<PAGE>

-------------------------------------------------------------------------------
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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q


         /X/    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934

                FOR THE QUARTERLY PERIOD ENDED DECEMBER 26, 1998

                                       OR


         / /    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                                       
              FOR THE TRANSITION PERIOD FROM ________ TO ________ 

                       COMMISSION FILE NUMBER 1-11566

                                 COMPUSA INC.
            (Exact name of registrant as specified in its charter)


                 DELAWARE                                  75-2261497
     (State or other jurisdiction of                    (I.R.S. Employer
      incorporation or organization)                  Identification No.)

                 14951 NORTH DALLAS PARKWAY, DALLAS, TEXAS 75240
                    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (972) 982-4000

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

                                  Yes  X    No
                                     -----     -----

     The registrant had 91,475,786 shares of common stock, $.01 per share par
value, outstanding as of February 5, 1999.

-------------------------------------------------------------------------------
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<PAGE>


                         PART I - FINANCIAL INFORMATION


ITEM 1.  FINANCIAL STATEMENTS

<TABLE>
<S>                                                                                                              <C>
         Consolidated Balance Sheets at December 26, 1998 (unaudited)
                  and June 27, 1998...............................................................................3

         Consolidated Income Statements for the thirteen weeks and twenty-six weeks
                  ended December 26, 1998 and December 27, 1997 (unaudited).......................................4

         Consolidated Statements of Cash Flows for the twenty-six weeks
                  ended December 26, 1998 and December 27, 1997 (unaudited).......................................5

         Notes to Consolidated Financial Statements (unaudited)...................................................6

     Separate financial statements relating to the Company's subsidiaries are omitted since all of them are 
wholly owned and have each guaranteed the Company's 9 1/2% Senior Subordinated Notes due 2000 on a full, 
unconditional, and joint and several basis and the Company does not consider such separate financial statements 
to be material to investors.

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
         AND RESULTS OF OPERATIONS...............................................................................12



                           PART II - OTHER INFORMATION


ITEM 1.  LEGAL PROCEEDINGS.......................................................................................24

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.....................................................24

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K........................................................................25

SIGNATURES.......................................................................................................26

EXHIBITS.........................................................................................................27
</TABLE>

                                       2
<PAGE>

                                  COMPUSA INC.

                           CONSOLIDATED BALANCE SHEETS
                          (IN THOUSANDS, EXCEPT SHARES)

<TABLE>
<CAPTION>
                                                                                 DECEMBER 26,         JUNE 27,
                                                                                     1998               1998
                                                                              ------------------ -------------------
                                                                                 (UNAUDITED)
<S>                                                                           <C>                <C>                
                                   ASSETS
Current assets:
   Cash and cash equivalents................................................    $    402,899        $    151,779
   Accounts  receivable,  net of allowance  for doubtful  accounts of $5,259
     and $3,524 at December 26, 1998 and June 27, 1998, respectively........         254,988             214,084
   Merchandise inventories..................................................         815,825             520,762
   Deferred income taxes - current..........................................           8,721               9,762
   Prepaid expenses and other...............................................          22,225              26,480
                                                                              ------------------ -------------------
     Total current assets...................................................       1,504,658             922,867
Property and equipment, net.................................................         232,860             210,528
Deferred income taxes.......................................................          14,229              18,076
Costs in excess of net assets of acquired businesses........................          91,390               3,069
Other assets................................................................           5,990               5,970
                                                                             ------------------- -------------------
                                                                                $  1,849,127        $  1,160,510
                                                                              ================== ===================

                    LIABILITIES AND STOCKHOLDERS' EQUITY 

Current liabilities:
   Accounts payable.........................................................    $    966,809        $    534,620
   Accrued liabilities......................................................         195,536              98,714
   Current portion of capital lease obligations.............................           1,166                 666
                                                                              ------------------ -------------------
     Total current liabilities..............................................       1,163,511             634,000
Capital lease obligations...................................................             633               1,872
Senior Subordinated Notes...................................................         110,000             110,000
Note payable to Tandy Corporation...........................................         136,000                  --
Commitments and contingencies...............................................              --                  --
Stockholders' equity:
   Preferred  stock,  $.01 per share par value,  10,000  shares  authorized,
     none issued............................................................              --                  --
   Common stock,  $.01 per share par value;  325,000,000  shares  authorized
     with  93,943,299 and 93,372,545  shares issued at December 26, 1998 and
     June 27, 1998, respectively............................................             939                 934
   Paid-in capital..........................................................         278,629             278,000
   Retained earnings........................................................         221,756             198,045
                                                                              ------------------ -------------------
                                                                                     501,324             476,979
   Less: Treasury stock, at cost,  2,507,227 shares at December 26, 1998 and
     June 27, 1998..........................................................         (62,341)            (62,341)
                                                                              ------------------ -------------------
     Total stockholders' equity.............................................         438,983             414,638
                                                                              ------------------ -------------------
                                                                                $  1,849,127        $  1,160,510
                                                                              ================== ===================
</TABLE>


                             See accompanying notes.

                                       3
<PAGE>

                                  COMPUSA INC.

                         CONSOLIDATED INCOME STATEMENTS
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                THIRTEEN WEEKS ENDED                 TWENTY-SIX WEEKS ENDED
                                       -------------------------------------- --------------------------------------
                                            DECEMBER 26,       DECEMBER 27,      DECEMBER 26,         DECEMBER 27, 
                                               1998               1997              1998                 1997
                                       ----------------- -------------------- ------------------ -------------------
<S>                                    <C>                <C>                 <C>                <C>               
Net sales............................    $   1,776,374      $   1,456,725       $  3,168,514        $  2,648,537
Cost of sales and occupancy costs....        1,536,611          1,241,979          2,732,397           2,258,192
                                       ----------------- -------------------- ------------------ -------------------
   Gross profit......................          239,763            214,746            436,117             390,345

Operating expenses...................          170,461            125,658            316,761             234,907
Pre-opening expenses.................            2,095              4,028              3,461               5,480
General and administrative expenses..           38,358             28,793             70,995              54,408
                                       ----------------- -------------------- ------------------ -------------------

   Operating income..................           28,849             56,267             44,900              95,550

Other expense (income):
   Interest expense..................            6,989              3,041             11,372               6,096
   Other income, net.................           (3,504)            (2,166)            (5,044)             (4,084)
                                       ----------------- -------------------- ------------------ -------------------
                                                 3,485                875              6,328               2,012
                                       ----------------- -------------------- ------------------ -------------------
Income before income taxes...........           25,364             55,392             38,572              93,538
Income tax expense...................            9,793             21,325             14,861              36,012
                                       ----------------- -------------------- ------------------ -------------------
Net income...........................    $      15,571      $      34,067       $     23,711        $     57,526
                                       ================= ==================== ================== ===================

Basic earnings per share.............    $        0.17      $        0.37       $       0.26        $       0.63
Diluted earnings per share...........    $        0.17      $        0.36       $       0.26        $       0.60

Weighted average common shares.......           91,408             91,405             91,325              91,532
Weighted average common shares
   assuming dilution.................           92,834             95,508             92,938              95,511

</TABLE>

                             See accompanying notes.

                                       4
<PAGE>

                                  COMPUSA INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                       TWENTY-SIX WEEKS ENDED
                                                                              --------------------------------------
                                                                                   DECEMBER 26,        DECEMBER 27, 
                                                                                      1998                1997
                                                                              -----------------  -------------------
<S>                                                                           <C>                <C>
Cash flows provided by operating activities:
   Net income...............................................................    $     23,711        $     57,526
     Adjustments  to reconcile  net income to net cash provided by operating
       activities:
       Depreciation and amortization........................................          33,002              22,212
       Deferred income taxes................................................           4,888              (1,027)
       Other non-cash charges...............................................           2,410                  --
     Changes in assets and liabilities:
       Decrease (increase) in:
         Accounts receivable................................................           4,125              (8,861)
         Merchandise inventories............................................        (133,537)           (178,896)
         Prepaid expenses and other assets..................................           8,214              (5,834)
       Increase in accounts payable and accrued liabilities.................         371,006             275,526
                                                                              ------------------ -------------------
           Total adjustments................................................         290,108             103,120
                                                                              ------------------ -------------------
           Net cash provided by operating activities........................         313,819             160,646

Cash (used in) provided by investing activities:
   Capital expenditures.....................................................         (36,391)            (49,748)
   Payment for purchase of Computer City, net of cash acquired..............         (34,841)                 --
   Proceeds from sale of Canadian stores....................................           8,980                  --
   Other....................................................................             385                 697
                                                                              ------------------ -------------------
           Net cash used in investing activities............................         (61,867)            (49,051)

Cash flows provided by (used in) financing activities:
   Proceeds from issuance of common stock...................................             378               2,576
   Purchase of treasury stock...............................................              --             (30,902)
   Payments under capital lease obligations.................................          (1,210)             (1,463)
                                                                              ------------------ -------------------
           Net cash used in financing activities............................            (832)            (29,789)

Net increase in cash and cash equivalents...................................         251,120              81,806
Cash and cash equivalents at beginning of period............................         151,779             209,929
                                                                              ------------------ -------------------
Cash and cash equivalents at end of period..................................    $    402,899        $    291,735
                                                                              ================== ===================

</TABLE>

                             See accompanying notes.

