<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K
    Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
                                  Act of 1934

                    FOR THE FISCAL YEAR ENDED MARCH 31, 1998

                         Commission File Number 0-25400

                       DAISYTEK INTERNATIONAL CORPORATION
             (Exact name of registrant as specified in its charter)



              DELAWARE                                     75-2421746
    (State or other jurisdiction of                  (I.R.S. Employer Number)
    incorporation or organization)


  500 NORTH CENTRAL EXPRESSWAY, PLANO, TEXAS                75074
   (Address of principal executive offices)               (Zip code)


        Registrant's telephone number, including area code: 972-881-4700

        Securities registered pursuant to Section 12(b) of the Act: None

           Securities registered pursuant to Section 12(g) of the Act:
                     Common Stock, par value $.01 per share


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

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

       The aggregate market value of the voting stock held by non-affiliates of
   the registrant as of May 9, 1998 (based on the closing price as reported by
   the National Association of Securities Dealers Automated Quotation System)
   was $390,012,298.

       As of May 9, 1998, there were 16,025,204 shares outstanding of the 
   registrant's  Common Stock, $.01 par value.

                       DOCUMENTS INCORPORATED BY REFERENCE
                    Part II - Prospectus dated March 26, 1998


<PAGE>   2


     Unless the context otherwise requires, references to Daisytek International
Corporation include its direct and indirect subsidiaries, including Daisytek,
Incorporated, the Company's primary operating subsidiary. References in this
Report to the Company's fiscal year means the 12 month period ending on March 31
of such year.

                                      INDEX

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<CAPTION>

     PART 1                                                                                         Page
                                                                                                    ----
<S>                                                                                               <C>   
     Item 1.      Business.......................................................................     3

     Item 2.      Properties.....................................................................     9

     Item 3.      Legal Proceedings..............................................................     9

     Item 4.      Submission of Matters to a Vote of Security Holders............................     9

     PART II

     Item 5.      Market for Registrant's Common Equity and
                  Related Stockholder Matters ...................................................    10

     Item 6.      Selected Financial Data .......................................................    10

     Item 7.      Management's Discussion and Analysis of Financial
                  Condition and Results of Operations............................................    12

     Item 8.      Financial Statements and Supplementary Data ...................................    19

     Item 9.      Changes in and Disagreements with Accountants on
                  Accounting and Financial Disclosure ...........................................    19

     PART III

     Item 10.     Directors and Executive Officers of the Registrant.............................    39

     Item 11.     Executive Compensation ........................................................    41

     Item 12.     Security Ownership of Certain Beneficial Owners
                  and Management ................................................................    43

     Item 13.     Certain Relationships and Related Transactions ................................    45

     PART IV

     Item 14      Exhibits, Financial Statement Schedules and Reports
                  on Form 8-K....................................................................    45


     SIGNATURES .................................................................................    51
</TABLE>



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                                     PART I

ITEM 1. BUSINESS

GENERAL

    Daisytek International Corporation (the "Company") is a leading wholesale
distributor of non-paper computer and office automation supplies and accessories
("computer supplies products"). The Company distributes over 10,000 computer
supplies products to over 25,000 customer locations, including value-added
resellers ("VARs"), computer supplies dealers, office product dealers, contract
stationers, buying groups, computer and office product superstores and other
retailers who resell the products to end-users. The Company believes it is the
largest wholesale distributor of computer supplies products in the world.

    The Company sells primarily nationally known, name-brand computer supplies
products manufactured by over 150 original equipment manufacturers, including
Hewlett-Packard, Canon, Lexmark, IBM, Okidata, Digital Equipment Corporation,
Apple, Panasonic, Kodak, Imation, Epson, Sony, Xerox, Brother and Maxell. The
Company's products include consumable supplies such as laser toner, inkjet
cartridges, copier and fax supplies, printer ribbons, diskettes, optical storage
products, computer tape cartridges and accessories. The Company's products are
used in a broad range of computers and office automation products, including
laser and inkjet printers, photocopiers, fax machines and data storage products.

    The Company utilizes sophisticated telemarketing, direct mail programs,
frequent innovative sales promotions and electronic commerce technology to
market its computer supplies products throughout the United States, Canada,
Mexico, Australia and Latin America, as well as in other international markets,
including Singapore and the Pacific Rim. The Company presently operates one
centralized "superhub" distribution center in Memphis, Tennessee, to service the
U.S. and certain international markets. To service other international markets,
the Company also operates smaller regional sales and distribution centers in
Miami, Florida, Mexico, Australia and Canada and recently opened a sales and
distribution facility in Singapore. Most of the Company's U.S. computer supplies
products shipments are shipped via Federal Express under an agreement (the
"Federal Express Agreement") which, together with the Company's centralized
distribution center, enables the Company to accept orders for computer supplies
products until 9:00 p.m. Eastern Standard Time (EST) and offer its customers
next business day delivery of product in stock.

    During fiscal year 1996, the Company formed Priority Fulfillment Services
("PFS"), a wholly owned subsidiary, to provide outsourcing solutions to its
business partners and other customers. Through PFS, the Company sells its core
competencies in call center, product fulfillment, logistics and support
services. PFS customizes these services to meet the specific requirements of
these companies. PFS's call-center services include: order entry, order tracking
and customer service (inbound), outbound telemarketing services and customized
reporting of customer and call information. PFS also provides other support
services such as invoicing, credit management and collection services, and
accounting and systems support. PFS utilizes the Company's distribution
facilities and maintains relationships with a number of shipping companies to
provide next business day delivery on domestic package orders, truck shipments
on larger domestic orders and a variety of air and surface delivery options for
international orders. PFS presently provides its services under both fee-based
contracts (where revenue is based on either the sales value of the products or
service activity volume) and transaction based contracts (where PFS takes title
and resells the products).

    In January 1998, the Company expanded its product line and customer base by
acquiring Steadi-Systems, Ltd., ("Steadi-Systems") an independent wholesale
distributor of media products to the filmed entertainment and multimedia
industries. Steadi-Systems distributes a wide array of professional-grade media
products (film stock, video, audio and data storage media) and video hardware
(analog and digital equipment) and is an authorized dealer for leading
manufacturers such as Sony, Fuji, JVC, Avid and others. Steadi-Systems'
customers include production companies, post-production operations, educational
institutions, governmental agencies, television stations and other professional
and individual customers. The Company believes that the integration of
Steadi-Systems into the 




                                      -3-
<PAGE>   4

Company's call center technology, management information systems and
distribution expertise should provide Steadi-Systems with the opportunity to
expand its customer base and offer higher and more efficient levels of service,
although no assurance can be given in this regard.

     In May 1998, the Company announced that it had signed a letter of intent to
acquire The Tape Company, Inc. ("The Tape Company"), a Chicago-based independent
distributor of professional-grade audio and video media products. The Company
plans to integrate The Tape Company and Steadi-Systems into a leading nationwide
wholesale distributor of professional tape products, although no assurance can
be given in this regard.

PRODUCTS

    The Company distributes over 10,000 different computer supplies products and
regularly updates its product line to reflect advances in technology and provide
a wide product range of the most popular products. Computer supplies products
sales represented over 90% of the Company's total net sales in fiscal year 
1998. The Company's major computer supplies product categories can generally 
be classified as follows:

    Non-Impact Printer Supplies. Non-impact printer supplies include toner
cartridges, inkjet cartridges, optical photo conductor kits, copier supplies and
fax supplies. Non-impact printers, such as laser printers, personal copiers and
fax machines, are rapidly growing in popularity and have a wide range of
applications. Sales of non-impact printer supplies accounted for approximately
55.4% of the Company's total net sales of computer supplies products in the
year ended March 31, 1998. The Company also sells specialized all-in-one toner
cartridges for laser printers produced by manufacturers such as Canon,
Hewlett-Packard, Digital, Brother and Apple. Sales of these supplies accounted
for approximately 23.4% of the Company's total net sales of computer supplies 
products in fiscal year 1998.

    Magnetic Media Products. Magnetic media products include computer tapes,
data cartridges, diskettes, optical disks and other products which store or
record computer information and are used in a variety of computers ranging from
notebook and personal computers to large mainframe computer systems. Sales of
magnetic media products accounted for approximately 8.4% of the Company's total
net sales of computer supplies products in fiscal year 1998.

    Impact Printer Supplies. Impact printer supplies include printwheels,
ribbons, elements, fonts and other consumable supplies used in impact printers
ranging from electronic typewriters to high-speed dot matrix printers. While new
technology is moving toward non-impact printing, the Company believes that a
substantial installed base of impact printers, such as dot matrix printers, are
still in use and require a continuing amount of computer supplies products.
Sales of impact printer supplies accounted for approximately 7.9% of the
Company's total net sales of computer supplies products in fiscal year 1998.

    Accessories and Other Products. Accessories sold by the Company include
cleaning supplies, disk storage boxes, data cartridge storage, racks, surge
protection devices, workstation accessories and anti-glare screens. The Company
also sells a number of other products such as transparencies, banking supplies
and selected business machines. Sales of accessories and other products
accounted for approximately 4.9% of the Company's total net sales of computer 
supplies products in fiscal year 1998.

SUPPLIERS

    The Company's computer supplies products are manufactured by over 150
original equipment manufacturers, including Hewlett-Packard, Canon, Lexmark,
IBM, Okidata, Digital Equipment Corporation, Apple, Panasonic, Kodak, Imation,
Epson, Sony, Xerox, Brother and Maxell. During fiscal year 1998, approximately
70% of the Company's total net sales were derived from computer supplies
products supplied by the Company's ten largest suppliers, with the sale of
Hewlett-Packard and Canon products accounting for approximately 35% and 9% of
total net sales, respectively, and the sale of Lexmark, IBM, Xerox, Epson,
Brother and Okidata products each accounting for between approximately 3% to 6%
of total net sales.




                                      -4-
<PAGE>   5

    Many of the Company's suppliers offer rebate programs under which, subject
to the Company purchasing certain predetermined amounts of inventory, the
Company receives rebates based on a percentage of the dollar volume of total
rebate program purchases. The Company also takes advantage of several other
programs offered by substantially all of its suppliers. These include price
protection plans under which the Company receives credits against future
purchases if the supplier lowers prices on previously purchased inventory and
stock rotation or stock balancing privileges under which the Company can return
slow moving inventory in exchange for other products. In addition, in order to
introduce new products, many suppliers will permit the Company to return all
unsold inventory after an introductory trial period. Material changes by one or
more of the Company's key suppliers of their pricing arrangements or other
marketing programs may materially and adversely affect the Company's business.

    The Company's purchases of computer supplies products inventory are closely
tied to sales and are generally based upon the sales volume of the most recent
six to ten week periods. Many of the Company's suppliers require minimum annual
purchases, which, for fiscal year 1999, will aggregate approximately $66
million.

    The Company has entered into written distribution agreements with
Hewlett-Packard, Canon, Lexmark, IBM, Xerox, Epson, Brother and Okidata and
many of the other major suppliers of the products it distributes. As is
customary in the industry, these agreements generally provide non-exclusive
distribution rights, have one-year renewable terms and are terminable by either
party at any time, with or without cause. The Company considers its
relationships with its major suppliers, including Hewlett-Packard, Canon,
Lexmark, IBM, Xerox, Epson, Brother and Okidata to be good; nevertheless, there
can be no assurance that a material change in the Company's relationship with
one or more of its major suppliers will not have a material adverse effect on
the Company's business.

    Although the Company purchases most of its products directly from authorized
U.S. manufacturers, the Company also imports products from foreign sources,
particularly when fluctuations in foreign exchange rates or product prices make
it attractive to do so. Similarly, depending upon product pricing and
availability, the Company also purchases products from secondary sources, such
as other wholesalers and selected dealers, rather than directly from the
manufacturer. The Company utilizes its ability to purchase imported and
secondary source products in order to provide its customers with competitive
prices and a wide range of product lines. In order to ensure that such imported
and secondary source products are not produced by unauthorized manufacturers,
the Company has established various procedures which it believes enable it to
identify unauthorized products and, to the extent possible, return such
unauthorized products to the foreign or secondary source. Nevertheless, there
can be no assurance that the Company will be completely successful in such
efforts or that such imported and secondary source products will continue to be
available or that any lack of availability will not have a material adverse
effect on the Company's business.

SALES AND MARKETING

    The Company utilizes sophisticated telemarketing, direct mail programs and
frequent innovative sales promotions and other marketing efforts to market its
computer supplies products to a wide array of dealers, VARs, retailers and
other resellers.

    The Company's customer and prospect list includes U.S., Canadian,
Australian, Mexican, Latin American, Singaporean and other foreign computer
supplies dealers, office product dealers, VARs, buying groups, computer stores,
contract stationers, computer and office product superstores, catalog
merchandisers, college bookstores and other resellers. The Company currently
ships its computer supplies products to over 25,000 customer locations. The
Company's typical customer is a small to medium sized reseller who does not have
the resources to establish direct purchasing relationships with multiple
manufacturers and, instead, must rely on wholesale distributors like the
Company. The Company also sells its products to computer and office product
superstores, which the Company believes will become an increasingly important
group of customers as the Company demonstrates its ability to serve the
superstores' need for timely delivery of fast-moving products and efficient
distribution of a variety of product lines to multiple store locations in a more
cost-effective manner than presently provided by many product manufacturers. No
single customer accounts for more than 10% of the Company's sales for each of
the fiscal years ended March 31, 1998, 1997 and 1996. At March 31, 1998, five
computer and office product superstores and 




                                      -5-
<PAGE>   6

warehouse clubs represent approximately 29% of the Company's trade accounts
receivable, with the largest two customers being approximately 13% and 11% of
trade accounts receivable, and reflects the significance of this market segment.
As a result of customer consolidation, the Company's U.S. sales growth of
computer supplies products has been slowing. The Company presently expects to
partially offset this reduced sales growth through international expansion,
growth in its PFS business and acquisitions of businesses with complementary
product lines. There can be no assurance, however, that these activities will be
successful.

    The Company's international sales accounted for approximately 22% of the
Company's total net sales in fiscal year 1998, and the Company believes that
international markets represent further opportunities for growth. To take
advantage of the growing Far East and Australia marketplace, in October 1996,
the Company acquired Lasercharge Pty Ltd., a large computer and office
automation supplies wholesaler in Australia, and in January 1998, the Company
opened a sales and distribution facility in Singapore. To service the growing
Latin American market, the Company opened a sales office and distribution center
in Mexico City, Mexico in November 1994 and opened a similar facility in Miami,
Florida, in January 1996. The Company also has sales and distribution operations
in Canada. There can be no assurance, however, that the Company will be
successful in these or other international efforts or that the risks inherent in
international operations, such as currency fluctuations or the political or
economic instability of certain foreign countries and regions, such as Mexico
and the Pacific Rim, will not have a material adverse effect on the Company's
results of operations. See Note 8 of the Notes to Consolidated Financial
Statements for certain financial information regarding the Company's domestic
and international sales during the last three fiscal years.

    The Company's computer supplies products sales force, as of March 31, 1998,
consisted of approximately 185 telemarketing sales representatives located in
the Company's headquarters in Plano, Texas, 27 telemarketing sales
representatives located in Memphis, Tennessee, 47 telemarketing sales
representatives located in the Company's office in Canada, 36 telemarketing
sales representatives located in the Company's office in Mexico, 14
telemarketing sales representatives located in the Company's office in
Australia, 2 telemarketing sales representatives located in the Company's
office in Miami, Florida, and 2 telemarketing sales representative located in
Singapore.

    The Company's computer supplies sales and telemarketing department is
divided into several groups or teams, each having its own particular sales
objective. For example, the Retail Department focuses specifically on large
computer retailers and office product superstores and highlights the Company's
ability to more efficiently distribute a wide variety of small shipments to a
larger number of store locations than presently provided by product
manufacturers. Similarly, a separate group of sales representatives are
responsible for a select group of national accounts, such as contract
stationers, office products dealers and buying groups, while others focus on new
accounts, existing business or international and export sales. By utilizing
sophisticated telemarketing software and call management systems, including
caller identification, sales representatives are able to verify customer account
numbers and contact persons and quickly identify a customer's buying patterns,
recent purchases, credit availability and other sales and marketing information.
The telecommunications software also enables sales and marketing management to
better identify, control and monitor sales representatives' prospecting activity
with the Company's customers.

    The Company provides extensive training for new computer supplies products
sales personnel with special emphasis on the need for regular customer contact,
response to customers' demands for product information and the need to inform
customers of technological advancements by the Company's suppliers. The Company,
together with its major suppliers, provides the Company's sales personnel with
ongoing product-specific training and education emphasizing computer supplies as
well as new technologies, new products and new product applications.

    In order to maintain its position as a low cost wholesale distributor, the
Company regularly monitors the efficiency of its sales staff. By utilizing
sophisticated telecommunications equipment, the Company is able to measure the
number of calls being fielded by a sales representative, their success rate in
terms of orders obtained compared to calls taken and customer service
statistics, such as abandoned call rates and average response times. The
Company's sales force receives a base salary as well as varying sales incentives
based on gross profit margin 




                                      -6-
<PAGE>   7

achievements. In addition, a number of suppliers periodically offer sales bonus
programs in connection with specific product sales campaigns which can further
augment a sales representative's compensation.

    One of the Company's primary marketing tools of computer supplies products
is its quarterly catalog, known as the "Book of Deals." In order to promote its
image as a low cost wholesaler and provider of value-added services, the Book of
Deals will usually highlight a theme related to specific products, customer
services or a combination of the two. The Company presently distributes a total
of approximately 41,000 catalogs and contract price books to its active U.S.
customers each quarter. The Company also distributes a separate Book of Deals
designed specifically for each of its Canadian, Mexican and Australian
subsidiaries as well as for its subsidiary in Singapore. Other catalog-type
marketing tools used by the Company include customized catalogs produced by the
Company for the reseller to distribute to its end-user customers. The Company
also distributes "flyers" which announce new product line additions or special
promotions and are usually inserted in the Book of Deals or mailed directly to
customers.

    Although the Book of Deals remains one of the Company's primary marketing
tools, the Company also uses electronic commerce marketing tools as well. The
Company believes it has established itself as a leader in the deployment of
electronic commerce in the computer supplies products industry. These tools are
designed to win further market share and to reduce cost in the customer
relationship by automating information flow. By accepting both externally
developed commercially available technologies as well as internally developed
proprietary technologies, the Company can offer a suite of electronic commerce
solutions including: traditional X.12 and proprietary EDI; third party software
systems such as DDMS, OPUS, Britannia, and Moore O.P. Services; and Internet,
intranet, and extranet systems.

    During fiscal year 1997, the Company introduced a CD-ROM based electronic
catalog of computer supplies products and on-line ordering tool, known as
"SOLO", the System for Online Ordering, and during fiscal year 1998, introduced
a World Wide Web version of the product, known as "SOLOnet". These electronic
tools provide customers with on-line ordering capabilities; fingertip access to
up-to-date pricing, product and order information; search and retrieval
capabilities based on part numbers, manufacturers, product description, retail
price, machine compatibility and other factors; and convenient access to
manufacturers' product literature and training videos; and allows customers to
view their own account information.

    Certain of the Company's suppliers provide the Company with cooperative
advertising programs, marketing development funds and other types of incentives
and discounts which offset the production costs of the Company's quarterly Book
of Deals, other published marketing tools and other related costs.

    The Company permits its customers to return defective products (most of
which are then returned by the Company to the manufacturer) and incorrect
shipments for credit against other purchases. During the last three fiscal
years, the Company's net expense for returns of the Company's consumable supply
products has not been material.

