QUARTER           QUARTER             YEAR
                                           -----------   -----------   -------------   ----------------   ---------------
                                                          (IN THOUSANDS, EXCEPT FOR PER SHARE INFORMATION)
<S>                                        <C>           <C>           <C>             <C>                <C>
   1996
   Net sales ...........................    $302,995      $316,506      $  376,209        $ 859,830         $ 1,855,540
   Gross profit ........................      22,542        23,764          27,109           57,693             131,108
   Net earnings ........................       1,988         1,726           2,325            6,127              12,166
   Earnings per share--basic ...........         .17           .14             .13              .33(A)              .80
   Earnings per share--diluted .........         .16           .13             .11              .32                 .78

   1997
   Net sales ...........................    $877,103      $946,955      $1,097,567       $1,834,758         $ 4,756,383
   Gross profit ........................      62,463        70,173          84,944          129,089             346,669
   Net earnings ........................       6,710         6,401          11,436           23,844              48,391
   Earnings per share--basic ...........         .30           .29             .28              .49                1.44
   Earnings per share--diluted .........         .29           .27             .26              .45                1.32
</TABLE>

----------------
(A) Results for the fourth quarter 1996 include a restructuring charge of $1.4
    million ($1.1 million or $.07 per share after tax) for costs incurred by
    the Company to implement consolidation of its operations with acquired
    operations from Merisel.

                                      F-27
<PAGE>

EXHIBIT INDEX

EXHIBIT           DESCRIPTION
-------           -----------

21         Subsidiaries of CHS Electronics

27.1       Financial Data Schedule

27.2       Financial Data Schedule

27.3       Financial Data Schedule