                                       5
<PAGE>

                                  COMPUSA INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

1.   BASIS OF PRESENTATION

     The consolidated financial statements include the accounts of CompUSA 
Inc. and its wholly owned subsidiaries (collectively, the "Company"). All 
significant intercompany accounts and transactions have been eliminated. In 
the opinion of management, the accompanying unaudited consolidated financial 
statements contain all adjustments, consisting only of normal recurring 
adjustments, necessary to present fairly the financial position, results of 
operations, and cash flows of the Company for the applicable interim periods. 
The results of operations for these periods are not necessarily comparable 
to, or indicative of, results of any other interim period or for the fiscal 
year as a whole.

     The accompanying unaudited condensed consolidated financial statements 
have been prepared in accordance with generally accepted accounting 
principles for interim financial information and with the instructions to 
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include 
all of the information and footnotes required by generally accepted 
accounting principles for complete interim financial statements. Therefore, 
these financial statements should be read in conjunction with the Company's 
Annual Report on Form 10-K for the fiscal year ended June 27, 1998.

     The preparation of consolidated financial statements in conformity with 
generally accepted accounting principles requires management to make certain 
estimates and assumptions. These estimates and assumptions affect the 
reported amounts of assets, liabilities, revenues, and expenses and the 
disclosure of gain and loss contingencies at the date of the consolidated 
financial statements. Actual results could differ from those estimates.

2.   ACQUISITION OF COMPUTER CITY

     On August 31, 1998, the Company completed its acquisition of Computer 
City, Inc. ("Computer City") from Tandy Corporation ("Tandy"), for a purchase 
price of approximately $172 million, subject to certain post-closing 
adjustments, payable in a note and cash.

     In connection with the acquisition of Computer City, the Company issued 
a $136 million subordinated promissory note payable to Tandy (the "Seller 
Note"). The Seller Note bears interest at a rate of 9.48% per annum and 
provides for its repayment in semi-annual installments over a period of ten 
years. The first three years of payments are interest only, with the first 
principal payment due in December 2001. The Seller Note ranks pari passu with 
the Company's 9 1/2% Senior Subordinated Notes due 2000 ("Senior Subordinated 
Notes"). The unpaid principal amount of the Seller Note may be prepaid, in 
whole or in part, at any time at the option of the Company, without premium 
or penalty.

     Effective November 1, 1998, the Company sold the seven Canadian Computer 
City supercenters acquired by the Company to Future Shop Ltd. for 
approximately $9.0 million in cash and the assumption of certain liabilities.

                                       6
<PAGE>



                                  COMPUSA INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                   (UNAUDITED)

2.   ACQUISITION OF COMPUTER CITY (CONTINUED)

     The purchase of Computer City has been accounted for under the purchase 
method of accounting. Accordingly, the purchase price paid has been 
preliminarily allocated to the acquired assets and liabilities based on 
estimated fair values as of the acquisition date. The excess of the purchase 
price paid over the estimated fair values of the acquired assets and 
liabilities of approximately $90 million is being amortized over 20 years on 
a straight-line basis. The Company will assess the recoverability of costs in 
excess of net assets acquired annually based on existing facts and 
circumstances and projected earnings before interest, depreciation, and 
amortization, on an undiscounted basis. Should the Company's assessment 
indicate an impairment of this asset in the future, an appropriate write-down 
will be recorded.

     The accompanying income statements for the thirteen and twenty-six weeks 
ended December 26, 1998 include the results of operations from the 
acquisition date for the 37 Computer City stores in the United States that 
the Company is operating as CompUSA Computer Superstores(SM) and two former 
Computer City "small market" stores. The results of liquidating the 55 
Computer City stores in the United States closed by the Company, and the 
seven Computer City supercenters in Canada sold by the Company, are not 
included in the accompanying income statement but rather represent 
adjustments to the value of the related assets acquired and liabilities 
assumed. The following pro forma combined net sales, net income, and diluted 
earnings per share data summarize the results of operations for the second 
quarter of fiscal 1998 and first six months of fiscal 1999 and 1998 as if 
Computer City had been acquired as of the beginning of fiscal 1998. The pro 
forma results given below are not necessarily indicative of what actually would 
have occurred if the acquisition had been in effect during the periods 
presented, and are not intended to be a projection of future results or trends.

<TABLE>
<CAPTION>
                                       THIRTEEN WEEKS ENDED         TWENTY-SIX WEEKS ENDED        
                                       -------------------- --------------------------------------
                                           DECEMBER 27,         DECEMBER 26,       DECEMBER 27, 
                                               1997                1998                1997
                                       -------------------- ------------------ -------------------
                                                  (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                        <C>                <C>                 <C>            
Net sales............................      $  1,680,358       $  3,291,781        $  3,053,456
Net income...........................            23,163              2,860              36,980
Diluted earnings per share...........              0.24               0.03                0.39
</TABLE>


                                       7
<PAGE>



                                  COMPUSA INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                   (UNAUDITED)

3.   EQUITY

     The calculation of basic and diluted earnings per share is summarized as
follows:

<TABLE>
<CAPTION>
                                                THIRTEEN WEEKS ENDED                 TWENTY-SIX WEEKS ENDED
                                       -------------------------------------- --------------------------------------
                                          DECEMBER 26,         DECEMBER 27,       DECEMBER 26,        DECEMBER 27,
                                              1998                1997                1998                1997
                                       -----------------  ------------------- ------------------ -------------------
                                                          (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                    <C>                 <C>                  <C>               <C>

BASIC EARNINGS PER SHARE:
Net income...........................    $      15,571       $     34,067        $    23,711        $     57,526

Weighted average common shares
   outstanding.......................           91,408             91,405             91,325              91,532
                                       -----------------  ------------------- ------------------ -------------------

Basic earnings per share.............    $        0.17       $       0.37        $      0.26        $       0.63
                                       =================  =================== ================== ===================

DILUTED EARNINGS PER SHARE:
Net income...........................    $      15,571       $     34,067        $    23,711        $     57,526

Weighted average common shares
   outstanding.......................           91,408             91,405             91,325              91,532
Incremental shares assuming dilution.            1,426              4,103              1,613               3,979
                                       -----------------  ------------------- ------------------ -------------------
Weighted average common shares
   assuming dilution.................           92,834             95,508             92,938              95,511
                                       -----------------  ------------------- ------------------ -------------------

Diluted earnings per share...........    $        0.17       $       0.36        $      0.26        $       0.60
                                       =================  =================== ================== ===================
</TABLE>

     In September 1997, the Company's Board of Directors authorized the 
purchase of up to $60 million of common stock of the Company ("Common Stock"). 
As of December 26, 1998, the Company had purchased 2.2 million shares of 
Common Stock, to be held as treasury stock, for approximately $60 million 
(approximately $27.34 per share), pursuant to the September 1997 
authorization and, as a result, no additional treasury stock purchases can 
currently be made by the Company.

4.   COMMITMENTS AND CONTINGENCIES

     On April 23, 1998, a lawsuit, Hoeck v. CompUSA Inc. et al., was filed by 
a stockholder of the Company in the United States District Court for the 
Northern District of Texas against the Company and certain of its officers, 
seeking class action status on behalf of the purchasers of the Company's 
Common Stock and related publicly traded options during the class period. The 
action alleges various violations of federal securities laws. Damages have 
not been specified. On June 24, 1998, a second stockholder suit was filed 
against the Company making virtually the same allegations. On August 24, 
1998, a consolidated amended complaint was filed in the Hoeck case, 
effectively consolidating the two cases. On September 25, 1998, the Company 
filed a motion to dismiss the consolidated complaint and such motion is 
currently pending. The Company believes the claims are without merit and 
intends to vigorously defend against such charges.