MANAGEMENT INFORMATION SYSTEMS

    The Company maintains advanced management information systems and has
automated virtually all key business functions using on-line, real time
systems. These on-line systems provide management with information concerning
sales and margins, inventory levels, customer payments and other operations
which is essential for the Company to operate as a low cost, high efficiency
wholesale distributor.

    The implementation of these systems has allowed the Company to offer an
advanced suite of electronic commerce tools to its customers so that the Company
can communicate with their computer systems and automatically process, send and
receive purchase orders, invoices and acknowledgments. The Company offers
"customer links" to provide customers with direct access to a proprietary
Company database to examine pricing, credit information, product description and
availability and promotional information. This link also allows customers to
place orders directly into the Company's order processing system. These systems
also allow the Company to offer similar features to its customers through
SOLOnet.



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<PAGE>   8

    The Company has also invested in advanced telecommunications, voice response
equipment, electronic mail and messaging, automated fax technology, scanning,
wireless technology, bar coding, fiber optic network communications and
automated inventory management. The Company has developed and utilizes
telecommunications technology which provide for automatic customer call
recognition and customer profile recall for inbound telemarketing
representatives and computer generated outbound call objectives for outbound
telemarketing representatives.

    The Company plans to continue to invest in various management information
systems enhancements and upgrades to improve efficiency, monitor its operations,
manage inventory risks and offer faster and higher levels of service to its
customers and vendors.

DISTRIBUTION

    During fiscal year 1993, the Company consolidated its five U.S. regional
distribution centers into a new "superhub" distribution center located in
Memphis, Tennessee. During fiscal year 1997, the Company more than doubled the
size of this facility to its current size of approximately 370,000 square feet.
The facility is located approximately four miles from the Federal Express hub
facility and contains automated conveyors, in-line scales and shipment
photographs for automatic accuracy checking, computerized sorting equipment,
powered material handling equipment and scanning and bar-coding systems.

    Since the consolidation of its regional U.S. distribution centers and the
opening of the Memphis distribution center, the Company has (i) reduced the
amount of "safety stock" inventory previously carried in different distribution
centers, which, in turn, has reduced the Company's working capital borrowings,
(ii) increased its inventory turnover rate, (iii) improved its order fill rate
to a level of approximately 95%, (iv) improved personnel productivity and
reduced shipping errors and their associated costs, (v) improved delivery time
to most geographic areas through later order acceptance times (currently 9:00
p.m. EST) and next business day delivery with the implementation of the Federal
Express Agreement and (vi) reduced real estate expenses.

    The Company believes that consumable computer supplies and other products
sold by the Company are particularly suited to cost effective overnight
delivery because of their unique value to weight characteristics. Accordingly,
almost all of the Company's U.S. computer supplies package orders are shipped
via Federal Express, except for certain "heavyweight" packages or as otherwise
requested by the customer. The Company's centralized distribution center,
together with the implementation of the Federal Express Agreement, enables the
Company to offer to its customers next business day delivery to most U.S.
geographic areas. The Company ships virtually 100% of U.S. computer supplies
orders for product in stock on the same day.

    The material handling system at its Memphis distribution center includes
several high technology enhancements, including an automated package routing
system and a paperless order picking system. These systems have allowed the
Company to substantially increase the package movement capacity within the
existing facility, further improve package shipment accuracy and enhance the
Company's ability to perform value-added services for its customers, including
custom labeling and price stickering.

    Substantially all of the Company's U.S. computer supplies products sales
are distributed from the Memphis distribution center. In order to effectively
service foreign markets, the Company also operates smaller, regional warehouse
and distribution facilities in Toronto and Vancouver, Canada; Mexico City,
Mexico; Sydney, Australia; Singapore; and Miami, Florida.

EMPLOYEES

    As of March 31, 1998, the Company had 865 full-time employees and 106
part-time employees (including PFS and Steadi-Systems), of which 305 were in
executive and administrative positions, including accounting, purchasing,
credit and management information systems, 372 were in sales and marketing and
294 were in warehousing and related functions. None of the Company's employees
are represented by a labor union, and the Company has never suffered an
interruption of business as a result of a labor dispute. The Company considers
its relations with its employees to be favorable, and the Company believes it
will be able to continue this relationship by various employee incentive and
participation programs, including employee stock options.

    The Company also actively recruits college graduates through on-campus
recruiting programs. Each newly hired employee for this program is placed into
the Company's training program for approximately three months, 



                                      -8-
<PAGE>   9
which introduces them to most aspects of the Company's business. Management
believes that this program is an important tool in recruiting and developing
high quality individuals with management potential to support the Company's
future growth.

COMPETITION

    The Company believes that most, if not all, of its customers maintain
several sources of supply for their computer supplies product requirements.
Accordingly, the Company competes with product manufacturers, general office
supply wholesalers, other national and regional wholesale computer supplies
distributors, computer hardware and software distributors and, to a lesser
extent, non-specialized wholesaler distributors. Many of these competitors such
as product manufacturers, computer hardware distributors and general office
supply wholesalers are larger and have substantially greater financial and other
resources than the Company. Competition in the Company's industry is generally
based on price, breadth of product lines, product and credit availability,
delivery time and the level and quality of customer services. The Company
competes primarily on the basis of its ability to offer low prices and quality
service while maintaining a high level of operating efficiency. The Company
believes its competitive advantages over product manufacturers and other
wholesale distributors include its ability to efficiently maintain a wide
selection of name brand products in stock ready to be shipped on a same-day
basis and delivered overnight, to efficiently distribute its products, to
provide innovative and high quality value-added customer service programs and to
respond to changing customer demands and product development.

BACKLOG

    The Company does not have a significant backlog of orders and does not
consider backlog to be material to an understanding of its business.

ITEM 2. PROPERTIES

    The Company's U.S. sales and executive and administrative offices are
located in a 65,419 square foot central office facility located in Plano, Texas,
a Dallas suburb. The Company also operates regional sales and distribution
centers in Singapore; Toronto, Ontario; Mexico City, Mexico; Vancouver, British
Columbia; Sydney, Australia; and Miami, Florida. Steadi-Systems operates from
offices in New York, New York; Hollywood, San Francisco and Irvine, California;
Phoenix, Arizona; and Miami, Florida. The Company's central U.S. distribution 
center is located in Memphis, Tennessee.

    All of the Company's facilities are leased under leases, which contain one
or more multiple year renewal options.

ITEM 3. LEGAL PROCEEDINGS

    The Company is involved in certain litigation arising in the ordinary course
of business. Management believes that such litigation will be resolved without
material effect on the Company's financial condition or results of operations.

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

     None



                                      -9-
<PAGE>   10



                                     PART II

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

    The Company's Common Stock is listed and trades on the Nasdaq Stock Market
under the symbol "DZTK." The following table sets forth for the period indicated
the high and low sale price for the Common Stock as reported by the Nasdaq
National Market, as adjusted to reflect the two for one stock split effective
March 2, 1998:

<TABLE>
<CAPTION>

                                                                 PRICE
                                                          ------------------
                                                          HIGH           LOW
                                                          ----           ---
       Fiscal Year 1997
<S>                                                  <C>          <C>    
         First Quarter.......................        $    23 1/2    $   16 1/4
         Second Quarter......................        $    22 1/16   $   17 1/4
         Third Quarter.......................        $    21 3/4    $   17 1/4
         Fourth Quarter......................        $    21        $   15 1/2
       Fiscal Year 1998
         First Quarter.......................        $    19 7/8    $   12 3/8
         Second Quarter......................        $    24        $   19 3/8
         Third Quarter.......................        $    22 1/2    $   16 5/16
         Fourth Quarter .....................        $    28 1/4    $   17 3/8

</TABLE>


     As of May 9, 1998, there were approximately 3,200 shareholders of which 84
were record holders of the Common Stock.

     The Company has never paid cash dividends on its Common Stock and does not
anticipate the payment of cash dividends on its Common Stock in the foreseeable
future. The Company currently intends to retain all earnings to finance the
further development of its business. The payment of any future dividends will be
at the discretion of the Company's Board of Directors and will depend upon,
among other things, future earnings, operations, capital requirements, the
general financial condition of the Company and general business conditions. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

    The following selected consolidated statement of income data for each of the
fiscal years ended March 31, 1998, 1997 and 1996, and the selected consolidated
balance sheet data as of March 31, 1998 and 1997 have been derived from the
Company's audited consolidated financial statements, and should be read in
conjunction with those statements, which are included in this Form 10-K. The
selected consolidated statements of income data for the fiscal years ended March
31, 1995 and 1994 and the selected consolidated balance sheet data as of March
31, 1996, 1995 and 1994 have been derived from the Company's audited
consolidated financial statements, and should be read in conjunction with those
statements, which are not included in this Form 10-K . The selected consolidated
financial data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements and notes thereto which are included elsewhere in this Form
10-K.



                                      -10-
<PAGE>   11

<TABLE>
<CAPTION>

                                                  FISCAL YEARS ENDED MARCH 31,
                                   --------------------------------------------------------
                                     1998        1997        1996        1995        1994
                                   --------    --------    --------    --------    --------
                                              (in thousands, except per share data)
<S>                                <C>         <C>         <C>         <C>         <C>     
CONSOLIDATED STATEMENT OF
  INCOME DATA:
  Net sales ...................    $757,027    $603,814    $464,169    $352,953    $276,699
  Cost of sales ...............     679,726     543,848     416,199     316,982     247,480
  Provision for losses from
     disposal of software and
     hardware inventory .......        --          --          --          --           402
                                   --------    --------    --------    --------    --------
         Gross profit .........      77,301      59,966      47,970      35,971      28,817
  Selling, general and
     administrative expenses ..      47,684      36,630      29,024      23,260      20,338
  Acquisition integration costs         735        --          --          --          --
                                   --------    --------    --------    --------    --------
         Income from
           operations .........      28,882      23,336      18,946      12,711       8,479
  Interest expense ............       2,698       1,677       1,482       2,050       1,726
                                   --------    --------    --------    --------    --------
  Income before income
     taxes ....................      26,184      21,659      17,464      10,661       6,753

  Provision for income
     taxes ....................      10,024       8,292       6,697       4,165       2,496
                                   --------    --------    --------    --------    --------
  Net income ..................    $ 16,160    $ 13,367    $ 10,767    $  6,496    $  4,257
                                   ========    ========    ========    ========    ========
PER SHARE DATA (1):
  Net income per common
    share:
         Basic ................    $   1.19    $   1.03    $   0.85    $   0.68    $   0.49
         Diluted ..............    $   1.13    $   0.97    $   0.80    $   0.59    $   0.40
  Weighted average common
        shares outstanding:
         Basic ................      13,566      12,934      12,602       9,550       8,676
  Weighted average common and
     common share equivalents 
     outstanding:
        Diluted ...............      14,343      13,826      13,514      11,084      10,576
</TABLE>


<TABLE>
<CAPTION>

                                                        AS OF MARCH 31,
                                    ------------------------------------------------------
                                      1998        1997        1996       1995       1994
                                    --------    --------    --------    -------    -------
                                                          (in thousands)
<S>                                 <C>         <C>         <C>         <C>        <C>    
CONSOLIDATED BALANCE SHEET DATA:
  Working capital ..............    $122,318    $ 80,248    $ 56,663    $43,427    $28,167
  Total assets .................     246,651     175,288     128,601     94,421     67,385
  Long-term debt, net of
      current maturities .......      12,655      30,454      16,419     11,334     19,640
  Shareholders' equity .........     139,370      67,193      51,661     40,817     15,937
</TABLE>


(1)  In February 1998, the Company's Board of Directors approved a two for one
     stock split effected in the form of a stock dividend paid on March 2, 1998
     to stockholders of record on February 16, 1998. Share data is based upon
     the weighted average common shares and share equivalents outstanding for
     each period, adjusted to reflect the split.



                                      -11-
<PAGE>   12



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

RESULTS OF OPERATIONS

    The following table sets forth certain financial information from the
Company's audited consolidated statements of income expressed as a percentage of
net sales.

<TABLE>
<CAPTION>

                                                FISCAL YEARS ENDED MARCH 31,
                                                ----------------------------
                                                  1998       1997       1996
                                                ------     ------     ------
<S>                                              <C>        <C>        <C>   
Net sales ..................................     100.0%     100.0%     100.0%
Cost of sales ..............................      89.8       90.1       89.7
                                                ------     ------     ------
  Gross profit .............................      10.2        9.9       10.3
Selling, general and administrative expenses       6.3        6.0        6.2
Acquisition integration costs ..............       0.1       --         --
                                                ------     ------     ------
  Income from operations ...................       3.8        3.9        4.1
Interest expense ...........................       0.3        0.3        0.3
                                                ------     ------     ------
  Income before income taxes ...............       3.5        3.6        3.8
Provision for income taxes .................       1.4        1.4        1.5
                                                ------     ------     ------
  Net income ...............................       2.1%       2.2%       2.3%
                                                ======     ======     ======

</TABLE>

    The following table sets forth certain unaudited quarterly financial data
and certain data expressed as a percentage of net sales for fiscal years 1998
and 1997. The unaudited quarterly information includes all adjustments,
consisting of only normal recurring adjustments, which management considers
necessary for a fair presentation of the information shown. The financial data
and ratios for any quarter are not necessarily indicative of results of any
future period.

<TABLE>
<CAPTION>

                                       FISCAL YEAR 1998                               FISCAL YEAR 1997
                    -----------------------------------------------     -----------------------------------------------
                     4TH QTR      3RD QTR      2ND QTR     1ST QTR      4TH QTR      3RD QTR     2ND QTR       1ST QTR
                    --------     --------     --------     --------     --------     --------    --------      --------
                                                           (DOLLARS IN THOUSANDS)
<S>                 <C>          <C>          <C>          <C>          <C>          <C>          <C>          <C>     
Net sales ......    $218,061     $186,586     $179,568     $172,812     $174,343     $154,429     $138,148     $136,894

Gross profit ...    $ 23,361     $ 18,763     $ 17,871     $ 17,306     $ 17,503     $ 15,204     $ 13,589     $ 13,670
  Gross profit
    margin .....        10.7%        10.1%        10.0%        10.0%        10.0%         9.8%         9.8%        10.0%
SG&A
    expenses ...    $ 14,541     $ 11,508     $ 11,052     $ 10,583     $ 10,552     $  9,375     $  8,397     $  8,306
  Percent of net
    sales ......         6.7%         6.2%         6.2%         6.1%         6.1%         6.1%         6.1%         6.1%
Acquisition
   integration
   costs .......    $    735     $   --       $   --       $   --       $   --       $   --       $   --       $   --
  Percent of net
    sales ......         0.3%        --           --           --           --           --           --           --
Income from
  operations ...    $  8,085     $  7,255     $  6,819     $  6,723     $  6,951     $  5,829     $  5,192     $  5,364
  Operating
    margin .....         3.7%         3.9%         3.8%         3.9%         4.0%         3.8%         3.8%         3.9%
Net income .....    $  4,324     $  4,138     $  3,869     $  3,829     $  4,007     $  3,364     $  2,955     $  3,041
  Net margin ...         2.0%         2.2%         2.2%         2.2%         2.3%         2.2%         2.1%         2.2%

</TABLE>


Fiscal Year Ended March 31, 1998 Compared to Fiscal Year Ended March 31, 1997

    Net Sales. Net sales for the year ended March 31, 1998 were $757.0 million
as compared to $603.8 million for the year ended March 31, 1997, an increase of
$153.2 million, or 25.4%, as the result of an increase in U.S. net 




                                      -12-
<PAGE>   13
sales of $99.3 million, or 20.2%, and an increase in international net sales of
$53.9 million, or 47.9%. The growth in U.S. and international net sales was
primarily due to increased sales volume to large national accounts, computer and
office product superstores, new customers and the Company's continued
introduction of new products. Also, sales grew during fiscal year 1998 as a
result of higher sales volume of products under revenue-based outsourcing
contracts, and the addition of net sales from its Australian subsidiary and from
Steadi-Systems, acquired by the Company during the third quarter of fiscal year
1997 and the fourth quarter of fiscal year 1998, respectively. Net sales to new
customers for the year ended March 31, 1998 were approximately $36 million,
including the net sales from Steadi-Systems, while net sales to existing
customers increased by approximately $117 million during the year.

    During November 1997, the Company announced it would not match lower pricing
offered by a competitor to one of the Company's largest customers. Net sales to
this customer ranged from approximately 5% to 7% of the Company's total net
sales during fiscal year 1997 and the first six months of fiscal year 1998. The
Company believes that the loss of net sales to this customer in the future will
reduce the Company's growth rate in net sales, gross profit and net income for
fiscal year 1999. In addition, continuing consolidation among the Company's
domestic customers may reduce the rate of U.S. sales growth below that achieved
in the past.

    Gross Profit. Gross profit for the year ended March 31, 1998 was $77.3
million as compared to $60.0 million in fiscal year 1997, an increase of $17.3
million, or 28.9%, primarily as the result of increased sales volume in fiscal
year 1998. The Company's gross profit margin as a percent of net sales was 10.2%
for the year ended March 31, 1998 as compared to 9.9% for the prior year. The
increase in the Company's gross profit margin percentage for fiscal year 1998 
was a result of enhanced product sourcing in fiscal year 1998, and the addition
of sales from Steadi-Systems, whose gross profit percentages are higher than the
Company's core computer supplies business. Gross profit margins for fiscal year
1998 were maintained at approximately 10.0% to 10.1% of net sales during the 
first, second and third quarters and increased to 10.7% of net sales during the
fourth quarter. This increase was also due to enhanced product sourcing and due
to the addition of Steadi-Systems. The Company believes that the competitive
environment and consolidation of its wholesale computer supplies products
customers will continue to place downward pressure on the Company's gross profit
margin percentage during fiscal year 1999.

    SG&A Expenses. SG&A expenses for the year ended March 31, 1998 were $47.7
million (excluding one-time acquisition integration costs), or 6.3% of net
sales, as compared to $36.6 million, or 6.0% of net sales, for the year ended
March 31, 1997. The increase in SG&A expenses was primarily a result of the
increase in variable costs associated with the Company's increased sales volume.
The increase in SG&A expenses as a percentage of net sales for fiscal year 1998
were primarily due to increased SG&A costs from the addition of Steadi-Systems,
whose SG&A expenses are higher than the Company's core computer supplies
business, and due to incremental SG&A expenses associated with its PFS
subsidiary. For the fourth quarter of fiscal year 1998, SG&A expenses, excluding
the one-time charges, increased to 6.7% of net sales as compared to
approximately 6.1% to 6.2% of net sales for the first, second and third quarters
of fiscal year 1998. This increase was primarily due to the higher SG&A expenses
as a percent of net sales associated with Steadi-Systems. These increased costs
during fiscal year 1998 were partially offset by lower costs due to improved
operating efficiencies and staff productivity as a result of increased sales
volume and continued technological enhancements implemented by the Company.

    Acquisition Integration Costs. During January 1998, the Company purchased
all of the common stock of Steadi-Systems. The Company recorded a one-time
acquisition integration charge related to the completion of transition,
integration and merger activities of about $0.7 million, or approximately $0.03
per share, in the Company's fourth financial quarter ending March 31, 1998. See
further discussion of the acquisition of Steadi-Systems in "Management's
Discussion and Analysis of Financial Condition and Results of Operations
Liquidity and Capital Resources".

    Income from Operations. Income from operations for the year ended March 31,
1998 was $28.9 million. Income from operations excluding one-time acquisition
integration costs, was $29.6 million as compared to $23.3 million for fiscal
year 1997, an increase of $6.3 million, or 26.9%. This increase was primarily
due to increased sales volume and increased gross profit, which were partially
offset by higher SG&A costs. Income from operations as a percentage of net sales
was 3.8% for the year ended March 31, 1998. Income from operations as a
percentage of net sales, excluding the one-time acquisition integration costs,
was 3.9% for the years ended March 31, 1998 and 1997.

    Interest Expense. Interest expense was $2.7 million during the year ended
March 31, 1998 and was $1.7 million during the year ended March 31, 1997.
Interest expense increased as a result of an increase in the average 


                                      -13-
<PAGE>   14

line of credit to support a larger revenue base, the acquisition of
Steadi-Systems, and higher inventory levels due to purchasing opportunities. The
weighted average interest rate was 6.7% during the years ended March 31, 1998
and 1997.

    Income Taxes. The Company's provision for income taxes was $10.0 million
for the year ended March 31, 1998 as compared to $8.3 million for the year ended
March 31, 1997. The increase was due to increased pretax profits. The effective
tax rate for both years was approximately 38.3%.

Fiscal Year Ended March 31, 1997 Compared to Fiscal Year Ended March 31, 1996

    Net Sales. Net sales for the year ended March 31, 1997 were $603.8 million
as compared to $464.2 million for the year ended March 31, 1996, an increase of
$139.6 million, or 30.1%, as the result of an increase in U.S. net sales of
$103.0 million, or 26.5%, and an increase in international net sales of $36.6
million, or 48.2%. The growth in U.S. and international net sales was primarily
due to increased sales volume to large national accounts, computer and office
product superstores, new customers and the Company's continued introduction of
new products, and the addition of net sales from its Australian subsidiary which
was acquired by the Company during the third quarter of fiscal year 1997. The
growth rate in net sales to computer and office product superstore customers for
the year ended March 31, 1997 was less than the growth rate experienced for such
customers during the prior year. Net sales to new customers for the year ended
March 31, 1997 were approximately $49 million, including the net sales from its
new Australian subsidiary, while net sales to existing customers increased by
approximately $91 million during the year.

    Gross Profit. Gross profit for the year ended March 31, 1997 was $60.0
million as compared to $48.0 million in fiscal year 1996, an increase of $12.0
million, or 25.0%, primarily as the result of increased sales volume in fiscal
year 1997. The Company's gross profit margin as a percent of net sales was 9.9%
for the year ended March 31, 1997 as compared to 10.3% for the prior year. Gross
profit margin percentage declined during the year ended March 31, 1997 primarily
because the prior year's results include the benefit of incremental margins
earned on the sale of certain one-time inventory purchases by the Company prior
to manufacturer price increases. If the benefits of the one-time inventory
purchase actions are excluded from the prior year's results, gross profit as a
percentage of net sales for fiscal year 1997 is slightly lower as compared to
the prior year. Increased sales at lower gross profit margins to large national
accounts and computer and office product superstores also contributed to the
decline in gross profit margin percentages during the year ended March 31, 1997.

    SG&A Expenses. SG&A expenses for the year ended March 31, 1997 were $36.6
million, or 6.0% of net sales, as compared to $29.0 million, or 6.2% of net
sales, for the year ended March 31, 1996. The increase in SG&A expenses was
primarily a result of the increase in variable costs associated with the
Company's increased sales volume. The decrease in SG&A expenses as a percentage
of net sales was primarily due to improved operating efficiencies and staff
productivity as a result of increased sales volume and continued technological
enhancements implemented by the Company. During fiscal 1997, the Company
incurred incremental SG&A expenses associated with its PFS subsidiary and also
associated with an expansion of its leased facilities in Memphis and Plano.

    Income from Operations. Income from operations for the year ended March 31,
1997 was $23.3 million as compared to $18.9 million for fiscal year 1996, an
increase of $4.4 million, or 23.2%. This increase was primarily due to increased
sales volume, increased gross profit and improved operating efficiencies. Income
from operations as a percentage of net sales was 3.9% for the year ended March
31, 1997 as compared to 4.1% for the year ended March 31, 1996, primarily as the
result of a decrease in gross profit margin as a percentage of net sales which
was somewhat offset by a decline in SG&A expenses as a percentage of net sales.
Income from operations as a percentage of net sales for the year ended March 31,
1997 declined primarily because the prior year's results include the effects of
the one-time inventory purchase actions. When the benefits of the one-time
inventory purchase actions are excluded from the prior year's results, income
from operations as a percentage of net sales for fiscal year 1997 was slightly
higher than fiscal year 1996.

    Interest Expense. Interest expense was $1.7 million during the year ended
March 31, 1997 and was $1.5 million during the year ended March 31, 1996.
Interest expense increased as a result of an increase in the average 



                                      -14-
<PAGE>   15

line of credit to support a larger revenue base, which was partially offset by a
reduction in interest rates during fiscal year 1997. The weighted average
interest rate was 6.7% during the year ended March 31, 1997 as compared to 7.5%
for the previous year.

    Income Taxes. The Company's provision for income taxes was $8.3 million for
the year ended March 31, 1997 as compared to $6.7 million for the year ended
March 31, 1996. The increase was primarily due to increased pretax profits. The
effective tax rate for both years was approximately 38.3%.

LIQUIDITY AND CAPITAL RESOURCES

    Historically, the Company's primary source of cash has been from financing
activities. Net cash provided by financing activities was $33.4 million, $15.6
million and $5.2 million for fiscal years 1998, 1997 and 1996, respectively.
Cash provided by financing activities, primarily through the proceeds received
from the issuance of common stock and from the Company's lines of credit, have
been used to finance the Company's operations and expansion. In March 1998, the
Company sold 2,300,000 shares of common stock in a secondary common stock
offering, using the net proceeds of approximately $52.6 million to reduce
outstanding indebtedness under the Company's lines of credit.

    Net cash used in operating activities was $20.5 million, $7.0 million and
$0.4 million for fiscal years 1998, 1997 and 1996, respectively. The Company's
net cash used in operations mainly related to increases in working capital
requirements, primarily due to increases in accounts receivable and inventory
partially offset by an increase in accounts payable, to support growth in the
Company's business during the periods. These increased working capital
requirements were partially funded by cash generated by the Company's
operations.

    The Company's principal use of funds for investing activities was capital
expenditures of $6.1 million, $5.9 million and $5.0 million for fiscal years
1998, 1997 and 1996, respectively, and for acquisitions of businesses of $6.3
million and $2.1 million in fiscal years 1998 and 1997, respectively. Capital
expenditures have consisted primarily of additions to upgrade the Company's
management information systems, including the Company's Internet based catalog
and ordering tool (SOLOnet) and other methods of electronic commerce, and
general expansion of its facilities. The Company anticipates that its total
investment in upgrades and additions to facilities for fiscal 1999 will be
approximately $6 to $7 million.

    Working capital increased to $122.3 million at March 31, 1998 from $80.2
million at March 31, 1997, an increase of $42.1 million which was primarily
attributable to increases in accounts receivable and inventory which were
partially offset by increases in accounts payable. During fiscal years 1998 and
1997, the Company generally maintained an accounts receivable balance of
approximately 47 and 46 days of sales, respectively. This increase is primarily
related to an increased concentration of receivables from large retail computer
and office product superstores, which generally take longer to pay. During
fiscal years 1998 and 1997 the Company generally maintained an inventory
turnover rate of approximately 11 turns, excluding inventory owned by the
Company related to PFS, its subsidiary which provides product fulfillment and
distribution services to third parties. The levels of such inventory is
generally managed by the third party and thus is not indicative of the inventory
turnover maintained by the Company's core wholesale business. From time-to-time,
the Company may take advantage of attractive product sourcing opportunities that
may temporarily lower the Company's overall inventory turnover rate.

    In May 1995, the Company entered into an agreement with certain banks for an
unsecured revolving line of credit facility (the "Facility") that, as amended on
February 13, 1998, has a maximum borrowing availability of $65.0 million and
expires on December 31, 2000. Availability under the Facility is based upon
amounts of eligible accounts receivable, as defined. As of March 31, 1998, the
Company completed a secondary offering of its common stock and applied the net
proceeds of approximately $52.6 million to repay in full all outstanding amounts
under the Facility, leaving $65.0 million available for additional borrowings.
The Facility accrues interest, at the Company's option, at the prime rate of a
bank or a Eurodollar rate plus an adjustment ranging from 0.625% to 1.125%
depending on the Company's financial performance. A commitment fee of 0.20% to
0.25% is charged on the unused portion of the Facility. The Facility contains
various covenants including, among other things, the maintenance of certain
financial ratios including the achievement of a minimum fixed charge ratio and
minimum 



                                      -15-
<PAGE>   16

level of tangible net worth, and restrictions on certain activities of the
Company, including loans and payments to related parties, incurring additional
debt, acquisitions, investments and asset sales.

    During October 1997, the Company's Australian subsidiary entered into an
agreement with an Australian bank for an unsecured revolving line of credit
facility (the "Australian Facility"). The Australian Facility, which expires on
July 1, 1999, allows the Company to borrow Australian dollars up to a maximum of
$7.5 million (Australian), or approximately $5.0 million (U.S.) at March 31,
1998. The Australian Facility accrues interest at the Australian Bank Bill Rate
plus 0.75%. A commitment fee of 0.25% is charged on the total amount of the
Australian Facility. As of March 31, 1998, the Company had borrowed
approximately $4.4 million (U.S.), leaving approximately $0.6 million (U.S.)
available under the Australian Facility for additional borrowings.

    During December 1997, the Company's Canadian subsidiary entered into an
agreement with a Canadian bank for an unsecured revolving line of credit
facility (the "Canadian Facility"). The Canadian Facility, which expires on July
1, 1999, allows the Company to borrow Canadian or U.S. dollars up to a maximum
of $15.0 million (Canadian), or approximately $10.6 million (U.S.) at March 31,
1998. The Company had borrowed approximately $8.1 million (U.S.), leaving
approximately $2.5 million (U.S.) available under the Canadian Facility at March
31, 1998. The Canadian Facility accrues interest at the Company's option at the
bank's prime rate, the bank's cost of funds plus 0.65%, the bank's U.S. dollar
commercial loan rate or LIBOR plus 0.65%. A commitment fee of 0.25% is charged
on the unused portion of the Canadian Facility.

    During January 1998, the Company entered into a promissory note agreement
with a bank which allows the Company to borrow up to a maximum of $10.0 million.
Amounts borrowed under this note agreement bear interest at the bank's
discretion, primarily based on a money market borrowing rate plus an adjustment.
The maturity date of any amounts borrowed will occur prior to January 1999, the
expiration date of the note. The Company had no borrowings outstanding under
this promissory note agreement at March 31, 1998.

    During fiscal year 1998, approximately $166.4 million, or 22%, of the
Company's net sales were sold through the Company's Canadian, Mexican,
Australian, Singaporean and U.S. export operations, including Latin America. The
Company believes that international markets represent further opportunities for
growth. The Company attempts to protect itself from foreign currency translation
risks by denominating substantially all its non-Canadian and non-Australian
international sales in U.S. dollars. In addition, on an annual basis, the
Company has entered into various forward Canadian and Australian currency
exchange contracts in order to hedge the Company's net investment in, and its
intercompany payable applicable to, its Canadian and Australian subsidiaries.
The Company had the following forward currency exchange contracts outstanding as
of March 31, 1998:

<TABLE>
<CAPTION>

           CURRENCY TYPE         US$ CONTRACT AMOUNT                 CONTRACT TYPE         EXPIRATION
        ------------------       -------------------          ------------------------   ------------
<S>                                   <C>                     <C>                        <C> 
         Canadian Dollars             $15.2 million            Sell Canadian Dollars        May 1998
         Canadian Dollars             $6.3 million             Buy Canadian Dollars         May 1998
        Australian Dollars            $1.8 million            Sell Australian Dollars     October 1998
        Australian Dollars            $0.5 million            Sell Australian Dollars     October 1998

</TABLE>

    As of March 31, 1998, the Company had incurred unrealized gains of
approximately $0.4 million, net of income taxes, on these outstanding Canadian
and Australian forward exchange contracts, which are included as a component of
shareholders' equity. The Company may consider entering into other forward
exchange contracts in order to hedge the Company's net investment in its
Canadian, Australian, Mexican, and Singaporean subsidiaries, although no
assurance can be given that the Company will be able to do so on acceptable
terms.

    During January 1998, the Company purchased all of the common stock of
Steadi-Systems. Steadi-Systems is an independent wholesale distributor of media
products to the filmed entertainment and multimedia industries. The acquisition
of Steadi-Systems was accounted for using the purchase method of accounting,
and, accordingly, the purchase price has been allocated to the assets and
liabilities assumed based on the fair values at the date of acquisition. The
Company believes that future integration of Steadi-Systems in the Company's
business operations will not require significant working capital nor create
other significant financing needs.



                                      -16-
<PAGE>   17
    The Company may attempt to acquire other businesses to expand its product
line and/or in the call-center or public warehousing industries in connection
with its efforts to grow its PFS subsidiary. In May 1998, the Company announced
it had signed a letter of intent to acquire The Tape Company, Inc., ("The Tape
Company") a Chicago-based distributor of professional-grade audio and video
media products. It is anticipated that the Company will account for this
transaction as a pooling of interests and will issue shares of its common
stock. The Tape Company had revenues of approximately $40 million during the
twelve-month period ending March 31, 1998. The Company is also currently
involved in the due diligence process for another potential acquisition target.
The Company can give no assurance at this time as to whether it will ultimately
acquire these targets. Should the Company acquire these or other businesses,
the Company may require additional financing to consummate such a transaction.
Acquisitions involve certain risks and uncertainties, therefore, the Company
can give no assurance with respect to whether it will be successful in
identifying such a business to acquire, whether it will be able to obtain
financing to complete such an acquisition, or whether the Company will be
successful in operating the acquired business.

    The Company believes it will be able to satisfy its working capital needs
for fiscal year 1999, as well as business growth and planned capital
expenditures, through funds available under the Company's various lines of
credit facilities, trade credit, lease financing, internally generated funds and
by increasing the amount available under the Company's credit facilities. In
addition, depending on market conditions and the terms thereof, the Company may
also consider obtaining additional funds through an additional line of credit,
other debt financing or the sale of capital stock; however, no assurance can be
given in such regard.

YEAR 2000 ISSUE

    The Company has developed plans to ensure its information systems are
capable of properly utilizing dates beyond December 31, 1999. The Company
believes that with upgrades or modifications to existing software and conversion
to new software, the impact of the Year 2000 issue can be mitigated. However, if
such upgrades, modifications and conversions are not made, or are not made in a
timely manner, the Year 2000 issue could have a material impact on the Company's
operations. The total cost of implementing these system upgrades and
modifications is not expected to be material to the Company's results of
operations or cash flows, and the Company estimates completion by December 31,
1998. The costs of the Year 2000 project and the date on which the Company plans
to complete Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events including the
continued availability of certain resources, third party modification plans and
other factors. However, there can be no assurance that these estimates will be
achieved and actual results could differ materially from these estimates.

    To the extent it can, the Company is also working with its customers,
suppliers and other service providers to ensure their systems are Year 2000
compliant. There can be no assurance that customers or suppliers will
successfully implement Year 2000 compliant systems. In the event that numerous
or significant customers or suppliers do not successfully implement Year 2000
compliant systems, the Company's operations could be materially affected. In the
event any service providers are unable to convert their systems appropriately,
the Company plans to switch to providers capable of performing such processing,
if such providers are available.

INVENTORY MANAGEMENT

    The Company manages its computer consumable supplies inventories held for
sale in its wholesale distribution business by maintaining sufficient quantities
of product to achieve high order fill rates while at the same time maximizing
inventory turnover rates. Inventory balances will fluctuate as the Company adds
new product lines and makes large purchases from suppliers to take advantage of
attractive terms. To reduce the risk of loss to the Company due to supplier
price reductions and slow moving inventory, the Company's purchasing agreements
with many of its suppliers, including most of its major suppliers, contain price
protection and stock return privileges under which the Company receives credits
against future purchases if the supplier lowers prices on previously purchased
inventory or the Company can return slow moving inventory in exchange for other
products.

    Beginning in fiscal year 1997, the Company, through its PFS subsidiary,
began providing product fulfillment and distribution services for third parties.
Certain of these distribution agreements provide that the Company own 



                                      -17-
<PAGE>   18

the related inventory, some of which also allow for the third party to manage
the levels of inventory held by the Company. As a result, the levels of
inventory held by the Company under these contracts are higher than the Company
would normally carry in its core wholesale business.

SEASONALITY

    Although the Company historically has experienced its greatest sequential
quarter revenue growth in its fourth fiscal quarter, management has not been
able to determine any specific seasonal factors that may cause quarterly
variability in operating results. Management believes, however, that factors
that may influence quarterly variability include the overall growth in the
non-paper computer supplies industry and shifts in demand for the Company's
products due to a variety of factors, including sales increases resulting from
the introduction of new computer supplies products. The Company generally
experiences a relative slowness in sales during the summer months, which may
adversely affect the Company's first and second fiscal quarter results in
relation to sequential quarter performance. The Company believes that results of
operations for a quarterly period may not be indicative of the results for any
other quarter or for the full year.

INFLATION

    Management believes that inflation has not had a material effect on the
Company's operations.

FORWARD-LOOKING INFORMATION

    The matters discussed in this report on Form 10-K, other than historical
information, and, in particular, information regarding future revenue, earnings
and business plans and goals, consist of forward-looking information under the
Private Securities Litigation Reform Act of 1995, and are subject to and involve
risks and uncertainties which could cause actual results to differ materially
from the forward-looking information. These risks and uncertainties include, but
are not limited to, the "Risk Factors" set forth in the Company's prospectus
dated March 26, 1998, which are incorporated by reference herein, as well as
general economic conditions, industry trends, the loss of key suppliers or
customers, the loss of strategic product shipping relationships, customer
demand, product availability, competition (including pricing and availability),
risks inherent in acquiring, integrating and operating new businesses,
concentrations of credit risk, distribution efficiencies, capacity constraints,
technological difficulties, exchange rate fluctuations, and the regulatory and
trade environment (both domestic and foreign).

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

    In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share." This statement establishes new standards for computing and presenting
earnings per share ("EPS"). The Company adopted SFAS No. 128 during the quarter
ended December 31, 1997. The Company restated its EPS data for all periods
presented.

    In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income"
and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information." These statements are effective for fiscal years beginning after
December 15, 1997; however, earlier adoption is permitted. SFAS No. 130 requires
the presentation of comprehensive income and its components in a full set of
financial statements. SFAS No. 131 requires the disclosure of financial and
descriptive information about reportable operating segments. Both SFAS No. 130
and 131 are modifications of existing disclosure requirements, which will have
no effect on the results of operations or financial condition of the Company.
The Company is currently evaluating the standards and their potential impact on
disclosures and will adopt these pronouncements in its fiscal year 1999
financial statements.



                                      -18-
<PAGE>   19


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>

<S>                                                                                           <C>  
Report of Independent Public
Accountants..............................................................................     20

Consolidated Balance Sheets as of March 31, 1998 and 1997................................     21

Consolidated Statements of Income for the Fiscal Years Ended March 31, 1998, 1997 and
  1996...................................................................................     23

Consolidated Statements of Shareholders' Equity for the Fiscal Years Ended March 31,
  1998, 1997 and 1996....................................................................     24

Consolidated Statements of Cash Flows for the Fiscal Years Ended March 31, 1998, 1997
  and 1996...............................................................................     25

Notes to Consolidated Financial Statements...............................................     26

</TABLE>


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

None




                                      -19-
<PAGE>   20


REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To the Shareholders of Daisytek International Corporation:

    We have audited the accompanying consolidated balance sheets of Daisytek
International Corporation (a Delaware corporation) and subsidiaries as of March
31, 1998 and 1997, and the related consolidated statements of income,
shareholders' equity, and cash flows for each of the three years in the period
ended March 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

    In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Daisytek International
Corporation and subsidiaries as of March 31, 1998 and 1997, and the results of
their operations and their cash flows for each of the three years in the period
ended March 31, 1998, in conformity with generally accepted accounting
principles.