                                       8
<PAGE>

                                  COMPUSA INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                   (UNAUDITED)

4.   COMMITMENTS AND CONTINGENCIES (CONTINUED)

     The Company is a defendant from time to time in lawsuits incidental to 
its business. Based on currently available information, the Company believes 
that resolution of all known contingencies would not have a material adverse 
impact on the Company's financial statements. However, there can be no 
assurances that future costs would not be material to results of operations 
of the Company for a particular future period. In addition, the Company's 
estimates of future costs are subject to change as circumstances change and 
additional information becomes available during the course of litigation.

5.   SUBSIDIARY GUARANTEES

     The Senior Subordinated Notes are guaranteed on a full, unconditional, 
and joint and several basis by all of the Company's direct and indirect 
subsidiaries, each of which is wholly owned. The combined summarized 
information of these subsidiaries is as follows:

<TABLE>
<CAPTION>
                                                                                        AS OF AND FOR THE
                                                                                     TWENTY-SIX WEEKS ENDED
                                                                              --------------------------------------
                                                                                  DECEMBER 26,        DECEMBER 27, 
                                                                                     1998                 1997
                                                                              ------------------ -------------------
                                                                                         (IN THOUSANDS)
<S>                                                                           <C>                <C>            
Intercompany receivables....................................................    $     85,233        $     69,537
Other current assets........................................................         679,146             516,176
Noncurrent assets...........................................................          96,204             169,028
Intercompany payables.......................................................         123,593              12,930
Other current liabilities...................................................         272,228             239,552
Long-term debt and liabilities..............................................           1,178               2,065
Net sales...................................................................       2,184,705           1,810,000
Intercompany revenues.......................................................         127,190             102,919
Costs and expenses..........................................................       2,163,319           1,746,952
Intercompany expenses.......................................................          84,156              68,059
Net income..................................................................          39,619              60,213
</TABLE>

     In the preparation of the Company's consolidated financial statements, 
all intercompany accounts were eliminated. There are no restrictions that 
limit the ability of the Company's subsidiaries to declare and pay dividends 
to the Company.

                                       9
<PAGE>

                                  COMPUSA INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                   (UNAUDITED)

6.   SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

<TABLE>
<CAPTION>
                                                                                     TWENTY-SIX WEEKS ENDED
                                                                              --------------------------------------
                                                                                DECEMBER 26,        DECEMBER 27,
                                                                                    1998                1997
                                                                              ------------------ -------------------
                                                                                         (IN THOUSANDS)
<S>                                                                           <C>                <C>
Cash paid (received) during the periods for:
   Interest.................................................................    $      5,536        $      5,510
   Income taxes.............................................................          (7,983)             28,130

Investing activities not affecting cash are as follows:
   Additions to property and equipment under capital leases.................    $        471        $         95

Financing activities not affecting cash are as follows:
   Note payable to Tandy Corporation........................................    $    136,000        $         --
</TABLE>

7.   NEW ACCOUNTING PRONOUNCEMENTS

     The American Institute of Certified Public Accountant's (the "AICPA") 
Accounting Standards Executive Committee has issued Statement of Position 
("SOP") 98-5, "Reporting on the Costs of Start-Up Activities." This SOP is 
effective for financial statements for fiscal years beginning after December 
15, 1998. The SOP requires that entities expense start-up costs and 
organization costs as they are incurred. The provisions of SOP 98-5 were 
adopted by the Company in the preparation of the financial statements 
included in the Quarterly Report on Form 10-Q for the thirteen weeks ended 
September 26, 1998. The adoption of the provisions of SOP 98-5 had no 
material impact on the Company's financial statements.

     The AICPA has issued SOP 98-1, "Accounting for Costs of Computer 
Software Developed or Obtained for Internal Use," which is effective for 
fiscal years beginning after December 15, 1998. The Company's current policy 
falls within the guidelines of SOP 98-1.

     In June 1997, the Financial Accounting Standards Board ("FASB") issued 
SFAS No. 130, "Reporting Comprehensive Income," which establishes standards 
for reporting and displaying comprehensive income and its components in a 
full set of general-purpose financial statements. SFAS No. 130 requires 
enterprises to report comprehensive income to measure more effectively all 
changes in equity of an enterprise that result from certain recognized 
transactions and other economic events other than income earned from the 
ordinary course of business. SFAS No. 130 is effective for financial 
statements for fiscal years beginning after December 15, 1997. The provisions 
of SFAS No. 130 were adopted by the Company in the preparation of the 
financial statements included in the Quarterly Report on Form 10-Q for the 
thirteen weeks ended September 26, 1998. The adoption of the provisions of 
SFAS No. 130 had no material impact on the Company's financial statements.

                                       10
<PAGE>

                                  COMPUSA INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                   (UNAUDITED)

     In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments 
of an Enterprise and Related Information," which establishes standards 
requiring public business enterprises to report information about operating 
segments in annual financial statements and requires that those enterprises 
report selected information about operating segments in interim financial 
reports. SFAS No. 131 also establishes standards for related disclosures 
about products and services, geographic areas, and major customers. SFAS No. 
131 is effective for financial statements for fiscal years beginning after 
December 15, 1997, and therefore the Company will adopt the annual disclosure 
requirements in the preparation of its Annual Report on Form 10-K for the 
fiscal year ending June 26, 1999, while the quarterly disclosure requirements 
will be adopted in fiscal year 2000. Management has not determined the impact 
of SFAS No. 131 on the Company's financial statement disclosures.

8.   CREDIT AGREEMENT

     The Company has an unsecured $300 million credit agreement (the "Credit 
Agreement") with a consortium of banks that expires in March 2001. The funds 
available under the Credit Agreement may be used for any corporate purpose, 
including purchasing or redeeming the Senior Subordinated Notes in part or in 
full. The Credit Agreement requires that the Company maintain certain 
financial ratios and a minimum net worth. The Credit Agreement imposes 
certain limitations on indebtedness, liens, and mergers and consolidations.

     The Company's ability to incur borrowings under the Credit Agreement is 
reduced by outstanding letters of credit and, in certain circumstances, 
further reduced based upon financial covenants contained in the Credit 
Agreement. The Company's ability to incur borrowings under the Credit 
Agreement could be further limited in certain circumstances pursuant to the 
terms of the Senior Subordinated Notes indenture. Subject to the financial 
covenants contained in the Credit Agreement, as of December 26, 1998, the 
Company had $190 million available for future borrowings under the Credit 
Agreement.

     Borrowings under the Credit Agreement bear interest, at the Company's 
option, at either a prime rate (7.8% per annum as of December 26, 1998) or a 
rate based on the London Interbank Offering Rate (LIBOR) ranging from 5.2% to 
5.3% as of December 26, 1998, plus a specified margin, currently 1.25%. The 
Company also pays certain commitment and agent fees. The Company has the 
annual option to extend the Credit Agreement for an additional year with the 
banks' approval.

     The Credit Agreement also limits the Company's ability to pay dividends 
and purchase shares of Common Stock. As of December 26, 1998, the Company had 
approximately $71.5 million available to pay dividends and purchase Common 
Stock pursuant to the provisions of the Credit Agreement. The Credit 
Agreement allows the Company to securitize up to $200 million of certain 
assets. The indebtedness under the Credit Agreement is guaranteed on a full, 
unconditional, and joint and several basis by all the subsidiaries of the 
Company. However, the Credit Agreement allows the Company to designate one or 
more of its subsidiaries to be free from most of the restrictions under the 
Credit Agreement so long as no default will exist and such subsidiaries do 
not contribute more than 10% of the Company's consolidated cash flow or hold 
more than 10% of the Company's consolidated assets.

                                       11
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

CAUTIONARY STATEMENT REGARDING RISKS AND UNCERTAINTIES THAT MAY AFFECT FUTURE
RESULTS

     This Quarterly Report on Form 10-Q contains forward-looking statements 
about the business, financial condition, and prospects of the Company, and 
Year 2000 issues. The actual results of the Company could differ materially 
from those indicated by the forward-looking statements because of various 
risks and uncertainties, including without limitation changes in product 
demand, the availability of products, changes in competition, the ability of 
the Company to open new stores in accordance with its plans, economic 
conditions, real estate market fluctuations, interest rate fluctuations, 
dependence on manufacturers' product development, various inventory risks due 
to changes in market conditions, changes in tax and other governmental rules 
and regulations applicable to the Company, and other risks indicated herein 
and in the Company's filings with the Securities and Exchange Commission. The 
Company's entry into the build-to-order market with its CompUSA PC(TM) brand 
personal computers in the first quarter of fiscal 1998 and the opening of its 
own build-to-order manufacturing facility in the second quarter of fiscal 
1999 involve significant additional risks, including without limitation 
failure to achieve customer acceptance of the new products, substantial 
dependence on third parties for quality and reliability of component parts, 
and the Company's ability to fulfill customer orders timely. Additionally, 
the Company's acquisition of Computer City in the first quarter of fiscal 
1999 involves certain risks and uncertainties, including without limitation 
the ability of the Company to operate the acquired stores profitably, to 
dispose of inventories and other assets, as well as future lease commitments, 
related to Computer City stores closed, and to retain Computer City's retail 
and corporate customers.

     All of the foregoing risks and uncertainties are beyond the ability of 
the Company to control, and in many cases, the Company cannot predict the 
risks and uncertainties that could cause its actual results to differ 
materially from those indicated by the forward-looking statements. When used 
in this Quarterly Report on Form 10-Q, the words "believes," "estimates," 
"plans," "expects," "anticipates," and similar expressions as they relate to 
the Company or its management are intended to identify forward-looking 
statements.

ACQUISITION OF COMPUTER CITY

     On August 31, 1998, the Company completed its acquisition of Computer 
City from Tandy for approximately $172 million, subject to certain 
post-closing adjustments. See "--Liquidity and Capital Resources." The 
acquisition was accounted for under the purchase accounting method.

     The Company is operating 37 Computer City stores in the United States as 
CompUSA Computer Superstores(SM) and two former Computer City "small market" 
stores. Such stores were converted to the CompUSA information systems in 
September and October 1998. The Company has initiated certain activities to 
reconfigure these stores to the CompUSA format and expects such activities to 
be completed over a period of time in fiscal 1999 and fiscal 2000. The 
Company identified 55 Computer City stores in the United States for closure. 
Inventory liquidation sales were conducted at the majority of such stores 
through mid-October, at which time the stores were closed and the remaining 
merchandise inventories were transferred to other CompUSA Computer 
Superstores, including former Computer City stores, for final liquidation. 
Effective November 1, 1998, the Company sold the seven Canadian Computer City 
supercenters acquired by the Company to Future Shop Ltd. for approximately 
$9.0 million in cash and the assumption of certain liabilities.

                                       12
<PAGE>

     The 55 Computer City stores that the Company closed were generally in 
closer proximity to, and therefore the Company believes would have been more 
directly competitive with, existing CompUSA Computer Superstores than the 37 
Computer City stores in the United States that have remained open as CompUSA 
Computer Superstores. Of the 37 stores acquired from Computer City that have 
remained open, 29 are located in metropolitan areas in which there are 
existing CompUSA Computer Superstores. The Company believes its decision to 
continue to operate these 29 stores is consistent with its strategy of 
opening additional Computer Superstores in existing markets to increase 
market penetration and to provide customers with more convenience and better 
service. However, the continued operation of these 29 stores may cause the 
rate of comparable store sales growth for the CompUSA Computer Superstores 
already in operation in such metropolitan areas to be lower than it would 
have been if these 29 Computer City stores had been closed.

GENERAL

     All references herein to "fiscal 1999" relate to the fifty-two weeks 
ending June 26, 1999, and references to "fiscal 1998" relate to the fifty-two 
weeks ended June 27, 1998. In addition, all references herein to "second 
quarter of fiscal 1999" and "first six months of fiscal 1999" relate to the 
thirteen weeks and twenty-six weeks, respectively, ended December 26, 1998, 
and all references to "second quarter of fiscal 1998" and "first six months 
of fiscal 1998" relate to the thirteen weeks and twenty-six weeks, 
respectively, ended December 27, 1997.

     The following table sets forth certain items expressed as a percentage 
of net sales for the periods indicated:

<TABLE>
<CAPTION>
                                                THIRTEEN WEEKS ENDED                 TWENTY-SIX WEEKS ENDED
                                       -------------------------------------- --------------------------------------
                                             DECEMBER 26,      DECEMBER 27,       DECEMBER 26,        DECEMBER 27, 
                                                 1998              1997               1998                1997
                                       ------------------  ------------------ ------------------ -------------------
<S>                                    <C>                 <C>                <C>                <C>
Net sales............................            100.0%             100.0%             100.0%              100.0%
Cost of sales and occupancy costs....             86.5               85.3               86.2                85.3
                                       ------------------  ------------------ ------------------ -------------------
Gross profit.........................             13.5               14.7               13.8                14.7
Operating expenses...................              9.6                8.6               10.0                 8.9
Pre-opening expenses.................              0.1                0.2                0.2                 0.1
General and administrative expenses..              2.2                2.0                2.2                 2.1
                                       ------------------  ------------------ ------------------ -------------------
Operating income.....................              1.6                3.9                1.4                 3.6
Interest  expense  and other  income,
   net...............................              0.2                0.1                0.2                 0.1
                                       ------------------  ------------------ ------------------ -------------------
Income before income taxes...........              1.4                3.8                1.2                 3.5
Income tax expense...................              0.5                1.5                0.5                 1.3
                                       ------------------  ------------------ ------------------ -------------------
Net income...........................              0.9%               2.3%               0.7%                2.2%
                                       ==================  ================== ================== ===================
</TABLE>

                                       13
<PAGE>


         The following table sets forth certain operating data for the Company:
<TABLE>
<CAPTION>
                                                THIRTEEN WEEKS ENDED                 TWENTY-SIX WEEKS ENDED
                                       -------------------------------------- --------------------------------------
                                         DECEMBER 26,         DECEMBER 27,        DECEMBER 26,        DECEMBER 27, 
                                             1998                 1997                1998                1997
                                       -----------------  ------------------- ------------------ -------------------
<S>                                    <C>                <C>                 <C>                <C>
Stores open at end of period.........              210                148                210                 148
Computer City stores  acquired during
     the period (1)..................               --                 --                 37                  --
Stores opened during the period......                7                 14                 11                  19
Stores relocated during the period...                2                  1                  4                   2
Average  net sales  per gross  square
   foot (2):
    Excluding Computer City stores...    $         323       $        363       $        610        $        680
    Including Computer City stores...    $         309       $        363       $        590        $        680
Average   net  sales   per   Computer
   Superstore:
    Excluding Computer City stores...    $       8,901       $      9,916       $     16,777        $     18,518
    Including Computer City stores...    $       8,123       $      9,916       $     15,700        $     18,518
Comparable   store  sales  (decrease)
   increase (3)......................            (4.7%)              8.8%              (3.3%)               7.6%
</TABLE>

-------------------------
(1)  As of August 31, 1998, the Company acquired 37 Computer City stores 
     that the Company is operating as CompUSA Computer Superstores.
(2)  Calculated using net sales divided by gross square footage of Computer
     Superstores open at the end of the period, weighted by the number of months
     open during the period. For purposes of calculating average net sales per
     gross square foot, net sales are comprised of net sales generated from the
     Company's Computer Superstores as well as the Company's national accounts
     group, but exclude sales of CompUSA Direct, the Company's internet and mail
     order sales division.
(3)  Comparable store sales are net sales for the Computer Superstores open the
     same number of months in both the indicated and previous period, including
     stores that were relocated or expanded during either period. For purposes
     of calculating the change in comparable store sales, net sales are
     comprised of net sales generated from the Company's Computer Superstores,
     as well as the Company's national accounts group, but exclude sales of
     CompUSA Direct, the Company's internet and mail order sales division. The
     sales of the 37 acquired Computer City stores are not included in the
     calculation of the change in comparable store sales for the thirteen and
     twenty-six weeks ended December 26, 1998.

RESULTS OF OPERATIONS

     As a result of the expansion of the Company's store base, 
period-to-period comparisons of financial results may not be meaningful and 
the results of operations for historical periods may not be indicative of the 
results to be expected in future periods. In addition, the Company expects 
that its quarterly results of operations will fluctuate depending on the 
timing of the opening of, and the amount of net sales contributed by, new 
stores and the timing of costs associated with the selection, leasing, 
construction, and opening of new stores, as well as seasonal factors, product 
introductions, and changes in product mix. See "--Quarterly Data and 
Seasonality."