                                                            ARTHUR ANDERSEN LLP

Dallas, Texas,
May 5, 1998



                                      -20-
<PAGE>   21


               DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)


                                     ASSETS

<TABLE>
<CAPTION>

                                                                           MARCH 31,
                                                                    -----------------------
                                                                       1998          1997
                                                                    ---------     ---------
<S>                                                                 <C>           <C>      
CURRENT ASSETS:
  Cash .........................................................    $   1,068     $     552
  Accounts receivable, net of allowance for doubtful accounts of
    $2,655 and $2,360 at March 31, 1998 and 1997, respectively .      122,621        90,778
  Inventories, net:
    Inventories, excluding Priority Fulfillment Services .......       78,060        54,426
    Inventories, Priority Fulfillment Services .................       11,634        10,354
  Prepaid expenses and other current assets ....................        3,561         1,214
  Deferred income tax asset ....................................         --             565
                                                                    ---------     ---------
         Total current assets ..................................      216,944       157,889
                                                                    ---------     ---------

PROPERTY AND EQUIPMENT, at cost:
  Furniture, fixtures and equipment ............................       26,968        20,949
  Leasehold improvements .......................................        1,852           673
                                                                    ---------     ---------
                                                                       28,820        21,622
  Less-- Accumulated depreciation and amortization .............      (14,024)       (9,648)
                                                                    ---------     ---------
         Net property and equipment ............................       14,796        11,974

EMPLOYEE RECEIVABLE ............................................          459           423

EXCESS OF COST OVER NET ASSETS ACQUIRED, net ...................       14,452         5,002
                                                                    ---------     ---------
         Total assets ..........................................    $ 246,651     $ 175,288
                                                                    =========     =========

</TABLE>




              The accompanying notes are an integral part of these
                          consolidated balance sheets.


                                      -21-
<PAGE>   22


               DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES

                    CONSOLIDATED BALANCE SHEETS- (CONTINUED)
                        (IN THOUSANDS, EXCEPT SHARE DATA)



                      LIABILITIES AND STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>

                                                                                           MARCH 31,
                                                                                    ----------------------
                                                                                      1998          1997
                                                                                    --------     ---------
<S>                                                                                 <C>          <C>      
CURRENT LIABILITIES:
  Current portion of long-term debt.............................................    $    239     $     662
  Trade accounts payable .......................................................      83,787        69,321
  Accrued expenses .............................................................       7,550         6,260
  Income taxes payable .........................................................       1,504         1,398
  Deferred income tax liability ................................................       1,546          --
                                                                                    --------     ---------
         Total current liabilities .............................................      94,626        77,641
                                                                                    --------     ---------

LONG-TERM DEBT, less current portion ...........................................      12,655        30,454
                                                                                    --------     ---------

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY:
  Preferred stock, $1.00 par value; 1,000,000 shares authorized at
    March 31, 1998 and 1997, none issued and outstanding .......................        --            --
  Common stock, $0.01 par value; 20,000,000 shares authorized
   at March 31, 1998 and 1997; 15,961,032 and 13,041,418 and shares
   issued and outstanding at March 31, 1998 and 1997,  respectively ............         160           130
  Additional paid-in capital ...................................................      89,878        33,266
  Retained earnings ............................................................      51,263        35,103
  Cumulative foreign currency translation adjustment ...........................      (1,931)       (1,306)
                                                                                    --------     ---------
         Total shareholders' equity ............................................     139,370        67,193
                                                                                    --------     ---------
         Total liabilities and shareholders' equity.............................    $246,651     $ 175,288
                                                                                    ========     =========

</TABLE>



              The accompanying notes are an integral part of these
                          consolidated balance sheets.

                                      -22-
<PAGE>   23


               DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES

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


<TABLE>
<CAPTION>

                                                  FISCAL YEARS ENDED MARCH 31,
                                                --------------------------------
                                                    1998        1997        1996
                                                --------    --------    --------
<S>                                             <C>         <C>         <C>     
NET SALES ..................................    $757,027    $603,814    $464,169

COST OF SALES ..............................     679,726     543,848     416,199
                                                --------    --------    --------
                  Gross profit .............      77,301      59,966      47,970

SELLING, GENERAL AND
        ADMINISTRATIVE EXPENSES ............      47,684      36,630      29,024

ACQUISITION INTEGRATION COSTS ..............         735        --          --
                                                --------    --------    --------
                  Income from operations ...      28,882      23,336      18,946

INTEREST EXPENSE ...........................       2,698       1,677       1,482
                                                --------    --------    --------
                  Income before income taxes      26,184      21,659      17,464

PROVISION FOR INCOME TAXES:
                  Current ..................       7,913       8,095       6,460
                  Deferred .................       2,111         197         237
                                                --------    --------    --------
                                                  10,024       8,292       6,697
                                                --------    --------    --------
NET INCOME .................................    $ 16,160    $ 13,367    $ 10,767
                                                ========    ========    ========

NET INCOME PER COMMON SHARE:
                  Basic ....................    $   1.19    $   1.03    $   0.85
                  Diluted ..................    $   1.13    $   0.97    $   0.80

WEIGHTED AVERAGE
        COMMON SHARES OUTSTANDING:
                  Basic ....................      13,566      12,934      12,602

WEIGHTED AVERAGE COMMON AND COMMON
        SHARE EQUIVALENTS OUTSTANDING:
                  Diluted ..................      14,343      13,826      13,514

</TABLE>



              The accompanying notes are an integral part of these
                            consolidated statements.



                                      -23-
<PAGE>   24


               DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>

                                                           ADDITIONAL            CUMULATIVE
                                        COMMON STOCK        PAID-IN     RETAINED TRANSLATION
                                      SHARES      AMOUNT    CAPITAL     EARNINGS  ADJUSTMENT     TOTAL
                                      ------      ------    -------     --------  ----------     -----
<S>                                  <C>           <C>     <C>          <C>        <C>         <C>      
BALANCE,
March 31, 1995 ..................    12,489,364    $125    $ 30,733     $10,969    $(1,010)    $  40,817
  Net income ....................          --       --         --        10,767       --          10,767
  Net proceeds from exercise of
     common stock options .......       196,142       2         561        --         --             563
  Costs associated with secondary
     offering of stock ..........          --       --         (484)       --         --            (484)
  Foreign currency  translation
     adjustment .................          --       --         --          --           (2)           (2)
                                     ----------    ----    --------     -------    -------     ---------

BALANCE,
March 31, 1996 ..................    12,685,506     127      30,810      21,736     (1,012)       51,661
  Net income ....................          --       --         --        13,367       --          13,367
  Net proceeds from exercise of
     common stock options .......       315,796       3       1,635        --         --           1,638
  Issuance of common stock for
     acquisition of subsidiary ..        38,562     --          791        --         --             791
  Issuance of common stock ......         1,554     --           30        --         --              30
  Foreign currency translation
     adjustment .................          --       --         --          --         (294)         (294)
                                     ----------    ----    --------     -------    -------     ---------
BALANCE,
March 31, 1997 ..................    13,041,418     130      33,266      35,103     (1,306)       67,193
  Net income ....................          --       --         --        16,160       --          16,160
  Net proceeds from exercise of
     common stock options .......       616,326       7       3,932        --         --           3,939
  Net proceeds from issuance of
     common stock ...............     2,303,288      23      52,680        --         --          52,703
  Foreign currency translation
     adjustment .................          --       --         --          --         (625)         (625)
                                     ----------    ----    --------     -------    -------     ---------

BALANCE,
March 31, 1998 ..................    15,961,032    $160    $ 89,878     $51,263    $(1,931)    $ 139,370
                                     ==========    ====    ========     =======    =======     =========

</TABLE>



              The accompanying notes are an integral part of these
                            consolidated statements.



                                      -24-
<PAGE>   25


               DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>

                                                           FISCAL YEARS ENDED MARCH 31,
                                                        ----------------------------------
                                                          1998         1997         1996
                                                        --------     --------     --------
<S>                                                     <C>          <C>          <C>     
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income .......................................    $ 16,160     $ 13,367     $ 10,767
  Adjustments to reconcile net income to net cash
     provided by (used in) operating activities, net
     of effect from acquisitions of businesses:
         Depreciation and amortization .............       4,740        3,786        2,296
         Provision for doubtful accounts ...........       1,936        1,594          999
         Deferred income tax provision .............       2,111          197          237
         Changes in operating assets and liabilities
             Accounts receivable ...................     (31,278)     (22,801)     (18,888)
             Inventories, net ......................     (22,063)     (19,580)     (12,017)
             Trade accounts payable and accrued
               expenses ............................      10,145       14,559       18,495
             Income taxes payable ..................         127          969         (478)
             Prepaid expenses and other current
               assets ..............................      (2,378)         873       (1,776)
                                                        --------     --------     --------
          Net cash used in operating
         activities ................................     (20,500)      (7,036)        (365)
                                                        --------     --------     --------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of property and equipment ..............      (6,128)      (5,931)      (4,959)
  Acquisitions of businesses, net of cash acquired .      (6,322)      (2,105)        --
  Advances of employee receivables, net ............         (45)         (30)         (80)
                                                        --------     --------     --------
          Net cash used in investing activities ....     (12,495)      (8,066)      (5,039)
                                                        --------     --------     --------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from (payments of) revolving lines of
     credit, net ...................................     (20,361)      14,660        5,735
  Payments on capital leases and notes payable .....      (2,784)        (656)        (571)
  Net proceeds from sale of stock and exercise of
     stock options and warrants ....................      56,582        1,638           79
                                                        --------     --------     --------
          Net cash provided by financing
            activities .............................      33,437       15,642        5,243
                                                        --------     --------     --------

EFFECT OF EXCHANGE RATES ON CASH ...................          74         (192)         (83)
                                                        --------     --------     --------

NET INCREASE (DECREASE) IN CASH ....................         516          348         (244)

CASH, beginning of period ..........................         552          204          448
                                                        --------     --------     --------
CASH, end of period ................................    $  1,068     $    552     $    204
                                                        ========     ========     ========

</TABLE>



  The accompanying notes are an integral part of these consolidated statements


                                      -25-
<PAGE>   26


               DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   SIGNIFICANT ACCOUNTING POLICIES:

Organization and Nature of Business

    Daisytek International Corporation (a Delaware corporation) and subsidiaries
(the "Company") is primarily a wholesale distributor of non-paper computer and
office automation supplies and accessories, whose primary products are laser
toner, inkjet cartridges, copier and fax supplies, printer ribbons, diskettes,
optical storage products, computer tape cartridges and accessories such as
cleaning kits and media storage files. The Company's products are used in a
broad range of computers and office automation products including laser and
inkjet printers, photocopiers, fax machines and data storage products. The
Company, through its wholly owned subsidiaries in the U.S., Canada, Australia,
Mexico and Singapore, sells products primarily in North America, as well as in
Latin America, Australia, Singapore, the Pacific Rim, Europe and Africa.

    The Company's customers include value-added resellers, computer supplies
dealers, office product dealers, contract stationers, buying groups, computer
and office product superstores and other retailers who resell the products to
end-users. No single customer accounted for more than 10% of the Company's
annual net sales for the fiscal years ended March 31, 1998, 1997 and 1996. At
March 31, 1998, five computer and office product superstores and warehouse clubs
represent approximately 29% of trade accounts receivable, with the largest two
customers being approximately 13% and 11% of trade accounts receivable,
reflecting the significance of this market segment.

    The Company recognizes revenue upon shipment of product to customers and
provides for estimated returns and allowances. The Company permits its customers
to return defective products (many of which are then returned by the Company to
the manufacturer) and incorrect shipments for credit against other purchases.
The Company offers terms to its customers that it believes are standard for its
industry.

    During fiscal year 1996, the Company formed Priority Fulfillment Services,
Inc. ("PFS"), a wholly owned subsidiary, to provide outsourcing solutions to its
business partners and other customers. Through PFS, the Company sells its core
competencies in call-center, product fulfillment, logistics and support services
to client companies worldwide. PFS customizes these services to meet specific
requirements of these companies. PFS's call-center services include: order
entry, order tracking and customer service (inbound), outbound telemarketing
services and customized reporting of customer and call information. PFS also
provides other support services such as invoicing, credit management and
collection services, and accounting and systems support. PFS utilizes primarily
the Company's centralized distribution facility in Memphis, Tennessee and also
the Company's foreign distribution facilities, and maintains relationships with
a number of shipping companies to provide next business day delivery on domestic
package orders, truck shipments on larger domestic orders and a variety of air
and surface delivery options for international orders. PFS presently provides
its services under both fee-based contracts (where revenue is based on either
the sales value of the products or service activity volume) and transaction
based contracts (where PFS takes title and resells the product).

    In January 1998, the Company expanded its product line by acquiring
Steadi-Systems, Ltd., ("Steadi-Systems") an independent wholesale distributor of
media products to the filmed entertainment and multimedia industries.
Steadi-Systems distributes a wide array of professional-grade audio and video
media products and video hardware and is an authorized dealer for leading
manufacturers such as Sony, Fuji, JVC, Avid and others. Steadi-Systems'
customers include production companies, post-production operations, educational
institutions, governmental agencies, television stations, and other professional
and individual customers.

Basis of Presentation

    The consolidated financial statements include the accounts of Daisytek
International Corporation and its subsidiaries. All significant intercompany
transactions are eliminated. The preparation of consolidated financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, disclosure of contingent assets and liabilities, and the
reported amounts of revenues and expenses. Actual results could differ from
those estimates.

Reclassifications

    Certain prior year data has been reclassified to conform to the current
period presentation. These reclassifications had no effect on previously
reported net income, shareholders' equity or net cash flows.



                                      -26-
<PAGE>   27


               DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Inventories

    Inventories (merchandise held for resale, all of which are finished goods)
are stated at the lower of weighted average cost or market.

    Inventories held and owned by the Company's PFS subsidiary relate to product
fulfillment and logistics services provided for third parties, and are presented
separately in the consolidated balance sheet as certain of these distribution
agreements generally allow for the third party to manage the levels of inventory
held by the Company. As a result, the levels of inventory held by the Company
under these contracts are higher than the Company would normally carry in its
core wholesale business.

Property and Equipment

    Property and equipment are stated at cost and are depreciated using the
straight-line method over the estimated useful lives of the respective assets
which range from one to seven years.

Excess of Cost Over Net Assets Acquired

    Excess of cost over net assets acquired is amortized on a straight-line
basis over 20 to 40 years. The related amortization expense for each of the
fiscal years 1998, 1997 and 1996 was approximately $263,000, $140,000, and
$50,000, respectively. Accumulated amortization as of March 31, 1998 and 1997
was approximately $884,000 and $608,000 respectively.

Foreign Currency Translation and Transactions

    For the Company's Canadian and Australian subsidiaries, the local currency
is the functional currency. All assets and liabilities are translated at
exchange rates in effect at the end of the period, and income and expense items
are translated at the average exchange rates for the period. Translation
adjustments are reported as a separate component of shareholders' equity. In
addition, the Company periodically enters into foreign exchange contracts in
order to hedge the Company's net investment in, and its intercompany payable
balance (of a long-term investment nature) applicable to its Canadian and
Australian subsidiaries. The Company had the following forward currency exchange
contracts outstanding as of March 31, 1998:

<TABLE>
<CAPTION>

           CURRENCY TYPE         US$ CONTRACT AMOUNT                 CONTRACT TYPE         EXPIRATION
        ------------------       -------------------          ------------------------   ------------
<S>                                  <C>                     <C>                         <C>
         Canadian Dollars            $15.2 million             Sell Canadian Dollars        May 1998
         Canadian Dollars            $ 6.3 million             Buy Canadian Dollars         May 1998
        Australian Dollars           $ 1.8 million            Sell Australian Dollars     October 1998
        Australian Dollars           $ 0.5 million            Sell Australian Dollars     October 1998

</TABLE>

    As of March 31, 1998, the Company had incurred unrealized gains of
approximately $0.4 million, net of income taxes, on these outstanding Canadian
and Australian forward exchange contracts, which are included as a component of
shareholders' equity. The Company may consider entering into other forward
exchange contracts in order to hedge the Company's net investment in its
Canadian, Australian, Mexican, and Singaporean subsidiaries, although no
assurance can be given that the Company will be able to do so on acceptable
terms.

    For the Company's Mexican subsidiary, the U.S. dollar is the functional
currency. Monetary assets and liabilities are translated at the rates of
exchange on the balance sheet date and certain assets (notably inventory, and
property and equipment) are translated at historical rates. Income and expense
items are translated at average rates of exchange for the period except for
those items of expense, which relate to assets, which are translated at
historical rates. The gains and losses from foreign currency transactions and
translation related to the Mexican subsidiary are included in net income and
have not been material.




                                      -27-
<PAGE>   28

               DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


Net Income Per Common Share

    Basic net income per common share is calculated by dividing net income by
the weighted average common shares outstanding for each period. Diluted net
income is calculated by dividing net income by the weighted average common
shares and share equivalents outstanding for each period. The difference between
the Company's basic and diluted weighted average common shares outstanding is
due to dilutive common stock options outstanding. The stock splits discussed in
Note 3 have been reflected in the net income per common share calculations for
all periods presented.

Adoption of New Accounting Standards

    The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," in fiscal year 1997. SFAS No. 121 requires companies
to periodically evaluate long-lived assets and to record an impairment loss if
the expected undiscounted future cash flows is less than the carrying value of
those assets. The effect of the application of SFAS No. 121 was not material.

    The Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation," in fiscal year 1997. The Company has chosen to continue to apply
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related Interpretations in accounting for its plans, and has
opted to comply with the disclosure requirements of SFAS No. 123.

    In February 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128, "Earnings per Share." This statement establishes new standards for
computing and presenting earnings per share ("EPS"). The Company adopted SFAS
No. 128 during the quarter ended December 31, 1997. The Company restated its EPS
data for all periods presented.

    In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income"
and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information." These statements are effective for fiscal years beginning after
December 15, 1997; however, earlier adoption is permitted. SFAS No. 130 requires
the presentation of comprehensive income and its components in a full set of
financial statements. SFAS No. 131 requires the disclosure of financial and
descriptive information about reportable operating segments. Both SFAS No. 130
and 131 are modifications of existing disclosure requirements, which will have
no effect on the results of operations or financial condition of the Company.
The Company is currently evaluating the standards and their potential impact on
disclosures and will adopt these pronouncements in its fiscal year 1999
financial statements.

Acquisitions of Businesses

    Effective October 1, 1996, the Company acquired, with cash and common stock,
substantially all of the assets and liabilities of Lasercharge Pty Ltd
("Lasercharge"). Lasercharge is an Australian wholesale distributor of computer
and office automation supplies and accessories. The acquisition of Lasercharge
was accounted for using the purchase method of accounting, and, accordingly, the
purchase price has been allocated to the assets and liabilities assumed based on
fair values at the date of acquisition. This resulted in cost in excess of fair
value of approximately $3.6 million which is being amortized on a straight-line
basis over 20 years. Pro forma results of operations have not been presented
because the effects of the acquisition were not significant.