                                       14
<PAGE>

         The results of operations of the Company for the second quarter and 
first six months of fiscal 1999 include the results of operations of the 37 
acquired Computer City stores that the Company is operating as CompUSA 
Computer Superstores and two former Computer City "small market" stores. The 
results of operations for the second quarter and first six months of fiscal 
1999 exclude the operating results of the 55 Computer City stores in the 
United States closed by the Company and the seven Canadian Computer City 
supercenters sold by the Company.

SECOND QUARTER ENDED DECEMBER 26, 1998, COMPARED WITH THE SECOND QUARTER 
ENDED DECEMBER 27, 1997

         Net sales for the second quarter of fiscal 1999 increased 21.9% to 
$1.78 billion from $1.46 billion for the second quarter of fiscal 1998. The 
increase in net sales was primarily due to the additional sales volume 
attributable to the new stores opened subsequent to the second quarter of 
fiscal 1998 and the sales generated by the former Computer City stores. In 
addition, sales at CompUSA Direct increased approximately 48% in the second 
quarter of fiscal 1999 compared with the second quarter of fiscal 1998. 
Despite an increase in overall sales and the number of personal computer 
systems sold in the second quarter of fiscal 1999, average net sales per 
store for the second quarter of fiscal 1999 decreased approximately 18% from 
the second quarter of fiscal 1998. The Company believes average net sales per 
Computer Superstore were negatively impacted by decreases in average selling 
prices, an increase in sales of lower-end computer systems as a percentage of 
total computer systems sold, and lower sales per store by the 37 acquired 
Computer City stores.

         Comparable store sales by the CompUSA Computer Superstores decreased 
4.7% from the second quarter of fiscal 1998. The sales of the 37 acquired 
Computer City stores are not included in the calculation of the change in 
comparable store sales for the second quarter of fiscal 1999. The Company 
believes comparable store sales were negatively impacted by, among other 
things, declines in average selling prices for certain of the Company's 
products, including desktop and notebook computers and monitors, and 
increased sales of lower-end computer systems as a percentage of total 
computer systems sold. The Company also believes the change in comparable 
store sales was negatively impacted by a reduction of sales in the CompUSA 
Computer Superstores during the second quarter of fiscal 1999 due to the 
transfer of sales from existing CompUSA Computer Superstores to the former 
Computer City stores. Of the 37 acquired Computer City stores that the 
Company continues to operate as CompUSA Computer Superstores, 29 stores are 
located in metropolitan areas in which there are existing CompUSA Computer 
Superstores. The Company believes the increased number of CompUSA Computer 
Superstores in the markets previously served by both CompUSA Computer 
Superstores and Computer City stores, as well as promotional sales activities 
conducted in the acquired Computer City stores in the second quarter of 
fiscal 1999, resulted in reductions in the comparable store sales growth in 
the Company's existing CompUSA Computer Superstores in those markets.

         While the Company believes the opening of additional Computer 
Superstores in existing markets, as well as the acquisition of 29 Computer 
City stores in existing markets, has resulted in some reductions in the rate 
of comparable store sales growth, CompUSA has historically opened additional 
stores in existing markets largely to increase market penetration and to 
provide customers with more convenience and better service, to increase its 
awareness with local consumers, to enhance its competitive position in such 
markets, and to create efficiencies in advertising and management. Management 
plans to continue its strategy of opening additional Computer Superstores in 
existing markets since it believes such strategy is in the Company's 
long-term best interest.

         Gross profit was $240 million, or 13.5% of net sales, in the second 
quarter of fiscal 1999, compared with $215 million, or 14.7% of net sales, in 
the second quarter of fiscal 1998. The decline in gross profit as a 
percentage of net sales in the second quarter of fiscal 1999 compared with 
the second quarter of fiscal 1998 was primarily due to increased product, 
freight, and occupancy costs as percentages of net sales. The increase in 
product costs as a percentage of net sales was due to lower average selling 
prices in general as well as promotional sales activities conducted in the 
acquired Computer City stores and seasonal promotional sales. Freight expense 
increased as a percentage of net sales in the second quarter of fiscal 1999 
compared with the second quarter of fiscal 1998. Freight 

                                       15
<PAGE>

expense, which is generally a fixed cost based on the number of units sold, 
increased as a percentage of net sales due to the decline in average selling 
prices. In addition, freight expense increased as a percentage of net sales 
due to the increased use of expedited freight in order to ensure the timely 
receipt of merchandise inventories in the Company's Computer Superstores. The 
decrease in gross profit as a percentage of net sales was also due to an 
increase in occupancy costs as a percentage of net sales. Occupancy costs, 
which are generally fixed in nature, increased as a percentage of net sales 
in the second quarter of fiscal 1999 as a result of lower average net sales 
per store compared to the second quarter of fiscal 1998, as well as lower 
average net sales per store at the former Computer City stores than those of 
the CompUSA Computer Superstores. These declines were partially offset by an 
increase in the ratio of service revenues to total revenues. Service revenues 
typically have higher gross margins than merchandise sales.

         Operating expenses were $170.5 million, or 9.6% of net sales, in the 
second quarter of fiscal 1999, compared with $125.7 million, or 8.6% of net 
sales, in the second quarter of fiscal 1998. The increase in operating 
expenses as a percentage of net sales for the second quarter of fiscal 1999 
compared with the second quarter of fiscal 1998 was due to increased 
personnel and facilities expenses as percentages of net sales and costs 
incurred to support the conversion of the former Computer City stores to 
CompUSA Computer Superstores. Personnel expenses in the second quarter of 
fiscal 1999 increased as a percentage of net sales due, in part, to an 
increase in service revenues as a percentage of net sales. Personnel expenses 
generally constitute a higher percentage of net sales for service revenues 
than for merchandise sales. In addition, both personnel and facilities 
expenses increased as percentages of net sales as a result of lower average 
net sales per store. The Company also incurred costs in the second quarter of 
fiscal 1999 related to the training of personnel at the former Computer City 
stores and other costs necessary to convert the former Computer City stores 
to CompUSA Computer Superstores. These increases were partially offset by 
lower net advertising expense as a percentage of net sales. Net advertising 
expense decreased as a percentage of net sales in the second quarter of 
fiscal 1999 due to advertising economies-of-scale related to the addition of 
stores in multi-store markets, primarily as a result of the acquisition of 
the Computer City stores, and increased vendor participation. These decreases 
were partially offset by advertising expenses related to promotional sales 
activities conducted in the acquired Computer City stores in the second 
quarter of fiscal 1999.

         Pre-opening expenses consist primarily of personnel expenses 
incurred prior to a store's opening and promotional costs associated with the 
opening. The Company's policy is to expense all pre-opening expenses as 
incurred. In the second quarter of fiscal 1999, the Company incurred $2.1 
million in pre-opening expenses, compared with $4.0 million in pre-opening 
expenses incurred in the second quarter of fiscal 1998.

         General and administrative expenses were $38.4 million, or 2.2% of 
net sales, in the second quarter of fiscal 1999, compared with $28.8 million, 
or 2.0% of net sales, in the second quarter of fiscal 1998. General and 
administrative expenses per store were $185,000 in the second quarter of 
fiscal 1999, compared with $205,000 in the second quarter of fiscal 1998. The 
increase in general and administrative expenses as a percentage of net sales 
was primarily due to increased personnel and facility expenses as percentages 
of net sales and costs incurred to support the conversion of the former 
Computer City stores to CompUSA Computer Superstores. Personnel expenses in 
the second quarter of fiscal 1999 increased as a percentage of net sales due, 
in part, to costs incurred to support the operations of the acquired Computer 
City stores and increased personnel to support the Company's growth. Facility 
expenses increased in the second quarter of fiscal 1999 as a result of the 
expansion of the Company's corporate facilities. In addition, facility 
expenses, which are generally fixed in nature, increased as a percentage of 
net sales in the second quarter of fiscal 1999 as a result of lower average 
net sales per store. These increases were partially offset by lower incentive 
compensation expense.