    During January 1998, the Company purchased all of the common stock of
Steadi-Systems. Steadi-Systems is an independent wholesale distributor of media
products to the filmed entertainment and multimedia industries. The acquisition
of Steadi-Systems was accounted for using the purchase method of accounting,
and, accordingly, the purchase price was allocated to the assets and liabilities
assumed based on the fair values at the date of acquisition. This resulted in
cost in excess of fair value of approximately $10.4 million which is being
amortized on a straight-line basis over 25 years. Pro-forma results of
operations have not been presented because the effects of the acquisition were
not significant. The Company recorded a one-time acquisition integration charge
related to the 




                                      -28-
<PAGE>   29
 

               DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


completion of transition, integration and merger activities, of about $0.7
million, or approximately $0.03 per share, net of income taxes, in the Company's
fourth financial quarter ending March 31, 1998. Steadi-Systems was acquired
using cash of approximately $6.3 million during fiscal year 1998. Not included
in this amount are contingent cash payment arrangements payable if certain
events occur. These contingent payments will be recorded upon the occurrence of
the specified events. During May 1998, those events occurred and the Company
incurred approximately $2.4 million in additional costs for the acquisition of
Steadi-Systems.

2.       DEBT:

    Debt at March 31, 1998 and 1997 is as follows (dollars in thousands):

<TABLE>
<CAPTION>

                                                                                       MARCH 31,
                                                                              -----------------------------
                                                                                1998                 1997
                                                                              --------             --------
<S>                                                                           <C>                  <C>     
        Revolving line of credit with commercial banks, interest
          at the Company's option at the prime rate of a bank (8.5% at
          March 31, 1998), or the Eurodollar rate plus 0.625% to                            
          1.125% (6.6% at March 31, 1998), due December 31,
          2000 ..........................................................     $     --             $ 30,100
        Revolving line of credit with commercial bank,  interest
          at the Australian Bank Bill Rate plus 0.75% (5.7% at                                                           
          March 31, 1998), due July 1, 1999..............................        4,410                   --
        Revolving line of credit with commercial bank, interest at the
           Canadian bank's cost of funds plus 0.65% (5.7% at March                                         
           31, 1998), due July 1, 1999...................................        8,101                   --
        Notes payable and obligations under capital leases for
           warehouse equipment, computer equipment,  office furniture
           and fixtures, interest at varying rates ranging from 8% to            
           21%, with initial lease terms varying from three to seven
           years.........................................................          383                1,016
                                                                              --------             --------
                      Long-term debt.....................................       12,894               31,116
        Less: current portion of long--term debt.........................         (239)                (662)
                                                                              --------             --------
                      Long-term debt, less current portion...............     $ 12,655             $ 30,454
                                                                              ========             ========

</TABLE>

    In May 1995, the Company entered into an agreement with certain banks for an
unsecured revolving line of credit facility (the "Facility") that, as amended on
February 13, 1998, has a maximum borrowing availability of $65.0 million and
expires on December 31, 2000. Availability under the Facility is based upon
amounts of eligible accounts receivable, as defined. As of March 31, 1998, the
Company completed a secondary offering of its common stock and applied the net
proceeds of approximately $52.6 million to repay in full all outstanding amounts
under the Facility, leaving $65.0 million available for additional borrowings.
The Facility accrues interest, at the Company's option, at the prime rate of a
bank or a Eurodollar rate plus an adjustment ranging from 0.625% to 1.125%
depending on the Company's financial performance. A commitment fee of 0.20% to
0.25% is charged on the unused portion of the Facility. The Facility contains
various covenants including, among other things, the maintenance of certain
financial ratios including the achievement of a minimum fixed charge ratio and
minimum level of tangible net worth, and restrictions on certain activities of
the Company, including loans and payments to related parties, incurring
additional debt, acquisitions, investments and asset sales. This Facility is
part of the Company's integrated cash management system in which accounts
receivable collections are used to pay down the Facility and disbursements are
paid from the Facility. This system allows the Company to optimize its cash
flow.

    During October 1997, the Company's Australian subsidiary entered into an
agreement with an Australian bank for an unsecured revolving line of credit
facility (the "Australian Facility"). The Australian Facility, which expires on
July 1, 1999, allows the Company to borrow Australian dollars up to a maximum of
$7.5 million (Australian), or approximately $5.0 million (U.S.) at March 31,
1998. The Australian Facility accrues interest at the Australian Bank Bill Rate
plus 0.75%. A commitment fee of 0.25% is charged on the total amount of the
Australian Facility. As of March 31, 1998, the Company had borrowed
approximately $4.4 million (U.S.), leaving approximately $0.6 million (U.S.)
available under the Australian Facility for additional borrowings.

    During December 1997, the Company's Canadian subsidiary entered into an
agreement with a Canadian bank for an unsecured revolving line of credit
facility (the "Canadian Facility"). The Canadian Facility, which expires on July
1, 1999, allows the Company to borrow Canadian or U.S. dollars up to a maximum
of $15.0 million 



                                      -29-
<PAGE>   30

               DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)



(Canadian), or approximately $10.6 million (U.S.) at March 31, 1998. The Company
had borrowed approximately $8.1 million (U.S.), leaving approximately $2.5
million (U.S.) available under the Canadian Facility at March 31, 1998. The
Canadian Facility accrues interest at the Company's option at the bank's prime
rate, the bank's cost of funds plus 0.65%, the bank's U.S. dollar commercial
loan rate or LIBOR plus 0.65%. A commitment fee of 0.25% is charged on the
unused portion of the Canadian Facility.

    The Company is a party to a number of non-cancelable capital lease
agreements involving warehouse equipment, computer equipment, and office
furniture and fixtures. The Company's property held under capital leases,
included in furniture, fixtures and equipment in the balance sheet, amounted to
approximately $284,000, net of accumulated amortization of approximately
$2,538,000 at March 31, 1998, and approximately $684,000 net of accumulated
amortization of approximately $2,054,000 at March 31, 1997.

    Annual maturities of long-term debt and capital leases are as follows (in
thousands):

<TABLE>
<CAPTION>

      Fiscal year ended March 31,
<S>                                                                              <C>
        1999..........................................................      $    239
        2000..........................................................        12,655
        Thereafter....................................................            --
                                                                            --------
                Total.................................................      $ 12,894
                                                                            ========
</TABLE>

3.        STOCK OPTIONS AND SHAREHOLDERS' EQUITY:

Public Offerings

    In January 1995, the Company completed an initial public offering (the
"IPO") of 2,760,000 shares of common stock. In January 1996, the Company
completed a secondary offering of 2,415,500 shares of common stock, sold by
certain principal and selling shareholders. The Company did not receive any of
the proceeds from the sale of shares by these principal and selling
shareholders. The Company incurred approximately $484,000 in costs related to
the secondary offering, which is reflected as a reduction in Shareholders'
Equity. During March 1998, the Company completed a secondary offering of
3,300,000 shares, consisting of 2,300,000 shares offered by the Company, and
1,000,000 shares offered by a principal and selling shareholder.

Preferred Stock

    In connection with the IPO, the Company authorized the issuance of up to
1,000,000 shares of preferred stock, par value $1.00 per share, none of which is
issued or outstanding at March 31, 1998 and 1997.

Stock Splits

    In conjunction with the IPO, the Company's Board of Directors approved the
conversion of each share of common stock into 1.45 shares upon consummation of
the IPO. In February 1998, the Company's Board of Directors approved a two for
one stock split which provided each holder of common stock to receive one
additional share for each share held. The stock split was effected in the form
of a stock dividend on March 2, 1998. The consolidated financial statements and
the notes thereto have been adjusted to reflect these stock splits on a
retroactive basis for all periods presented.

Stock Options

    At March 31, 1998 and 1997, the Company had stock option compensation plans
and a non-employee Director stock option plan, which are described below. The
Company may also, from time to time, issue non-qualified options outside these
plans. The Company applies APB Opinion No. 25 and related Interpretations in
accounting for these stock options. Accordingly, no compensation cost has been
recognized for stock-based compensation awards. Pro forma net income and
earnings per share assuming compensation cost for the Company had been



                                      -30-
<PAGE>   31

               DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


determined under SFAS No. 123, "Accounting for Stock-Based Compensation," are as
follows (dollars in thousands, except per share data):

<TABLE>
<CAPTION>

                                                                   FISCAL YEARS ENDED MARCH 31,
                                                              --------------------------------------
                                                                1998          1997            1996
                                                              -------       --------        --------
<S>                                                           <C>           <C>             <C>     
    Net income:
      As reported...........................................  $16,160       $ 13,367        $ 10,767
      Pro forma.............................................  $12,884       $ 11,202        $ 10,039
    Earnings per share:
      Basic:
         As reported........................................  $  1.19       $   1.03        $   0.85
         Pro forma..........................................  $  0.95       $   0.87        $   0.80
      Diluted
         As reported........................................  $  1.13       $   0.97        $   0.80
         Pro forma..........................................  $  0.90       $   0.81        $   0.74

</TABLE>

    The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following assumptions used for
grants in fiscal year 1996: no dividends; expected volatility of 38.51%;
risk-free interest rate of 6.9%; and expected life of 6 years. The following
assumptions were used for grants during fiscal year 1997: no dividends, expected
volatility ranging between 39.25% and 39.50%; risk-free interest rate ranging
between 5.9% and 6.6%; and expected life of 6 years. The following assumptions
were used for grants during the fiscal year 1998: no dividends, expected
volatility ranging between 40.97% and 41.40%; risk-free interest rate ranging
between 5.6% and 6.8%; and expected life of 6 years.

    In January 1989, the Company established an employee stock option plan (the
"Plan") in which shares of common stock are reserved for the granting of options
at an amount not less than market price, as determined by the Board of
Directors, at the date of grant. There were no options available at March 31,
1998 to be granted under the plan. As of March 31, 1997, 17,108 remained
available to be granted under the Plan.

    In 1994, the Company adopted the 1994 Stock Option Plan for Key Employees of
Daisytek International Corporation (the "1994 Plan"). The 1994 Plan authorizes
the Company to grant options to select officers and other key employees of the
Company and to non-employee directors. The 1994 Plan provides for the granting
to employees of both incentive stock options and nonqualified stock options. The
maximum number of shares of common stock for which options may be granted is
1,450,000, subject to adjustments for certain changes in the shares issued and
outstanding as described in the 1994 Plan.

    The exercise price of incentive stock options granted under the 1994 Plan
may not be less than the fair market value at the date of the grant. The
exercise price of nonqualified stock options granted under the 1994 Plan is
determined by the option committee of the Board of Directors. As of March 31,
1998 and 1997, 100,974 and 510,904 options, respectively, remain to be granted
in the future under the 1994 Plan.

    During fiscal year 1997, the Company adopted the Non-Employee Director Stock
Option and Retainer Plan (the "Non-Employee Director Plan"). The Non-Employee
Director Plan authorizes the Company to grant nonqualified common stock options
to non-employee directors at the fair market value of the Company's common stock
on the date of grant. The options vest over a three-year period starting on the
date of grant. The maximum number of shares which may be granted under the
Non-Employee Director Plan is 100,000 shares, subject to adjustments for certain
changes in the shares issued and outstanding as described in the plan. As of
March 31, 1998 and 1997 there were 7,440 and 6,000 options, respectively,
granted under the Non-Employee Director Plan.

    During fiscal year 1998, the Company adopted the 1997 Stock Option Plan (the
"1997 Plan"). The 1997 Plan authorizes the Company to grant options to select
officers, directors and other key employees of the Company. The 1997 Plan
provides for the granting to employees of both incentive stock options and
nonqualified stock options. The maximum number of shares of common stock for
which options may be granted is 2,000,000, subject to adjustments for certain
changes in the shares issued and outstanding as described in the 1997 Plan.




                                      -31-
<PAGE>   32

               DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)



    The exercise price of incentive stock options granted under the 1997 Plan
may not be less than the fair market value of the Company's stock at the date of
the grant. In the case of an individual then owning more than 10% of the total
combined voting power of the Company, the exercise price may not be less than
110% of the fair market value of the Company's stock at the date of the grant.
As of March 31, 1998, 1,864,942 options remain to be granted in the future under
the 1997 Plan.

    During fiscal years 1998, 1997 and 1996, the Company granted options to
certain employees pursuant to its employee stock option plans. In addition to
the options under such plans, the Company granted options to certain key
employees, executives and directors to purchase 181,826 shares of common stock
in fiscal year 1998, 110,000 shares of common stock in fiscal year 1997 and
45,000 shares of common stock in fiscal year 1996. These options were granted at
the fair market value at the date of the grant and become exercisable over a
three-year period starting on the date of the grant.

    During April 1997, the Company, at the option of individual employees and
directors, canceled options issued during fiscal year 1997 and issued
replacement options, granted at the fair market value of the Company's common
stock on the date of the replacement grant. Such options also become exercisable
over a three-year period starting with the date of the replacement grant, based
on vesting percentages.

    The following table summarizes stock option activity for the three years in
the period ended March 31, 1998.

<TABLE>
<CAPTION>

                                                                 PRICE PER       WEIGHTED AVERAGE
                                               SHARES              SHARE          EXERCISE PRICE
                                               ------          --------------     --------------
<S>                                           <C>              <C>                  <C>   
Outstanding, March 31, 1995............       1,123,130        $ 0.64--$ 3.80        $ 1.75
  Granted..............................         520,000                $ 9.75        $ 9.75
  Exercised............................        (196,142)       $ 0.64--$ 3.80        $ 1.84
  Canceled.............................          (9,000)               $ 9.75        $ 9.75
                                              ---------                          
Outstanding, March 31, 1996............       1,437,988        $.0.64--$ 9.75        $ 4.58
  Granted..............................         678,228        $16.25--$20.00        $16.54
  Exercised............................        (315,796)       $ 0.64--$ 9.75        $ 2.45
  Canceled.............................         (93,482)       $ 3.80--$16.25        $13.27
                                              ---------                          
Outstanding, March 31, 1997............       1,706,938        $ 0.64--$20.00        $ 9.25
  Granted..............................       1,341,650        $12.50--$22.44        $12.91
  Exercised............................        (616,326)       $ 0.64--$16.25        $ 2.76
  Canceled.............................        (706,288)       $ 9.75--$20.00        $15.97
                                              ---------                          
Outstanding, March 31, 1998............       1,725,974        $ 0.64--$22.44        $11.66
                                              =========

</TABLE>

    The weighted average fair values of options granted during each of the years
ended March 31, 1998, 1997 and 1996, were $7.02, $8.08 and $4.85 respectively.
As of March 31, 1998, 1997 and 1996, 234,531, 682,543 and 806,788, respectively,
of options outstanding were exercisable. The remaining options will become
exercisable over the next three years based on vesting percentages.

    The following table summarizes information about the Company's stock options
outstanding at March 31, 1998:

<TABLE>
<CAPTION>

             OPTIONS OUTSTANDING                                     OPTIONS EXERCISABLE
--------------------------------------------------  ----------------------------------------------------
                                       WEIGHTED
                                       AVERAGE           WEIGHTED                            WEIGHTED
  RANGE OF      OUTSTANDING AS OF     REMAINING           AVERAGE      EXERCISABLE AS OF      AVERAGE
EXERCISE PRICES  MARCH 31, 1998   CONTRACTUAL LIFE    EXERCISE PRICE    MARCH 31, 1998    EXERCISE PRICE
--------------- ----------------- ----------------  ----------------   -----------------  --------------
<S>     <C>          <C>               <C>           <C>                   <C>           <C>      
$ 0.64-- $ 5.00       99,440            3.5           $    1.82             99,440        $    1.82
$ 5.01-- $10.00      355,120            7.1           $    9.75            133,786        $    9.75
$10.01-- $15.00    1,168,320            9.0           $   12.50                 --               --
$15.01-- $22.44      103,094            9.4           $   18.28              1,305        $   16.25

</TABLE>



                                      -32-
<PAGE>   33

               DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)



    The following table summarizes information about the Company's stock options
outstanding at March 31, 1997:

<TABLE>
<CAPTION>

                             OPTIONS OUTSTANDING                                      OPTIONS EXERCISABLE
            -------------------------------------------------------    --------------------------------------------------
                                                      WEIGHTED
            RANGE OF                                   AVERAGE           WEIGHTED                            WEIGHTED
            EXERCISE          OUTSTANDING AS OF       REMAINING           AVERAGE      EXERCISABLE AS OF      AVERAGE
             PRICES            MARCH 31, 1997      CONTRACTUAL LIFE    EXERCISE PRICE    MARCH 31, 1997    EXERCISE PRICE
         --------------        --------------      ----------------    --------------    --------------    --------------
<S>      <C>       <C>            <C>                   <C>              <C>                 <C>               <C>   
         $ 0.64--$ 5.00           626,018               4.6              $   1.59            626,018           $ 1.59
         $ 5.01--$10.00           457,260               8.1              $   9.75             56,525           $ 9.75
         $10.01--$20.00           623,660               9.1              $  16.57                --               --

</TABLE>

4.       SUPPLEMENTAL CASH FLOW INFORMATION (IN THOUSANDS)

<TABLE>
<CAPTION>

                                        FISCAL YEARS ENDED MARCH 31,
                                        ----------------------------
                                         1998       1997       1996
                                        ------    -------     ------
<S>                                     <C>       <C>         <C>   
Cash paid during the period for:
   Interest ........................    $2,762    $ 1,830     $1,445
   Income taxes ....................    $5,416    $ 6,411     $6,953
Fixed assets acquired under capital
     leases ........................    $   84    $  --       $ --
Acquisitions of businesses:
   Fair value of net assets acquired    $6,322    $ 2,896     $ --
   Stock issued ....................      --         (791)      --
                                        ------    -------     ------
     Net cash paid for acquisition .    $6,322    $ 2,105     $ --
                                        ======    =======     ======

</TABLE>

5.       RELATED PARTY TRANSACTIONS:

    The Company has made various loans to its President, a Senior Vice
President, and a Vice President. These loans accrue interest at the Company's
effective borrowing rate (6.8% at March 31, 1998 and March 31, 1997). The
Company had notes receivable (including accrued interest) from its President of
approximately $459,000 and $423,000 as of March 31, 1998 and 1997, respectively,
which are classified as non-current assets in the consolidated balance sheet.
The Company's note receivable from a Senior Vice President as of March 31, 1998
and March 31, 1997 were approximately $186,000 and $122,000, respectively. The
Company's receivables from a Vice President as of March 31, 1997 was $61,000.
These notes are classified as accounts receivable in the accompanying
consolidated balance sheet.

    The Company also had trade accounts receivable due from companies in which
either the Company or its largest shareholder owns a minority interest. Such
sales were made in accordance with the Company's usual terms, except that such
companies were provided with extended payment terms. In fiscal year 1993, the
principal shareholder transferred his minority interest in all but one of these
companies to a subsidiary of the Company for a nominal amount, which
approximated the fair market value of these minority interests. In fiscal year
1997, the Company sold its interest in its only remaining related party company.
In fiscal year 1998, the Company's largest shareholder sold the minority
interest in the remaining company. Trade accounts receivable and advances from
these related party companies totaled approximately $517,000 at March 31, 1997,
and are classified as accounts receivable in the accompanying consolidated
balance sheet. Sales to these related parties totaled approximately $537,000,
$1,844,000 and $2,707,000 for the fiscal years ended March 31, 1998, 1997 and
1996, respectively.

    In April 1997, the Company entered into a one-year aircraft lease with a 
company owned by the Company's largest shareholder under which the Company, on a
non-exclusive basis, leases an aircraft from such company.  The lease was
terminable by either party at any time.  During fiscal year 1998, the Company
incurred approximately $342,000 in lease payments and reimbursement of certain
operating costs relating to this aircraft lease.  The aircraft lease was
terminated on March 31, 1998.