                                       16
<PAGE>

         Interest expense and other income, net, was $3.5 million, or 0.2% of 
net sales, in the second quarter of fiscal 1999, compared with $1.0 million, 
or 0.1% of net sales, in the second quarter of fiscal 1998. The increase in 
interest expense and other income was primarily due to interest expense on 
the $136 million note payable to Tandy Corporation related to the acquisition 
of Computer City. See "--Liquidity and Capital Resources."

         The Company's effective tax rate was 38.5% for both the second 
quarter of fiscal 1999 and the second quarter of fiscal 1998.

         As a result of the above, net income for the second quarter of 
fiscal 1999 was $15.6 million, or $.17 per diluted share, compared with net 
income of $34.1 million, or $.36 per diluted share, for the second quarter of 
fiscal 1998.

SIX MONTHS ENDED DECEMBER 26, 1998, COMPARED WITH THE SIX MONTHS ENDED 
DECEMBER 27, 1997

         Net sales for the first six months of fiscal 1999 increased 19.6% to 
$3.17 billion from $2.65 billion for the first six months of fiscal 1998. The 
increase in net sales was primarily due to the additional sales volume 
attributable to the new stores opened subsequent to the second quarter of 
fiscal 1998 and the sales generated by the former Computer City stores 
subsequent to their acquisition. In addition, sales at CompUSA Direct 
increased approximately 30% during the first six months of fiscal 1999 
compared with the first six months of fiscal 1998. Despite the increase in 
overall sales and the number of personal computer systems sold in the first 
six months of fiscal 1999, average net sales per store for the first six 
months of fiscal 1999 decreased approximately 14%. The Company believes 
average net sales per Computer Superstore were negatively impacted by 
decreases in average selling prices, an increase in sales of lower-end 
computer systems as a percentage of total computer systems sold, and lower 
sales per store by the 37 acquired Computer City stores.

         Comparable store sales by the CompUSA Computer Superstores decreased 
3.3% from the first six months of fiscal 1998. The sales of the 37 acquired 
Computer City stores are not included in the calculation of the change in 
comparable store sales for the first six months of fiscal 1999. The Company 
believes comparable store sales were negatively impacted by, among other 
things, declines in average selling prices for certain of the Company's 
products, including desktop and notebook computers and monitors, and 
increased sales of lower-end computer systems as a percentage of total 
computer systems sold. The Company also believes the change in comparable 
store sales was negatively impacted by a reduction of sales in the CompUSA 
Computer Superstores during the first six months of fiscal 1999 as a result 
of (i) the transfer of sales from existing CompUSA Computer Superstores to 
the 29 former Computer City stores located in metropolitan areas in which 
there are existing CompUSA Computer Superstores, (ii) inventory liquidation 
sales conducted at the Computer City stores closed by the Company in 
September and October, and (iii) promotional sales activities conducted in 
the aqcuired Computer City stores in the second quarter of fiscal 1999.

         Gross profit was $436 million, or 13.8% of net sales, in the first 
six months of fiscal 1999, compared with $390 million, or 14.7% of net sales, 
in the first six months of fiscal 1998. The decline in gross profit as a 
percentage of net sales in the first six months of fiscal 1999 compared with 
the first six months of fiscal 1998 was partially due to increased product, 
freight, and occupancy costs as percentages of net sales. The increase in 
product costs as a percentage of net sales was due to lower average selling 
prices in general as well as promotional sales activities conducted in the 
acquired Computer City stores in the second quarter of fiscal 1999 and 
seasonal promotional sales. Freight expense increased as a percentage of net 
sales in the first six months of fiscal 1999 compared with the first six 
months of fiscal 1998. Freight expense, which is generally a fixed cost based 
on the number of units sold, increased as a percentage of net sales due to 
the decline in average selling prices. In addition, freight expense increased 
as a percentage of net sales due to the increased use of expedited freight in 
order to ensure the timely receipt of merchandise inventories in the 
Company's Computer Superstores. The decrease in gross profit as a percentage 
of net sales was also due to an increase in occupancy costs as a percentage 
of net sales. Occupancy costs, which are generally fixed in nature, increased 
as a percentage of net sales in the first six months of fiscal 1999 as a 

                                       17
<PAGE>

result of lower average net sales per store compared to the first six months 
of fiscal 1998, as well as lower average net sales per store at the former 
Computer City stores than those of the CompUSA Computer Superstores. These 
declines were partially offset by an increase in the ratio of service 
revenues to total revenues. Service revenues typically have higher gross 
margins than merchandise sales.

         Operating expenses were $316.8 million, or 10.0% of net sales, in 
the first six months of fiscal 1999, compared with $234.9 million, or 8.9% of 
net sales, in the first six months of fiscal 1998. The increase in operating 
expenses as a percentage of net sales for the first six months of fiscal 1999 
compared with the first six months of fiscal 1998 was due to increased 
personnel and facilities expenses as percentages of net sales. In addition, 
operating expenses increased as a percentage of net sales due to costs 
incurred to support the conversion of the former Computer City stores to 
CompUSA Computer Superstores as well as a $2.4 million charge recorded in the 
first quarter of fiscal 1999 for the anticipated closure of three CompUSA 
Computer Superstores. The stores to be closed are located in markets in which 
there is both a former Computer City store and a CompUSA Computer Superstore 
and the former Computer City store will continue to be operated as a CompUSA 
Computer Superstore. Personnel expenses in the first six months of fiscal 
1999 increased as a percentage of net sales due, in part, to an increase in 
service revenues as a percentage of net sales. Personnel expenses generally 
constitute a higher percentage of net sales for service revenues than for 
merchandise sales. In addition, both personnel and facilities expenses 
increased as percentages of net sales in the first six months of fiscal 1999 
compared with the first six months of fiscal 1998 as a result of lower 
average net sales per store. The Company also incurred costs in the first six 
months of fiscal 1999 related to the training of personnel at the former 
Computer City stores and other costs necessary to convert the former Computer 
City stores to CompUSA Computer Superstores. These increases were partially 
offset by lower net advertising expense as a percentage of net sales. Net 
advertising expense decreased as a percentage of net sales in the first six 
months of fiscal 1999 due to advertising economies-of-scale related to the 
addition of stores in multi-store markets, primarily as a result of the 
acquisition of the Computer City stores, and increased vendor participation. 
These decreases were partially offset by advertising expenses related to 
promotional sales activities conducted in the acquired Computer City stores 
in the second quarter of fiscal 1999.

         Pre-opening expenses consist primarily of personnel expenses 
incurred prior to a store's opening and promotional costs associated with the 
opening. The Company's policy is to expense all pre-opening expenses as 
incurred. In the first six months of fiscal 1999, the Company incurred $3.5 
million in pre-opening expenses, compared with $5.5 million in pre-opening 
expenses incurred in the first six months of fiscal 1998.

         General and administrative expenses were $71.0 million, or 2.2% of 
net sales, in the first six months of fiscal 1999, compared with $54.4 
million, or 2.1% of net sales, in the first six months of fiscal 1998. 
General and administrative expenses per store were $372,000 in the first six 
months of fiscal 1999, compared with $399,000 in the first six months of 
fiscal 1998. The increase in general and administrative expenses as a 
percentage of net sales was primarily due to increased personnel and facility 
expenses as percentages of net sales and costs incurred to support the 
conversion of the former Computer City stores to CompUSA Computer 
Superstores. Personnel expenses in the first six months of fiscal 1999 
increased as a percentage of net sales due, in part, to costs incurred to 
support the operations of the acquired Computer City stores and increased 
personnel to support the Company's growth. Facility expenses increased in the 
first six months of fiscal 1999 related to the expansion of the Company's 
corporate facilities. In addition, facility expenses, which are generally 
fixed in nature, increased as a percentage of net sales in the first six 
months of fiscal 1999 as a result of lower average net sales per store. These 
increases were partially offset by lower incentive compensation expense.

                                       18
<PAGE>

         Interest expense and other income, net, was $6.3 million, or 0.2% of 
net sales, in the first six months of fiscal 1999, compared with $2.0 
million, or 0.1% of net sales, in the first six months of fiscal 1998. The 
increase in interest expense and other income was primarily due to interest 
expense on the $136 million note payable to Tandy Corporation related to the 
acquisition of Computer City. See "--Liquidity and Capital Resources."

         The  Company's  effective  tax rate was 38.5% for both the first six 
 months of fiscal  1999 and the first six months of fiscal 1998.