6.        INCOME TAXES

    Deferred taxes reflect the impact of temporary differences between the
amount of assets and liabilities for financial reporting purposes and such
amounts as measured by tax laws and regulations. These differences relate
primarily to provisions for doubtful accounts, capitalization of inventory
costs, reserves for inventory, book versus tax depreciation differences, and
certain accrued expenses deducted for book purposes but not yet deductible for
tax purposes. A reconciliation of the difference between the expected income tax
provision at the U.S. Federal statutory 




                                      -33-
<PAGE>   34

               DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


corporate tax rate (35.0%, 35.0% and 34.9% in fiscal years 1998, 1997 and 1996,
respectively, and the Company's effective tax rate is as follows (in thousands):

<TABLE>
<CAPTION>

                                                    FISCAL YEARS ENDED MARCH 31,
                                                  -------------------------------
                                                    1998        1997       1996
                                                  --------     -------     ------

<S>                                             <C>          <C>         <C>   
Provision computed at statutory rate .........    $  9,164     $ 7,581     $6,086
Impact of foreign taxation at different rate..         356         270        141
State income taxes, net of federal benefit ...         415         335        297
Expenses not deductible for tax purposes .....         149         104         56
Change in valuation reserve ..................          48        (123)         8
Other ........................................        (108)        125        109
                                                  --------     -------     ------
     Provision for income taxes ..............    $ 10,024     $ 8,292     $6,697
                                                  ========     =======     ======

</TABLE>

The consolidated income before taxes, by domestic and foreign entities, is as
follows (in thousands):

<TABLE>
<CAPTION>

                    FISCAL YEARS ENDED MARCH 31,
                   -----------------------------
                    1998       1997       1996
                   -------    -------    -------

<S>                <C>        <C>        <C>    
Domestic ......    $20,910    $18,703    $16,355
Foreign .......      5,274      2,956      1,109
                   -------    -------    -------
     Total.....    $26,184    $21,659    $17,464
                   =======    =======    =======

</TABLE>

The provision (benefit) for income taxes is summarized as follows (in
thousands):

<TABLE>
<CAPTION>

                                                                 FISCAL YEARS ENDED MARCH 31,
                                                       ------------------------------------------------
                                                         1998               1997                 1996
                                                       --------           --------            ---------
<S>                                                    <C>                <C>                 <C>      
Current
     Domestic...............................           $  5,141           $  6,317            $   5,349
     State..................................                639                515                  456
     Foreign................................              2,133              1,263                  655
                                                       --------           --------            ---------
         Total current......................              7,913              8,095                6,460
                                                       --------           --------            ---------
Deferred
     Domestic...............................              2,018                197                  265
     Foreign................................                 93                 --                  (28)
                                                       --------           --------            ---------
         Total deferred.....................              2,111                197                  237
                                                       --------           --------            ---------
              Total.........................           $ 10,024           $  8,292            $   6,697
                                                       ========           ========            =========

</TABLE>



                                      -34-
<PAGE>   35


               DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

The components of the deferred tax asset (liability) as of March 31, 1998 and
1997 are as follows (in thousands):

<TABLE>
<CAPTION>

                                                    MARCH 31,
                                              -------------------
                                                1998        1997
                                              -------     -------
<S>                                           <C>         <C>    
Deferred tax asset:
  Allowance for doubtful accounts ........    $   692     $   872
  Capitalized inventory costs ............        182         170
  Inventory obsolescence reserve .........        252         273
  Accrued straight-line rent .............         63          70
  Accrued vacation .......................         82          58
  Foreign net operating loss carryforwards      1,659         631
  Other ..................................        106         204
                                              -------     -------
                                                3,036       2,278
  Less-- Valuation reserve ...............       (311)       (263)
                                              -------     -------
          Total deferred tax asset .......      2,725       2,015
                                              -------     -------
Deferred tax liability:
  Property and equipment .................       (413)       (426)
  Accounts receivable discount ...........     (2,077)       (411)
  Foreign inventory purchases ............     (1,257)       (463)
  Other ..................................       (524)       (150)
                                              -------     -------
          Total deferred liability .......     (4,271)     (1,450)
                                              -------     -------
Deferred tax asset (liability), net ......    $(1,546)    $   565
                                              =======     =======

</TABLE>

    For financial reporting purposes, the tax benefit of cumulative temporary
differences is recorded as an asset to the extent that management assesses the
utilization of such temporary differences to be "more likely than not". Foreign
net operating loss carryforwards relate primarily to taxable losses of the
Company's Mexico subsidiary. These loss carryforwards begin to expire in fiscal
year 2005. As of March 31, 1998 and 1997 a valuation allowance was recorded due
to uncertainties regarding the Company's utilization of its Mexico subsidiary's
net tax asset.

7.       COMMITMENTS AND CONTINGENCIES:

    The Company and its subsidiaries lease facilities, and warehouse, office,
transportation and other equipment under operating leases expiring in various
years through fiscal year 2010. In most cases, management expects that, in the
normal course of business, leases will be renewed or replaced by other leases.
Minimum future annual rental payments under non-cancelable operating leases
having original terms in excess of one year are as follows (in thousands):

<TABLE>

<S>                                                                 <C>      
          1999..................................................... $   4,325
          2000.....................................................     4,473
          2001.....................................................     3,291
          2002.....................................................     2,041
          2003.....................................................       912
          Thereafter...............................................     5,921
                                                                    ---------
                  Total............................................ $  20,963
                                                                    =========

</TABLE>

    Total rental expense under operating leases approximated $3,822,000,
$3,107,000 and $2,255,000 for the fiscal years ended March 31, 1998, 1997 and
1996, respectively.

    Although the Company carries products and accessories supplied by numerous
vendors, the Company's net sales from products manufactured by its ten largest
suppliers were approximately 70%, 74% and 72% of total net sales during fiscal
years 1998, 1997 and 1996, respectively. The Company has entered into written
distribution agreements with nearly all of its major suppliers. As is customary
in the industry, these agreements generally provide non-exclusive distribution
rights, have one-year renewable terms and are terminable by either party at any
time, with or without cause. Certain of these agreements require minimum annual
purchases. Total minimum purchase requirements for fiscal year 1999 approximate
$66 million. Additionally, many of the Company's 



                                      -35-
<PAGE>   36


               DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

suppliers offer rebate programs under which, subject to the Company purchasing
certain predetermined amounts of inventory, the Company receives rebates based
on a percentage of the dollar volume of total rebate program purchases. The
Company also takes advantage of several other programs offered by substantially
all of its suppliers. These include price protection plans under which the
Company receives credits against future purchases if the supplier lowers prices
on previously purchased inventory and stock rotation or stock balancing
privileges under which the Company can return slow-moving inventory in exchange
for other products. Certain of the Company's suppliers also provide the Company
with cooperative advertising programs, marketing development funds and other
types of incentives and discounts which offset the production costs of the
Company's published marketing tools and other related costs.

    The Company is involved in certain litigation arising in the ordinary course
of business. Management believes that such litigation will be resolved without
material effect on the Company's financial position or results of operations.

8.       FOREIGN OPERATIONS AND EXPORTS

    The Company, through its wholly owned subsidiaries, sells products in
Canada, Australia, Mexico and in Singapore. All intercompany activity is
eliminated in computing net sales and net income. Information related to the
Company's Australia, Mexico and Singapore subsidiaries are included in Other in
the following table. Financial information, summarized by geographical area, is
as follows (in thousands):

<TABLE>
<CAPTION>

                                                      FISCAL YEARS ENDED MARCH 31,
                                          ------------------------------------------------
                                             1998               1997               1996
                                          -----------        ----------        -----------
       Net sales:
<S>                                        <C>              <C>                <C>        
         Domestic.....................    $   653,525       $   541,710        $   424,667
         Canada.......................         77,589            57,295             44,459
         Other........................         53,707            26,425              8,932
         Intercompany elimination.....        (27,794)          (21,616)           (13,889)
                                          -----------       -----------        -----------
            Consolidated..............    $   757,027       $   603,814        $   464,169
                                          ===========       ===========        ===========
       Net income:
         Domestic.....................    $    13,112       $    11,675        $    10,284
         Canada.......................          2,326             1,346                759
         Other........................            722               346               (276)
                                          -----------       -----------        -----------
            Consolidated..............    $    16,160       $    13,367        $    10,767
                                          ===========       ===========        ===========
       Identifiable assets:
         Domestic.....................    $   200,774       $   144,836        $   115,219
         Canada.......................         23,331            16,924             10,360
         Other........................         22,546            13,528              3,022
                                          -----------       -----------        -----------
            Consolidated..............    $   246,651       $   175,288        $   128,601
                                          ===========       ===========        ===========

</TABLE>

    The Company also exports its products for sale throughout Latin America,
Europe, the Far East, Africa and Australia. Total export sales to these
geographic regions for fiscal years 1998, 1997 and 1996, included in Domestic
sales in the preceding table, were approximately $38.0 million, $33.5 million
and $31.8 million, respectively.

9.        EMPLOYEE SAVINGS PLAN

    The Company has a defined contribution employee savings plan under Section
401(k) of the Internal Revenue Code. Substantially all full-time and part-time
U.S. employees are eligible to participate in the plan. The Company, at its
discretion, may match employee contributions to the plan and also make an
additional matching contribution in the form of profit sharing in recognition of
Company performance. For fiscal year 1998, the Company matched 10% of employee
contributions resulting in a charge against income of approximately $53,000. For
fiscal year 1997, the Company matched 20% of employee contributions resulting in
a charge against income of approximately 



                                      -36-
<PAGE>   37

               DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

$78,000. For the fiscal year 1996, the Company matched 25% of employee
contributions, resulting in a charge against income of approximately $95,000.

10.      FAIR VALUES OF FINANCIAL INSTRUMENTS

    The Company estimates fair value based on market information and appropriate
valuation methodologies. Fair value is the amount at which the instrument could
be exchanged in a current transaction between willing parties, other than in a
forced sale or liquidation. The fair values of all non-derivative financial
instruments approximate their carrying amounts in the accompanying consolidated
balance sheets.

    The Company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. The Company's derivative
financial instruments outstanding as of March 31, 1998 and 1997, consisted of
forward foreign currency exchange contracts used to hedge the Company's net
investment in, and its intercompany payable balance applicable to its Canadian
and Australian subsidiaries (See Note 1). The fair values of these contracts
based on fiscal year-end exchange rates, excluding related income taxes, were
net gains of approximately $420,000 and $67,000 at March 31, 1998 and 1997,
respectively.

11.      SUBSEQUENT EVENT

    On May 4, 1998, the Company signed a letter of intent to acquire The Tape
Company, Inc. ("The Tape Company"), a Chicago-based independent distributor of
professional-grade audio and video media products. It is anticipated that the
Company will account for this transaction as a pooling of interests and will
issue shares of its common stock. The Tape Company had revenues of approximately
$40 million during the twelve month period ending March 31, 1998.



                                      -37-
<PAGE>   38


               DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)



12.      QUARTERLY DATA (UNAUDITED)

         Summarized quarterly financial data for fiscal years 1998 and 1997 are
as follows (dollars in thousands, except per share data):

<TABLE>
<CAPTION>

                                                                                     FISCAL YEAR 1998
                                                               -----------------------------------------------------------
                                                                  4TH QTR        3RD QTR.        2ND QTR.        1ST QTR.
                                                               -----------     -----------     -----------     -----------
<S>                                                            <C>             <C>             <C>             <C>        
Net sales .................................................    $   218,061     $   186,586     $   179,568     $   172,812

Gross profit ..............................................    $    23,361     $    18,763     $    17,871     $    17,306
     Gross profit margin ..................................           10.7%           10.1%           10.0%           10.0%

SG&A expenses .............................................    $    14,541     $    11,508     $    11,052     $    10,583
     Percent of net sales .................................            6.7%            6.2%            6.2%            6.1%

Acquisition integration costs..............................    $       735     $        --     $        --     $        --
     Percent of net sales..................................            0.3%             --              --              --

Income from operations ....................................    $     8,085     $     7,255     $     6,819     $     6,723
     Operating margin .....................................            3.7%            3.9%            3.8%            3.9%

Net income ................................................    $     4,324     $     4,138     $     3,869     $     3,829
     Net margin ...........................................            2.0%            2.2%            2.2%            2.2%

Net income per common and
     common equivalent share
         Basic ............................................    $      0.32     $      0.30     $      0.28     $      0.29
         Diluted ..........................................    $      0.30     $      0.29     $      0.27     $      0.27

</TABLE>

<TABLE>
<CAPTION>

                                                                                     FISCAL YEAR 1997
                                                               -----------------------------------------------------------
                                                                  4TH QTR        3RD QTR.        2ND QTR.        1ST QTR.
                                                               -----------     -----------     -----------     -----------
<S>                                                            <C>             <C>             <C>             <C>        
Net sales .................................................    $   174,343     $   154,429     $   138,148     $   136,894

Gross profit ..............................................    $    17,503     $    15,204     $    13,589     $    13,670
     Gross profit margin ..................................           10.0%            9.8%            9.8%           10.0%

SG&A expenses .............................................    $    10,552     $     9,375     $     8,397     $     8,306
     Percent of net sales .................................            6.1%            6.1%            6.1%            6.1%

Income from operations ....................................    $     6,951     $     5,829     $     5,192     $     5,364
     Operating margin .....................................            4.0%            3.8%            3.8%            3.9%

Net income ................................................    $     4,007     $     3,364     $     2,955     $     3,041
     Net margin ...........................................            2.3%            2.2%            2.1%            2.2%

Net income per common and
     common equivalent share
         Basic ............................................    $      0.31     $      0.26     $      0.23     $      0.24
         Diluted ..........................................    $      0.29     $      0.24     $      0.21     $      0.22

</TABLE>



                                      -38-
<PAGE>   39


                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT


    Set forth below are the names, ages and positions of the directors and
executive officers of the Company.

<TABLE>
<CAPTION>

                   NAME                   AGE              POSITION
         ---------------------------    -------    ---------------------------
<S>                                        <C>     <C>                     
         David A. Heap..............       54      Chairman of the Board
         Mark C. Layton.............       38      President, Chief Executive Officer, Chief Operating
                                                   Officer and Director
         Christopher Yates..........       43      Senior Vice President-- Business Development and
                                                   Director
         James R. Powell............       37      Senior Vice President-- Sales and Marketing and
                                                   Director
         Steven Graham..............       46      Senior Vice President-- Information Technologies,
                                                   Chief Information Officer
         Harvey H. Achatz...........       57      Vice President-- Administration and Secretary
         Thomas J. Madden...........       36      Vice President-- Finance, Chief Financial Officer,
                                                   Chief Accounting Officer and Treasurer
         Peter D. Wharf.............       39      Vice President-- International Operations
         Suzanne Garrett............       33      Vice President-- Product Management and Marketing
         Edgar D. Jannotta, Jr......       37      Director
         Timothy M. Murray..........       45      Director
         Peter P. J. Vikanis........       47      Director

</TABLE>

    DAVID A. HEAP has served as Chairman of the Board since 1982, as Chief
Executive Officer from 1982 until his retirement in April 1997 and as President
from 1982 to 1990. From 1970 to 1985, Mr. Heap served as Chairman of ISA
International plc (and its predecessors) ("ISA"), a now publicly traded company
he founded in England in 1970. ISA is a distributor of computer supplies in
Western Europe.

    MARK C. LAYTON has served as President, Chief Executive Officer and Chief
Operating Officer since April 1997 and as a Director since 1988. Mr. Layton
served as President, Chief Operating Officer and Chief Financial Officer from
1993 to April 1997, as Executive Vice President from 1990 to 1993 and as Vice
President -- Operations from 1988 to 1990. Prior to joining the Company, Mr.
Layton served as a management consultant with Arthur Andersen & Co., S.C. for
six years through 1988 specializing in wholesale and retail distribution and
technology.

    CHRISTOPHER YATES was appointed Senior Vice President -- Business
Development in February 1996 and served as Vice President -- Business
Development from November 1995 to February 1996, as a Director of the Company
since February 1995, as Vice President -- Marketing from January 1994 to
November 1995, as Vice President -- Sales from 1988 to 1994 and in various other
sales capacities for the Company since 1982. Prior to joining the Company, Mr.
Yates served in various sales capacities for ISA.

    JAMES R. POWELL has served as a Director and Senior Vice President -- Sales
and Marketing since 1996. Mr. Powell served as Vice President -- Sales from 1992
to 1996 and in various other sales capacities from 1988 to 1992. Prior to
joining the Company, Mr. Powell was engaged in various sales and marketing
activities.

    STEVEN GRAHAM has served as Senior Vice President of Information
Technologies and Chief Information Officer since 1996. Prior to joining the
Company, Mr. Graham was employed by Ingram Micro, a major microcomputer
distributor. Mr. Graham has over 23 years of experience in the
information-technology field.



                                      -39-
<PAGE>   40

    HARVEY H. ACHATZ serves as Vice President -- Administration and Secretary,
positions he has held since 1993 and 1984, respectively. Mr. Achatz served as
Vice President -- Finance from 1985 to 1993, as Controller from 1981 to 1985 and
as a Director from 1984 to 1990.

    THOMAS J. MADDEN was appointed Chief Financial Officer in July 1997 and
serves as Vice President -- Finance, Treasurer and as Chief Accounting Officer,
positions he has held since November 1994, March 1994 and 1992, respectively.
From 1992 to 1994 he also served as Controller. From 1983 to 1992, Mr. Madden
served in various capacities with Arthur Andersen & Co., S.C., including
financial consulting and audit manager. Mr. Madden is a certified public
accountant.

    PETER D. WHARF serves as Vice President -- International Operations, a
position he has held since February 1996. Mr. Wharf joined the Company in 1992
and has served in various export and international sales capacities since such
time. Prior to joining the Company, Mr. Wharf served in various sales capacities
for ISA.

    SUZANNE GARRETT was recently promoted to Vice President of Product
Management and Marketing and has served as new-products manager, marketing
manager, and director of product management and marketing. Prior to joining the
Company in 1991, Ms. Garrett served as an account executive for United Media.

    EDGAR D. JANNOTTA, JR. has served as a Director of the Company since 1991.
Mr. Jannotta is a Principal of GTCR Golder Rauner L.L.C.; an investment banking
firm he joined in 1998. Mr. Jannotta is also a director of Gibraltar Packaging
Group, Inc., a diversified packaging company, and several privately held
corporations.

    TIMOTHY M. MURRAY has served as a Director of the Company since 1991. Mr.
Murray is a Principal of William Blair & Company, L.L.C.; an investment banking
firm he joined in 1979. Mr. Murray is also a director of several privately held
corporations.

    PETER P. J. VIKANIS was appointed a Director of the Company during fiscal
year 1996. Mr. Vikanis served as Chief Operating Officer of ISA from 1991 to
1995, as a director of ISA from 1979 to 1995, and also served in various
management capacities at ISA from 1971 to 1991.

    Pursuant to the Company's Certificate of Incorporation, the Board of
Directors is divided into three classes. Each class serves three years, with the
terms of office of the respective classes expiring in successive years. Class I
consists of Messrs. Powell and Yates whose term will expire at the annual
meeting of stockholders in 1998. Messrs. Powell and Yates have been nominated by
the Board for election at the 1998 annual meeting. Class II consists of Messrs.
Murray and Layton whose terms will expire at the annual meeting of stockholders
in 1999; and Class III consists of Messrs. Heap, Janotta and Vikanis whose terms
will expire at the annual meeting of stockholders in 2000.

    Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers, directors and controlling stockholders to file initial
reports of ownership and reports of changes of ownership of the Company's Common
Stock with the Securities and Exchange Commission and the Company. To the
Company's knowledge, all reports required to be so filed were filed in
accordance with the provisions of said Section 16(a).




                                      -40-
<PAGE>   41


ITEM 11.  EXECUTIVE COMPENSATION

     The following table sets forth the compensation paid or accrued by the
Company to its Chief Executive Officer and to each of the four most highly
compensated executive officers for services rendered during fiscal years ended
March 31, 1998, 1997 and 1996.

<TABLE>
<CAPTION>

                           SUMMARY COMPENSATION TABLE
                                                                               LONG-TERM
                                                                             COMPENSATION
                                                                                AWARDS
                                                                             ------------
                                                                               NUMBER OF
                                             ANNUAL COMPENSATION              SECURITIES
                                  -------------------------------------       UNDERLYING         ALL OTHER
NAME AND PRINCIPLE POSITION       YEAR          SALARY           BONUS          OPTIONS       COMPENSATION (1)
-----------------------------     ----       ----------       ---------      ------------     ----------------

<S>                               <C>        <C>              <C>              <C>               <C>    
David A. Heap...............      1998       $  250,000       $ 201,897        151,554           $ 4,951
   Chairman                       1997          385,000         222,900         85,728             5,970
                                  1996          385,000         280,676         75,666             8,636

Mark C. Layton..............      1998          319,599         269,196        122,836             9,731
   President, Chief               1997          299,013         222,900         69,832             8,458
     Executive and Operating      1996          276,386         280,676         56,040             6,008
     Officer
Christopher Yates...........      1998          248,454          88,835         84,742             6,088
   Senior Vice President -        1997          232,200          73,557         41,120             5,004
     Business Development         1996          215,000          92,623         40,276             2,430

Steven Graham...............      1998          189,491          88,835         60,000            37,829
   Senior Vice President -        1997           78,268          32,439         50,000             5,610
     Information                  1996               --              --             --                --
     Technologies and Chief
     Information Officer

James R. Powell.............      1998          175,037          88,835         76,116             3,015
   Senior Vice President -        1997          163,652          73,557         42,660             3,715
     Sales and Marketing          1996          150,359          70,169         28,008             3,707
</TABLE>

-------------------- 
(1)      Represents compensation in respect of one or more
         of the following: personal use of Company automobiles; life insurance
         premiums paid by the Company for the benefit of the name executive
         officer; tax return preparation services paid by the Company; personal
         travel expenses; and relocation costs.

         The following table sets forth information with respect to grants of
stock options during the year ended March 31, 1998 to the name executive
officers reflected in the Summary Compensation Table:



                        OPTION GRANTS IN FISCAL YEAR 1998
<TABLE>
<CAPTION>

                                             INDIVIDUAL GRANTS
                            --------------------------------------------------
                                        % OF TOTAL                               POTENTIAL REALIZABLE VALUE
                            NUMBER OF     OPTIONS                                 AT ASSUMED ANNUAL RATES
                            SECURITIES  GRANTED TO                               OF STOCK PRICE APPRECIATION
                            UNDERLYING   EMPLOYEES      EXERCISE                  FOR OPTION TERMS (2) (3)
                            OPTIONS     IN FISCAL      PRICE PER   EXPIRATION    ---------------------------
         NAME                GRANTED       YEAR        SHARE (3)   DATE (1) (3)        5%            10%
-----------------------     ---------- ----------     -----------  ------------   ----------    ------------

<S>                          <C>           <C>         <C>          <C>  <C>    <C>            <C>        
David A. Heap..........      151,554       11.3%       $ 12.50      4-17-07     $ 1,191,394    $ 3,019,226
Mark C. Layton.........      122,836        9.2%         12.50      4-17-07         965,636     2,447,112
Christopher Yates......       84,742        6.3%         12.50      4-17-07         666,172     1,688,212
Steven Graham..........       60,000        4.5%         12.50      4-17-07         471,671     1,195,307
James R. Powell........       76,116        5.7%         12.50      4-17-07         598,362     1,516,366
</TABLE>

------------------
(1) All of such options are subject to a three-year cumulative vesting schedule.
(2) These are hypothetical values using assumed annual rates of stock price
    appreciation as prescribed by the rules of the Securities and Exchange
    Commission.


                                      -41-
<PAGE>   42


(3) The fiscal year 1997 option grants were cancelled in April 1997 and
    reissued at an exercise price per share of $12.50 (the fair market
    value on the date of reissue) and have a ten year term. All such
    options are subject to a three year cumulative vesting schedule and are
    included in the option grants in the table above.

     The following table sets forth information concerning the aggregate stock
option exercises during the fiscal year ended March 31, 1998 and stock option
values as of the end of fiscal year 1998 for unexercised stock options held by
each of the named executive officers:

                 AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1998
                        AND FISCAL YEAR END OPTION VALUES

<TABLE>
<CAPTION>

                                                            NUMBER OF
                            NUMBER OF                 SECURITIES UNDERLYING            VALUE OF UNEXERCISED
                             SHARES                    UNEXERCISED OPTIONS             IN-THE-MONEY OPTIONS
                            ACQUIRED                    AT FISCAL YEAR END            AT FISCAL YEAR END (1) (3)
                               ON         VALUE     ---------------------------     -----------------------------
         NAME               EXERCISE    RECEIVED    EXERCISABLE   UNEXERCISABLE     EXERCISABLE     UNEXERCISABLE
-----------------------     --------    ---------   -----------   -------------     -----------     -------------
                                           (2)

<S>                      <C>             <C>           <C>             <C>          <C>              <C>
David A. Heap..........           --   $       --      37,833        189,387         $ 553,308       $ 2,353,011
Mark C. Layton.........       91,532      987,401      19,614        150,856           286,855         1,868,470
Christopher Yates......      121,600    1,814,154      20,138        104,880           294,518         1,300,830
Steven Graham..........           --           --          --         60,000                --           712,500
James R. Powell........       21,856      275,947          --         90,120                --         1,108,686
</TABLE>

------------------
(1)      Calculated by determining the difference between $24 3/8 (the last sale
         price of the Common Stock on March 31, 1998 as reported by the Nasdaq
         National Market) and the exercise price of the shares of Common Stock
         underlying the options.
(2)      Calculated by determining the difference between the last sale price of
         the Common Stock on the date of exercise as reported by the Nasdaq
         National Market and the exercise price.
(3)      See footnote 3 above.

COMPENSATION OF DIRECTORS

     Each non-employee director receives an annual director's fee of $20,000 for
each year in which he or she serves as a director. Non-employee directors do not
receive additional Board or Committee meeting fees. The Company has also adopted
a Non-Employee Director Stock Option and Retainer Plan (the "Non-Employee
Director Plan") pursuant to which each non-employee director (i) may elect to
receive payment of the director's fees in shares of Common Stock in lieu of
cash, and (ii) is entitled to receive certain grants of options in accordance
with the formula, and subject to the conditions precedent, set forth therein.

     The Non-Employee Director Plan is a formula grant plan pursuant to which
each non-employee director receives options to purchase shares of Common Stock
as of the date of each annual meeting of stockholders. Under the terms of the
Non-Employee Director Plan, during fiscal year 1998, each of the Company's
non-employee directors received options to purchase 2,480 share of Common Stock
at an exercise price of $22 7/16 (the fair market value on the date of grant) as
of the date of the 1998 Annual Meeting. The number of options to be issued under
the Non-Employee Director Plan will increase each year based on the percentage
increase, if any, in the Company's earnings before taxes ("EBT") for such fiscal
year over the Company's EBT for the immediately preceding fiscal year. No
options will be issued, however, under the Non-Employee Director Plan with
respect to any fiscal year in which the company's EBT does not equal or exceed
the Company's projected EBT for such year, nor will any options be issued to any
non-employee director who does not attend at lease 75% of all Board (and
committee) meetings held during such fiscal year.

     All options issued under the Non-Employee Director Plan are non-qualified
options for federal income tax purposes and have an exercise price equal to the
fair market value of a share of common stock as of the date of the annual
meeting upon which such option is granted. All options are subject to a three
year cumulative vesting schedule.




                                      -42-
<PAGE>   43

     Directors who are employees of the Company or any of its subsidiaries do
not receive additional compensation for service on the Board of Directors.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     The current members of the Compensation Committee of the Company's Board of
Directors are Timothy M. Murray and Edgar D. Jannotta, Jr. who are non-employee
directors.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

    The following table sets forth as of May 9, 1998, certain information
regarding the beneficial ownership of the Common Stock by (i) each person who is
known to the Company to beneficially own more than 5% of the Common Stock, (ii)
each of the Directors and executive officers of the Company individually, (iii)
the Directors and executive officers of the Company as a group and (iv) the
Selling Stockholder. The information contained in this table reflects
"beneficial ownership" as defined in Rule 13d-3 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). Unless otherwise indicated, the
stockholders identified in this table have sole voting and investment power with
respect to the shares owned of record by them.

<TABLE>
<CAPTION>

                                                                     NUMBER
                  NAME AND ADDRESS OF BENEFICIAL OWNER              OF SHARES           PERCENT(1)
                  -------------------------------------             ---------           -------
<S>              <C>                                            <C>                    <C> 
                  David A. Heap(2)..........................        1,224,997              7.6%
                    500 North Central Expressway
                    Plano, Texas 75074
                  Royal Bank of Canada Trust Company 
                    (Jersey) Limited and Kenneth Edward 
                    Rayner, Trustees, of the David Heap 
                    Life Interest Settlement (No.
                    10)(3)..................................        1,169,346              7.3%
                    19-21 Broad Street
                    St. Helier, Jersey, Channel Islands
                  Robert Fleming Inc.(4)....................        1,053,910              6.6%
                    1285 Avenue of the Americas
                    New York, New York 10019
                  Amvescap Plc(5)...........................          915,600              5.7%
                    11 Devonshire Square
                    London, England
                  Mark C. Layton(6).........................          253,234               *
                  Christopher Yates(7)......................           52,987               *
                  Harvey H. Achatz(8).......................           59,484               *
                  James R. Powell(9)........................           14,004               *
                  Steven Graham(10).........................            9,000               *
                  Thomas J. Madden(11)......................           60,634               *
                  Edgar D. Jannotta, Jr.(12)................           39,179               *
                  Timothy M. Murray(13).....................           69,679               *
                  Peter P.J. Vikanis(14)....................            2,125               *
                  Suzanne Garrett(15).......................           12,186               *
                  Peter D. Wharf(16)........................           20,421               *
                  All directors and executive officers
                    as a group (11 persons)(17).............        1,817,930             11.3%

</TABLE>

----------
*    Represents less than 1%

     (1)  This table is based on 16,025,204 shares of Common Stock outstanding
          on May 9, 1998.


                                      -43-
<PAGE>   44


     (2)  Includes outstanding options to purchase 98,399 shares of Common
          Stock, which are fully vested and exercisable. Does not include (i)
          1,800 shares held by Mr. Heap's spouse as custodian for minor children
          as to which beneficial ownership is disclaimed, (ii) options to
          purchase 128,821 shares of Common Stock which are not vested or
          exercisable and (iii) 1,169,346 shares of Common Stock held of record
          by the trust set forth above (the "Heap Trust"). Although Mr. Heap and
          members of his family are the primary beneficiaries of the Heap Trust,
          neither Mr. Heap nor such beneficiaries have voting or investment
          power with respect to such shares. Of the shares owned of record by
          Mr. Heap, 222,099 are pledged to a financial institution to secure
          indebtedness owing by Mr. Heap to such institution.

     (3)  Shares are held of record by a Trust established by Mr. Heap for which
          he and members of his family are the primary beneficiaries, although
          neither Mr. Heap nor such beneficiaries may exercise voting or
          investment power with respect to such shares.

     (4)  Based upon a Schedule 13G dated February 19, 1998 filed by Robert
          Fleming Inc. reporting beneficial ownership and shared voting and
          dispositive power as of December 31, 1997.

     (5)  Based upon a Schedule 13G dated February 9, 1998 filed by Amvescap
          Plc, as parent holding company of Avz, Inc., AIM Management Group,
          Inc., Amvescap Group Services Inc., Invesco, Inc., and Invesco North
          American Holdings Inc., reporting beneficial ownership and shared
          voting and dispositive power as of December 31, 1997.

     (6)  Includes outstanding options to purchase 66,060 shares of Common
          Stock, which are fully vested and exercisable. Does not include
          outstanding options to purchase 104,410 shares of Common Stock, which
          are not vested or exercisable.

     (7)  Includes outstanding options to purchase 52,987 shares of Common
          Stock, which are fully vested and exercisable. Does not include
          outstanding options to purchase 72,031 shares of Common Stock, which
          are not vested or exercisable.

     (8)  Includes outstanding options to purchase 59,484 shares of Common
          Stock, which are fully vested and exercisable. Does not include
          outstanding options to purchase 6,374 shares of Common Stock, which
          are not vested or exercisable.

     (9)  Includes outstanding options to purchase 14,004 shares of Common
          Stock, which are fully vested and exercisable. Does not include
          outstanding options to purchase 64,699 shares of Common Stock, which
          are not vested or exercisable.

     (10) Includes outstanding options to purchase 9,000 shares of Common Stock,
          which are fully vested and exercisable. Does not include outstanding
          options to purchase 51,000 shares of Common Stock, which are not
          vested or exercisable.

     (11) Includes outstanding options to purchase 39,184 shares of Common
          Stock, which are fully vested and exercisable. Does not include
          outstanding options to purchase 51,298 shares of Common Stock, which
          are not vested or exercisable.

     (12) Includes outstanding options to purchase 300 shares of Common Stock,
          which are fully vested and exercisable. Does not include outstanding
          options to purchase 4,180 shares of Common Stock, which are not vested
          or exercisable.

     (13) Includes outstanding options to purchase 300 shares of Common Stock,
          which are fully vested and exercisable. Does not include outstanding
          options to purchase 4,180 shares of Common Stock, which are not vested
          or exercisable.




                                      -44-
<PAGE>   45

     (14) Includes outstanding options to purchase 300 shares of Common Stock,
          which are fully vested and exercisable. Does not include outstanding
          options to purchase 4,180 shares of Common Stock, which are not vested
          or exercisable.

     (15) Includes outstanding options to purchase 12,186 shares of Common
          Stock, which are fully vested and exercisable. Does not include
          outstanding options to purchase 29,432 shares of Common Stock, which
          are not vested or exercisable.

     (16) Includes outstanding options to purchase 20,421 shares of Common
          Stock, which are fully vested and exercisable. Does not include
          outstanding options to purchase 41,091 shares of Common Stock, which
          are not vested or exercisable.

     (17) Includes outstanding options to purchase 372,625 shares of Common
          Stock, which are fully vested and exercisable. Does not include (i)
          outstanding options to purchase 561,696 shares of Common Stock which
          are not vested or exercisable or (ii) shares of Common Stock held by
          the Heap Trust.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

      CERTAIN TRANSACTIONS

      During fiscal year 1998, the Company made loans in varying amounts to
Messrs. Layton, Powell and Wharf in order to provide such persons with the funds
necessary to satisfy various personal obligations and for other purposes. The
largest amount owing by such persons during fiscal year 1998 was $458,684,
$186,440 and $61,956, respectively. Mr. Wharf repaid in full his indebtedness to
the Company prior to March 31, 1998. As of March 31, 1998, Messrs. Layton and
Powell were indebted to the Company in the amount $458,684 and $186,440,
respectively.  The indebtedness owing by such persons accrues interest at the
rate charged to the Company for working capital borrowings. Messrs. Layton's and
Powell's indebtedness is due and payable in one installment on March 31, 1999.

      David Heap, the Company's Chairman of the Board, owned approximately a
one-third equity interest in a small computer supplies dealer, Business Software
Centers, Inc. ("BSC"). In December 1991, Mr. Heap agreed to remit to the Company
any dividends, distributions or other amounts which he may receive in respect of
such interest. Mr. Heap has not received any dividends, distributions or other
amounts in respect of his equity interest. During fiscal year 1998, Mr. Heap
sold all of his remaining equity interest and no longer retains an equity
interest in BSC.

      During fiscal year 1998, the Company's sales to BSC during the period of
the year that Mr. Heap owned an equity interest in BSC aggregated approximately
$537,000 and contributed less than 1% of the Company's total sales in such
fiscal year. Such sales were made in accordance with the Company's usual terms,
except that BSC received extended payment terms in return for which BSC agreed,
among other things, to provide the Company with quarterly financial information.

      In April 1997, the Company entered into a one-year aircraft lease with a
company owned by Mr. Heap under which the Company, on a non-exclusive basis,
leases an aircraft from such company. The lease was terminable by either party
at any time. During fiscal year 1998, the Company incurred approximately
$342,000 in lease payments and reimbursement of certain operating costs relating
to this aircraft lease. The aircraft lease was terminated on March 31, 1998.


                                     PART IV

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

         (a) The following documents are filed as part of this report:

1.    Financial Statements

Report of Independent Public Accountants

Consolidated Balance Sheets as of March 31, 1998 and 1997

Consolidated Statements of Income for the Fiscal Years Ended March 31, 1998,
1997 and 1996

Consolidated Statements of Shareholders' Equity for the Fiscal Years Ended March
31, 1998, 1997 and 1996

Consolidated Statements of Cash Flows for the Fiscal Years Ended March 31, 1998,
1997 and 1996

Notes to Consolidated Financial Statements

2.    Financial Statements Schedules

Report of Independent Public Accountants

Schedule II - Valuation and Qualifying Accounts

         All other schedules are omitted because the required information
is not present in amounts sufficient to require submission of the schedule or
because the information required is included in the financial statements or
notes thereto.

3.    Exhibits

Exhibit
   No.                            Description of Exhibit

3.1(7)   - Amended and Restated Certificate of Incorporation of Daisytek
           International Corporation.