         As a result of the above, net income for the first six months of 
fiscal 1999 was $23.7 million, or $.26 per diluted share, compared with net 
income of $57.5 million, or $.60 per diluted share, for the first six months 
of fiscal 1998.

QUARTERLY DATA AND SEASONALITY

         The Company expects that its quarterly results of operations will 
fluctuate depending on the timing of the opening of, and the amount of net 
sales contributed by, new stores and the timing of costs associated with the 
selection, leasing, construction, and opening of new stores, as well as 
seasonal factors, product introductions, and changes in product mix.

         Based upon its past operating history, the Company believes that its 
business is seasonal. Excluding the effects of new store openings, net sales 
and earnings are generally lower during the first and fourth fiscal quarters 
than in the second and third fiscal quarters.

LIQUIDITY AND CAPITAL RESOURCES

         At December 26, 1998, total assets were $1.85 billion, $1.50 billion 
of which were current assets, including $403 million of cash and cash 
equivalents. Net cash provided by operating activities for the first six 
months of fiscal 1999 was $314 million, which was primarily attributable to 
net income for the first six months of fiscal 1999 and an increase in 
accounts payable.

         Approximately three-fourths of the Company's net sales during the 
first six months of both fiscal 1999 and fiscal 1998 were sales for which the 
Company received payment at the time of sale either in cash, by check, or by 
third-party credit card. The remaining net sales were primarily sales for 
which the Company provided credit terms to corporate, government, and 
education customers.

         Merchandise inventories increased to $816 million at December 26, 
1998, from $521 million at June 27, 1998. The increase in merchandise 
inventories is primarily attributable to inventories at the 11 Computer 
Superstores opened in the first six months of fiscal 1999 and the 37 acquired 
Computer City stores and higher inventories held at the Company's 
configuration center. At December 26, 1998, inventory per store was $3.6 
million, compared with $4.4 million at December 27, 1997.

                                       19
<PAGE>

         Capital expenditures during the first six months of fiscal 1999 were 
$36.4 million, of which $6.3 million were for fiscal 1999 new stores, $7.5 
million were for the conversion of the acquired Computer City stores to the 
CompUSA format, and $11.0 million were for existing stores, compared with 
$49.7 million of capital expenditures during the first six months of fiscal 
1998, of which $16.6 million were for fiscal 1998 new stores and $6.9 million 
were for existing stores. The Company plans to open approximately 15 Computer 
Superstores in fiscal 1999, of which 11 had opened as of December 26, 1998. 
In addition to the capital expenditures incurred in connection with new 
stores, the Company also incurred capital expenditures in the first six 
months of fiscal 1999 and the first six months of fiscal 1998 related to 
improvements in information systems and existing stores, and additions to 
property and equipment at the Company's corporate facilities. Excluding the 
effects of new store openings, the Company's greatest short-term capital 
requirements occur during the second fiscal quarter to support a higher level 
of sales in that quarter. Short-term capital requirements are satisfied 
primarily by available cash and cash equivalents and vendor and bank 
financing.

         The Company has an unsecured $300 million credit agreement (the 
"Credit Agreement") with a consortium of banks that expires in March 2001. 
The Credit Agreement requires that the Company maintain certain financial 
ratios and a minimum net worth and restricts, among other things, the 
Company's ability to incur additional indebtedness. The Credit Agreement 
allows the Company to securitize up to $200 million of certain assets. The 
Company's ability to incur borrowings under the Credit Agreement is reduced 
by outstanding letters of credit and, in certain circumstances, further 
reduced based upon the financial covenants contained in the Credit Agreement. 
The Company's ability to incur borrowings under the Credit Agreement could be 
further limited in certain circumstances pursuant to the terms of the 
indenture related to the Senior Subordinated Notes. At December 26, 1998, no 
borrowings were outstanding under the Credit Agreement and the Company had 
$190 million available for future borrowings under the Credit Agreement.

         The Company also finances certain fixture and equipment acquisitions 
through equipment lessors. Lease financing is available from numerous sources 
and the Company evaluates equipment leasing as a supplemental source of 
financing on a continuing basis.

         In connection with the acquisition of Computer City, the Company 
issued a $136 million subordinated promissory note payable to Tandy (the 
"Seller Note"). The Seller Note bears interest at a rate of 9.48% per annum 
and provides for its repayment in semi-annual installments over a period of 
ten years. The first three years of payments are interest only, with the 
first principal payment due in December 2001. The Seller Note ranks pari 
passu with the Senior Subordinated Notes. The unpaid principal amount of the 
Seller Note may be prepaid, in whole or in part, at any time at the option of 
the Company, without premium or penalty.

         The Company believes that its available cash and cash equivalents, 
funds generated by operations, currently available vendor and floor plan 
financing, lease financing, and funds available under the Credit Agreement 
should be sufficient to finance its continuing operations and expansion plans 
through the end of fiscal 1999 and to make all required payments of interest 
on the Senior Subordinated Notes and the Seller Note. The level of future 
expansion will be contingent upon the availability of additional capital.

INFLATION

         While inflation has not had, and the Company does not expect it to 
have, a material impact upon operating results, there can be no assurances 
that the Company's business will not be affected by inflation in the future.

                                       20
<PAGE>

NEW PRONOUNCEMENTS

         In June 1997, the Financial Accounting Standards Board (the "FASB") 
issued Statement of Financial Accounting Standards ("SFAS") No. 130, 
"Reporting Comprehensive Income," and SFAS No. 131, "Disclosures about 
Segments of an Enterprise and Related Information," which are effective for 
fiscal years beginning after December 15, 1997. The adoption of the 
disclosure requirements of SFAS No. 130 in the preparation of the Quarterly 
Report on Form 10-Q for the thirteen weeks ended September 26, 1998 had no 
impact on the Company's financial statements. The Company will adopt the 
annual disclosure requirements of SFAS No. 131 in the preparation of its 
Annual Report on Form 10-K for the fiscal year ending June 26, 1999, while 
the quarterly disclosure requirements will be adopted in fiscal year 2000. 
The American Institute of Certified Public Accountants (the "AICPA") issued 
Statement of Position ("SOP") 98-1, "Accounting for Costs of Computer 
Software Developed or Obtained for Internal Use," which is effective for 
fiscal years beginning after December 15, 1998. The Company's current policy 
falls within the guidelines of SOP 98-1. Also, the AICPA issued SOP 98-5, 
"Reporting on the Costs of Start-Up Activities," which is effective for 
fiscal years beginning after December 15, 1998. The Company adopted the 
provisions of SOP 98-5 in the preparation of the Quarterly Report on Form 
10-Q for the thirteen weeks ended September 26, 1998. The adoption of SOP 
98-5 had no material impact on the Company's financial statements.

YEAR 2000 ISSUE

         The Year 2000 issue is the result of computer programs being written 
using two digits rather than four to define the applicable year. Computer 
equipment and software and devices with embedded technology that are 
time-sensitive may recognize a date using "00" as the year 1900 rather than 
the year 2000. This could result in a system failure or miscalculations 
causing disruptions of operations, including, among other things, a temporary 
inability to process transactions, send invoices, or engage in similar normal 
business activities.

         The Company has undertaken various initiatives intended to ensure 
that its computer equipment and software will function properly with respect 
to dates in the year 2000 and thereafter. For this purpose, the term 
"computer equipment and software" includes systems that are commonly thought 
of as information technology ("IT") systems, including accounting, data 
processing, and telephone/PBX systems, cash registers, hand-held terminals, 
scanning equipment, and other miscellaneous systems, as well as systems that 
are not commonly thought of as IT systems, such as alarm systems, sprinkler 
systems, fax machines, or other miscellaneous systems. Both IT and non-IT 
systems may contain imbedded technology, which complicates the Company's Year 
2000 identification, assessment, remediation, and testing efforts. Based upon 
its identification and assessment efforts to date, the Company believes that 
certain of the computer equipment and software it currently uses will require 
replacement or modification. In addition, in the ordinary course of replacing 
computer equipment and software, the Company attempts to obtain replacements 
that it believes are Year 2000 compliant. Utilizing both internal and 
external resources to identify and assess needed Year 2000 remediation, the 
Company currently anticipates that its Year 2000 identification, assessment, 
remediation, and testing efforts, which began in October 1996, will be 
completed by June 30, 1999, and that such efforts will be completed prior to 
any currently anticipated impact on its computer equipment and software. The 
Company estimates that as of December 26, 1998, it had completed 
approximately 50% of the initiatives that it believes will be necessary to 
fully address potential Year 2000 issues relating to its computer equipment 
and software. The projects comprising the remaining 50% of the initiatives 
are in process and expected to be completed by June 30, 1999.

                                       21
<PAGE>

<TABLE>
<CAPTION>
                                                                                                        PERCENT
YEAR 2000 INITIATIVE                                                             TIME FRAME             COMPLETE
                                                                              ----------------     -----------------
                                                                                              
<S>                                                                           <C>                  <C>
Initial IT systems identification and assessment............................     10/96-3/97                 100%
Remediation and testing regarding central system issues.....................      5/97-4/98                 100%
Remediation and testing regarding departmental system issues................      3/98-6/99                  80%
Remediation and testing regarding store and distribution system issues......      8/98-6/99                  25%
Upgrades to telephone/PBX and other systems.................................      3/98-6/99                  80%
Electronic data interchange trading partner conversions.....................      3/98-6/99                  65%
Identification,  assessment,  remediation, and testing regarding desktop and
   individual system issues.................................................      2/98-6/99                  65%
Identification and assessment regarding non-IT system issues................      4/98-3/99                  30%
Remediation and testing regarding non-IT system issues......................      2/99-6/99                   0%
</TABLE>

         The Company has also mailed letters to its significant vendors and 
service providers and has verbally communicated with many strategic customers 
to determine the extent to which interfaces with such entities are vulnerable 
to Year 2000 issues and whether the products and services purchased from or 
by such entities are Year 2000 compliant. As of December 26, 1998, the 
Company had received responses from approximately 56% of such third parties, 
and 81% of the companies that have responded have provided written assurances 
that they expect to address all their significant Year 2000 issues on a 
timely basis.

         The Company believes that the cost of its Year 2000 identification, 
assessment, remediation, and testing efforts, as well as currently 
anticipated costs to be incurred by the Company with respect to Year 2000 
issues of third parties, will not exceed $5 million, which expenditures will 
be funded from operating cash flows. Such amount represents approximately 3% 
of the Company's total actual and anticipated IT expenditures for fiscal 1997 
through fiscal 1999. As of December 26, 1998, the Company had incurred costs 
of approximately $2.3 million related to its Year 2000 identification, 
assessment, remediation, and testing efforts. All of the $2.3 million relates 
to analysis, repair, or replacement of existing software, upgrades to 
existing software, or evaluation of information received from significant 
vendors, service providers, or customers. Other non-Year 2000 IT efforts have 
not been materially delayed or impacted by Year 2000 initiatives. The Company 
presently believes that the Year 2000 issue will not pose significant 
operational problems for the Company. However, if all Year 2000 issues are 
not properly identified, or assessment, remediation, and testing are not 
effected timely with respect to Year 2000 problems that are identified, there 
can be no assurance that the Year 2000 issue will not materially adversely 
impact the Company's results of operations or adversely affect the Company's 
relationships with customers, vendors, or others. Additionally, there can be 
no assurance that the Year 2000 issues of other entities will not have a 
material adverse impact on the Company's systems or results of operations.

         The Company has begun, but not yet completed, a comprehensive 
analysis of the operational problems and costs (including loss of revenues) 
that would be reasonably likely to result from the failure by the Company and 
certain third parties to complete efforts to achieve Year 2000 compliance on 
a timely basis. A contingency plan has not been developed for dealing with 
the most reasonably likely worst case scenario, and such scenario has not yet 
been clearly identified. The Company currently plans to complete such 
analysis and contingency planning by December 31, 1999.

                                       22
<PAGE>

         The costs of the Company's Year 2000 identification, assessment, 
remediation, and testing efforts and the dates on which the Company believes 
it will complete such efforts are based upon management's best estimates, 
which were derived using numerous assumptions regarding future events, 
including the continued availability of certain resources, third-party 
remediation plans, and other factors. There can be no assurance that these 
estimates will prove to be accurate, and actual results could differ 
materially from those currently anticipated. Specific factors that could 
cause such material differences include, but are not limited to, the 
availability and cost of personnel trained in Year 2000 issues, the ability 
to identify, assess, remediate, and test all relevant computer codes and 
imbedded technology, and similar uncertainties. In addition, variability of 
definitions of "compliance with Year 2000" and the myriad of different 
products and services, and combinations thereof, sold by the Company may lead 
to claims whose impact on the Company is not currently estimable. No 
assurance can be given that the aggregate cost of defending and resolving 
such claims, if any, will not materially adversely affect the Company's 
results of operations. Although some of the Company's agreements with 
manufacturers and others from whom it purchases products for resale contain 
provisions requiring such parties to indemnify the Company under some 
circumstances, there can be no assurance that such indemnification 
arrangements will cover all of the Company's liabilities and costs related to 
claims by third parties related to the Year 2000 issue.

                                       23
<PAGE>

                                     PART II

ITEM 1.  LEGAL PROCEEDINGS

         Note 4 of the Notes to Consolidated Financial Statements in Part I, 
Item 1 is incorporated herein by reference as if fully restated herein. Note 
4 contains forward-looking statements that are subject to the risks and 
uncertainties discussed in Item 2 - "Management's Discussion and Analysis of 
Financial Condition and Results of Operations - Cautionary Statement 
Regarding Risks and Uncertainties That May Affect Future Results."

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

         The Company held its annual meeting of stockholders on November 4, 
1998. The following are the results of certain matters voted upon at the 
meeting:

(a) With respect to the election of directors whose terms expired in 1998, 
shares were voted as follows:

<TABLE>
<CAPTION>
                                                               GILES H.          LEONARD L.          MORTON E.
                                                               BATEMAN          BERRY, PH.D.           HANDEL
                                                          ------------------- ------------------ -------------------
<S>                                                         <C>               <C>                <C>
For.....................................................      79,621,152         79,618,793          79,614,440
Withheld................................................         641,255            643,614             647,967
                                                          ------------------- ------------------ -------------------
                                                              80,262,407         80,262,407          80,262,407
                                                          =================== ================== ===================
</TABLE>

         Messrs. Bateman, Berry, and Handel were elected for terms expiring 
on the date of the annual meeting of stockholders in 2001. The  following 
members of the Board of Directors have terms expiring on the date of the 
annual meeting of stockholders in the years indicated: Warren D. Feldberg, 
Kevin J. Roche, and Barry L. Williams - 1999, and James F. Halpin, Denise 
Ilitch, and Lawrence Mittman - 2000.

(b)  With respect to the ratification of the selection of Ernst & Young LLP as
     the Company's independent auditors for its 1999 fiscal year, shares were
     voted as follows:

<TABLE>
<S>                                                                           <C>
For.......................................................................... 80,036,040
Against......................................................................    134,546
Abstentions..................................................................     91,821
                                                                              ----------
                                                                              80,262,407
                                                                              ==========
</TABLE>

                                       24
<PAGE>


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

    (a)  Exhibits:

         3.1  Restated and Amended Certificate of Incorporation. (1)
         3.2  Restated and Amended Bylaws. (2)
        11    Computation of Income per Common and Common Equivalent Share. (3)
        27.1  Financial Data Schedule. (4)
        27.2  Restated Financial Data Schedule. (4)


    (b)  Reports on Form 8-K.

         Report on Form 8-K/A filed with the Securities and Exchange Commission
         on November 16, 1998, amending items previously included in the Current
         Report on Form 8-K dated August 31, 1998, regarding the Company's
         acquisition of Computer City, Inc.

------------------

         (1) Previously filed as an exhibit to the Company's Registration
             Statement No. 1-11566 on Form 8-A/A filed December 6, 1996, as 
             amended and incorporated herein by reference. 
         (2) Previously filed as an exhibit to the Company's Quarterly Report on
             Form 10-Q for the fiscal quarter ended March 26, 1994, and 
             incorporated herein by reference. 
         (3) Filed herewith. 
         (4) Included with EDGAR version only.

                                       25
<PAGE>

                                   SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the 
registrant has duly caused this report to be signed on its behalf by the 
undersigned thereunto duly authorized.

                                                       CompUSA Inc.




Date:  February 9, 1999                     By:    /s/  JAMES E. SKINNER
                                               -------------------------
                                                        James E. Skinner
                                                     Executive Vice President,
                                                     Chief Financial Officer 
                                                     and Treasurer (Principal 
                                                     Financial and Accounting 
                                                     Officer)

                                       26