                                      -45-
<PAGE>   46



3.1.1(7) - Certificate of Amendment of Amended and Restated Certificate of
           Incorporation of Daisytek International Corporation. 
3.2(1)   - Amended and Restated By-laws of Daisytek International Corporation.
10.1(2)  - Employee Stock Option Plan of Daisytek International Corporation.
10.2(2)  - 1994 Stock Option Plan of Daisytek International Corporation. 
10.3(7)  - Non-Employee Director Stock Option and Retainer Plan.
10.4(10) - 1997 Employee Stock Option Plan of Daisytek International
           Corporation.
10.5(3)  - Credit Agreement dated May 22, 1995, Daisytek, Incorporated, as
           Borrower, Daisytek International Corporation and Borrower's 
           Subsidiaries, as Guarantors, Texas Commerce Bank National 
           Association, as Agent, and Texas Commerce Bank National Association 
           and State Street bank and Trust Company, as Lenders.
10.5.1(8)- First Amendment to Credit Agreement dated April 15, 1996 between
           Daisytek, Incorporated, as Borrower, Daisytek International 
           Corporation and Borrower's Subsidiaries, as Guarantors, and Texas 
           Commerce Bank National Association and State Street Bank and Trust 
           Company, as Lenders.
10.5.2(9)- Second Amendment to Credit Agreement dated November 14, 1996 between
           Daisytek, Incorporated, as Borrower, Daisytek International 
           Corporation and Borrower's Subsidiaries, as Guarantors, and Texas 
           Commerce Bank National Association, NBD Bank, and State Street bank 
           and Trust Company, as Lenders.
10.6(2)  - Industrial Lease Agreement between Industrial Developments
           International, Inc. and Daisytek, Incorporated, as amended.
10.7(2)  - Lease Agreement dated September 30, 1991 between AmWest Savings
           Association and Daisytek, Incorporated, as amended.
10.8(2)  - Lease dated October 28, 1994 between Robco Enterprises, Ltd., Yen
           Hoy Enterprises Ltd., George Yen and Daisytek (Canada) Inc.
10.9(4)  - Lease dated June 1, 1995 between GPM Real Property (6) Ltd. and Endow
           (6) Inc. and Daisytek (Canada) Inc.
10.10(2) - Lease Agreement dated December 30, 1998 between Daisytek,
           Incorporated and State Street Bank and Trust Company.
10.11(2) - Term Lease master Agreement dated November 29, 1990 between IBM
           Credit Corporation and Daisytek, Incorporated.
10.12(10)- U.S. Reseller Agreement dated March 10, 1997 between Hewlett-Packard
           Company and Daisytek, Incorporated, with Addendum.
10.13(2) - Lease dated July 4, 1994 between Fraccionadora Industrial Del Norte,
           S.A. De C.V. and Daisytek De Mexico, S.A. De C.V.
10.14(2) - Marketing Advantage Program Enrollment Agreement dated November 11,
           1994 between Federal Express Corporation and Daisytek, Incorporated.
10.15(5) - Lease Agreement dated May 22, 1995 between New World Partners Joint
           Number Three and Daisytek and Daisytek Latin America, Inc.
10.16(10)- Forward Exchange Contact dated May 22, 1997 between Daisytek and
           Texas Commerce Bank National Association.
10.17(6) - Option to Purchase Shares of Common Stock dated May 9, 1995 between
           Daisytek International Corporation and David A. Heap.
10.18(6) - Option to Purchase Shares of Common Stock dated May 9, 1995 between
           Daisytek International Corporation and Mark C. Layton.
10.19(6) - Second Amendment to Industrial Lease Agreement between New York Life
           Insurance Company and Daisytek, Incorporated.
10.20(6) - Agreement dated December 19, 1995 between Diesel Recon Company and
           Daisytek, Incorporated.
10.21(6) - Sixth Modification to Lease Agreement dated November 30, 1995 between
           Atrium Association, L.P. and Daisytek, Incorporated.
10.22(10)- Option to Purchase Shares of Common Stock dated April 17, 1997
           between Daisytek International Corporation and David A.Heap.

                                      -46-
<PAGE>   47

10.23(10)- Option to Purchase Shares of Common Stock dated April 17, 1997
           between Daisytek International Corporation and Steve Graham.
10.24(10)- Option to Purchase Shares of Common Stock dated April 17, 1997
           between Daisytek International Corporation and Peter Vikanis.
10.25(10)- Option to Purchase Shares of Common Stock dated April 17, 1997
           between Daisytek International Corporation and Timothy Murray.
10.26(10)- Option to Purchase Shares of Common Stock dated April 17, 1997
           between Daisytek International Corporation and Edgar D. Jannotta, Jr.
10.27(11)- Third Amendment to Credit Agreement dated June 30, 1997 between
           Daisytek, Incorporated, as Borrower, Daisytek International 
           Corporation and Borrower's Subsidiaries, as Guarantors, and State 
           Street Bank and Trust Company, The First National Bank of Chicago, 
           and Texas Commerce Bank National Association, as Lenders.
10.28(12)- Lease Amending Agreement dated September 5, 1997 to Lease Agreement
           dated June 1, 1995 between GPM Real Property (6) Ltd. and Endow (6)
           Inc. and Daisytek (Canada) Inc.
10.29(12)- Lease Agreement dated October 21, 1997 between G.T.W. International
           PTE LTD and Daisytek Asia PTE LTD.
10.30(12)- Committed Credit Facility Agreement dated October 22, 1997 between
           Daisytek Australia PTY LTD, as Borrower, Daisytek International 
           Corporation and Daisytek, Inc., as Guarantors, and The First 
           National Bank of Chicago, as Lender.
10.31(12)- Fourth Amendment to Credit Agreement dated December 11, 1997 between
           Daisytek, Incorporated, as Borrower, Daisytek International 
           Corporation and Borrower's Subsidiaries, as Guarantors, and State 
           Street Bank and Trust Company, The First National Bank of Chicago, 
           and Texas Commerce Bank National Association, as Lenders.
10.32(12)- Revolving Credit and Foreign Exchange Facility Agreement dated
           December 31, 1997 between Daisytek (Canada) Inc., as Borrower, 
           Daisytek, Inc., as Guarantor, and First Chicago NBD Bank, Canada, 
           as Lender.
10.33(*) - Stock Purchase Agreement by and among the Stockholders of
           Steadi-Systems, Ltd., Daisytek, Incorporated, and Daisytek 
           International Corporation dated January 5, 1998.
10.34(*) - Fifth Amendment to Credit Agreement dated February 13, 1998 between
           Daisytek, Incorporated, as Borrower, Daisytek International 
           Corporation and Borrower's Subsidiaries, as Guarantors, and State 
           Street Bank and Trust Company, The First National Bank of Chicago, 
           and Chase Bank of Texas, N.A., as Lenders.
11(*)    - Statement re: computation of per share earnings.
21(*)    - Subsidiaries of the Registrant.
23(*)    - Consents.
27(*)    - Financial Data Schedule. 

-----------
(*)      Filed herewith.

(1)      Incorporated by reference from Quarterly Report on Form 10-Q for the
         Quarterly Period Ended December 31, 1994 dated March 10, 1995.
(2)      Incorporated by reference from Registration Statement on Form S-1 No.
         33-86926.
(3)      Incorporated by reference from Current Report on Form 8-K dated May 22,
         1995.
(4)      Incorporated by reference from Annual Report on Form 10-K for the 
         Fiscal Year ended March 31, 1995 dated June 23, 1995.
(5)      Incorporated by reference from Current Report on Form 8-K dated 
         August 22, 1995.
(6)      Incorporated by reference from Registration Statement on Form S-1 No.
         33-99796.
(7)      Incorporated by reference from Annual Report on Form 10-K for the 
         Fiscal Year ended March 31, 1996 dated June 26, 1996.
(8)      Incorporated by reference from Quarterly Report on Form 10-Q for the
         Quarterly Period Ended June 30, 1996 dated August 13, 1996.



                                      -47-
<PAGE>   48


(9)      Incorporated by reference from Quarterly Report on Form 10-Q for the
         Quarterly Period Ended December 31, 1996 dated February 13, 1997.
(10)     Incorporated by reference from Annual Report on Form 10-K for the 
         Fiscal Year ended March 31, 1997 dated June 27, 1997.
(11)     Incorporated by reference from Quarterly Report on Form 10-Q for the
         Quarterly Period Ended June 30, 1997 dated August 14, 1997.
(12)     Incorporated by reference from Quarterly Report on Form 10-Q for the
         Quarterly Period Ended December 31, 1997 dated February 17, 1998.

         (b)   Reports on Form 8-K
                  1.  On January 28, 1998, the Company filed a Current Report on
                      Form 8-K to report under Item 5 the Company's press
                      release dated January 28, 1998 announcing third quarter
                      results.
                  2.  On February 9, 1998, the Company filed a Current Report on
                      Form 8-K to report under Item 5 the Company's press
                      release dated February 9, 1998 announcing a two for one
                      stock split.
                  3.  On March 26, 1996, the Company filed a Current Report on
                      Form 8-K to report under Item 5 the Company's Underwriting
                      Agreement dated March 26, 1998 for the sale of 3,300,000
                      shares of Common Stock.




                                      -48-
<PAGE>   49




                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To the Shareholders of Daisytek International Corporation:

         We have audited, in accordance with generally accepted auditing
standards, the consolidated financial statements of Daisytek International
Corporation (a Delaware corporation) and subsidiaries included in this Form 10-K
and have issued our report thereon dated May 5, 1998. Our audits were made for
the purpose of forming an opinion on the basic consolidated financial statements
taken as a whole. Schedule II of this Form 10-K is the responsibility of the
Company's management and is presented for the purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
consolidated financial statements. This schedule has been subjected to the
auditing procedures applied in the audits of the basic consolidated financial
statements and, in our opinion, fairly states in all material respects, the
financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.


                                                            ARTHUR ANDERSEN LLP

Dallas, Texas
May 5, 1998



                                      -49-
<PAGE>   50


                                                                    SCHEDULE II

               DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES

                        VALUATION AND QUALIFYING ACCOUNTS
                    FOR THE THREE YEARS ENDED MARCH 31, 1998
                             (AMOUNTS IN THOUSANDS)


<TABLE>
<CAPTION>


                                                                      ADDITIONS
                                                              -----------------------
                                                BALANCE AT    CHARGES TO   CHARGES TO               BALANCE AT
                                                BEGINNING      COST AND      OTHER                    END OF 
                                                OF PERIOD      EXPENSES     ACCOUNTS  DEDUCTIONS      PERIOD
                                                ---------     ---------    ---------- ----------      ------

<S>                                           <C>               <C>                <C>          <C>     
Fiscal Year Ended March 31, 1996:

   Allowance for doubtful accounts...........    $   1,535         999         --       (776)        $  1,758

   Income tax valuation allowance............    $     378           8         --         --         $    386


Fiscal Year Ended March 31, 1997:

   Allowance for doubtful accounts...........    $   1,758       1,594         --       (992)        $  2,360

   Income tax valuation allowance............    $     386          --         --       (123)        $    263


Fiscal Year Ended March 31, 1998:

   Allowance for doubtful accounts...........    $   2,360       1,936         --     (1,641)        $  2,655

     
   Income tax valuation allowance............    $     263          48         --         --         $    311

</TABLE>



                                      -50-
<PAGE>   51


                                   SIGNATURES


       Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                             DAISYTEK INTERNATIONAL CORPORATION

                                      By:  /s/ Thomas J. Madden
                                         --------------------------------------
                                      Thomas J. Madden, Chief Financial Officer
                                      and Vice President - Finance

May 29, 1998

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

<TABLE>
<CAPTION>

                    Signature                                   Title                            Date
                    ---------                                   -----                            ----

<S>                                                      <C>                                 <C> 
         /s/ David A. Heap                                Chairman of the Board               May 29, 1998
         -------------------------
         David A. Heap

         /s/ Mark C. Layton                               Chief Executive and Operating       May 29, 1998
         -------------------------                        Officer, President and Director
         Mark C. Layton                                   (principal executive officer)
                                                          

         /s/ Thomas J. Madden                             Chief Financial Officer, Vice       May 29, 1998
         -------------------------
         Thomas J. Madden                                 President - Finance
                                                          (principal financial and
                                                          accounting officer)

         /s/ Christopher Yates                            Director                            May 29, 1998
         -------------------------
         Christopher Yates

         /s/ James R. Powell                              Director                            May 29, 1998
         -------------------------
         James R. Powell

         /s/ Timothy M. Murray                            Director                            May 29, 1998
         -------------------------
         Timothy M. Murray

         /s/ Edgar D. Jannotta, Jr.                       Director                            May 29, 1998
         -------------------------
         Edgar D. Jannotta, Jr.

         /s/ Peter P. J. Vikanis                          Director                            May 29, 1998
         -------------------------
         Peter P. J. Vikanis

</TABLE>



                                      -51-
<PAGE>   52

                                EXHIBIT INDEX


<TABLE>
<CAPTION>

Exhibit
   No.                            Description of Exhibit
-------                           ----------------------
<S>      <C>                                                             
3.1(7)   - Amended and Restated Certificate of Incorporation of Daisytek
           International Corporation.
3.1.1(7) - Certificate of Amendment of Amended and Restated Certificate of
           Incorporation of Daisytek International Corporation. 
3.2(1)   - Amended and Restated By-laws of Daisytek International Corporation.
10.1(2)  - Employee Stock Option Plan of Daisytek International Corporation.
10.2(2)  - 1994 Stock Option Plan of Daisytek International Corporation. 
10.3(7)  - Non-Employee Director Stock Option and Retainer Plan.
10.4(10) - 1997 Employee Stock Option Plan of Daisytek International
           Corporation.
10.5(3)  - Credit Agreement dated May 22, 1995, Daisytek, Incorporated, as
           Borrower, Daisytek International Corporation and Borrower's 
           Subsidiaries, as Guarantors, Texas Commerce Bank National 
           Association, as Agent, and Texas Commerce Bank National Association 
           and State Street bank and Trust Company, as Lenders.
10.5.1(8)- First Amendment to Credit Agreement dated April 15, 1996 between
           Daisytek, Incorporated, as Borrower, Daisytek International 
           Corporation and Borrower's Subsidiaries, as Guarantors, and Texas 
           Commerce Bank National Association and State Street Bank and Trust 
           Company, as Lenders.
10.5.2(9)- Second Amendment to Credit Agreement dated November 14, 1996 between
           Daisytek, Incorporated, as Borrower, Daisytek International 
           Corporation and Borrower's Subsidiaries, as Guarantors, and Texas 
           Commerce Bank National Association, NBD Bank, and State Street bank 
           and Trust Company, as Lenders.
10.6(2)  - Industrial Lease Agreement between Industrial Developments
           International, Inc. and Daisytek, Incorporated, as amended.
10.7(2)  - Lease Agreement dated September 30, 1991 between AmWest Savings
           Association and Daisytek, Incorporated, as amended.
10.8(2)  - Lease dated October 28, 1994 between Robco Enterprises, Ltd., Yen
           Hoy Enterprises Ltd., George Yen and Daisytek (Canada) Inc.
10.9(4)  - Lease dated June 1, 1995 between GPM Real Property (6) Ltd. and Endow
           (6) Inc. and Daisytek (Canada) Inc.
10.10(2) - Lease Agreement dated December 30, 1998 between Daisytek,
           Incorporated and State Street Bank and Trust Company.
10.11(2) - Term Lease master Agreement dated November 29, 1990 between IBM
           Credit Corporation and Daisytek, Incorporated.
10.12(10)- U.S. Reseller Agreement dated March 10, 1997 between Hewlett-Packard
           Company and Daisytek, Incorporated, with Addendum.
10.13(2) - Lease dated July 4, 1994 between Fraccionadora Industrial Del Norte,
           S.A. De C.V. and Daisytek De Mexico, S.A. De C.V.
10.14(2) - Marketing Advantage Program Enrollment Agreement dated November 11,
           1994 between Federal Express Corporation and Daisytek, Incorporated.
10.15(5) - Lease Agreement dated May 22, 1995 between New World Partners Joint
           Number Three and Daisytek and Daisytek Latin America, Inc.
10.16(10)- Forward Exchange Contact dated May 22, 1997 between Daisytek and
           Texas Commerce Bank National Association.
10.17(6) - Option to Purchase Shares of Common Stock dated May 9, 1995 between
           Daisytek International Corporation and David A. Heap.
10.18(6) - Option to Purchase Shares of Common Stock dated May 9, 1995 between
           Daisytek International Corporation and Mark C. Layton.
10.19(6) - Second Amendment to Industrial Lease Agreement between New York Life
           Insurance Company and Daisytek, Incorporated.
10.20(6) - Agreement dated December 19, 1995 between Diesel Recon Company and
           Daisytek, Incorporated.
10.21(6) - Sixth Modification to Lease Agreement dated November 30, 1995 between
           Atrium Association, L.P. and Daisytek, Incorporated.
10.22(10)- Option to Purchase Shares of Common Stock dated April 17, 1997
           between Daisytek International Corporation and David A.Heap.
</TABLE>

<PAGE>   53

<TABLE>
<CAPTION>

<S>        <C>
10.23(10)- Option to Purchase Shares of Common Stock dated April 17, 1997
           between Daisytek International Corporation and Steve Graham.
10.24(10)- Option to Purchase Shares of Common Stock dated April 17, 1997
           between Daisytek International Corporation and Peter Vikanis.
10.25(10)- Option to Purchase Shares of Common Stock dated April 17, 1997
           between Daisytek International Corporation and Timothy Murray.
10.26(10)- Option to Purchase Shares of Common Stock dated April 17, 1997
           between Daisytek International Corporation and Edgar D. Jannotta, Jr.
10.27(11)- Third Amendment to Credit Agreement dated June 30, 1997 between
           Daisytek, Incorporated, as Borrower, Daisytek International 
           Corporation and Borrower's Subsidiaries, as Guarantors, and State 
           Street Bank and Trust Company, The First National Bank of Chicago, 
           and Texas Commerce Bank National Association, as Lenders.
10.28(12)- Lease Amending Agreement dated September 5, 1997 to Lease Agreement
           dated June 1, 1995 between GPM Real Property (6) Ltd. and Endow (6)
           Inc. and Daisytek (Canada) Inc.
10.29(12)- Lease Agreement dated October 21, 1997 between G.T.W. International
           PTE LTD and Daisytek Asia PTE LTD.
10.30(12)- Committed Credit Facility Agreement dated October 22, 1997 between
           Daisytek Australia PTY LTD, as Borrower, Daisytek International 
           Corporation and Daisytek, Inc., as Guarantors, and The First 
           National Bank of Chicago, as Lender.
10.31(12)- Fourth Amendment to Credit Agreement dated December 11, 1997 between
           Daisytek, Incorporated, as Borrower, Daisytek International 
           Corporation and Borrower's Subsidiaries, as Guarantors, and State 
           Street Bank and Trust Company, The First National Bank of Chicago, 
           and Texas Commerce Bank National Association, as Lenders.
10.32(12)- Revolving Credit and Foreign Exchange Facility Agreement dated
           December 31, 1997 between Daisytek (Canada) Inc., as Borrower, 
           Daisytek, Inc., as Guarantor, and First Chicago NBD Bank, Canada, 
           as Lender.
10.33(*) - Stock Purchase Agreement by and among the Stockholders of
           Steadi-Systems, Ltd., Daisytek, Incorporated and Daisytek 
           International Corporation dated January 5, 1998.
10.34(*) - Fifth Amendment to Credit Agreement dated February 13, 1998 between
           Daisytek, Incorporated, as Borrower, Daisytek International 
           Corporation and Borrower's Subsidiaries, as Guarantors, and State 
           Street Bank and Trust Company, The First National Bank of Chicago, 
           and Chase Bank of Texas, N.A., as Lenders.
11(*)    - Statement re computation of per share earnings.
21(*)    - Subsidiaries of the Registrant.
23(*)    - Consents.
27(*)    - Financial Data Schedule. 
</TABLE>

-----------
(*)      Filed herewith

(1)      Incorporated by reference from Quarterly Report on Form 10-Q for the
         Quarterly Period Ended December 31, 1994 dated March 10, 1995.
(2)      Incorporated by reference from Registration Statement on Form S-1 No.
         33-86926.
(3)      Incorporated by reference from Current Report on Form 8-K dated May 22,
         1995.
(4)      Incorporated by reference from Annual Report on Form 10-K for the 
         Fiscal Year ended March 31, 1995 dated June 23, 1995.
(5)      Incorporated by reference from Current Report on Form 8-K dated 
         August 22, 1995.
(6)      Incorporated by reference from Registration Statement on Form S-1 No.
         33-99796.
(7)      Incorporated by reference from Annual Report on Form 10-K for the 
         Fiscal Year ended March 31, 1996 dated June 26, 1996.
(8)      Incorporated by reference from Quarterly Report on Form 10-Q for the
         Quarterly Period Ended June 30, 1996 dated August 13, 1996.
(9)      Incorporated by reference from Quarterly Report on Form 10-Q for the
         Quarterly Period Ended December 31, 1996 dated February 13, 1997.
(10)     Incorporated by reference from Annual Report on Form 10-K for the 
         Fiscal Year ended March 31, 1997 dated June 27, 1997.
(11)     Incorporated by reference from Quarterly Report on Form 10-Q for the
         Quarterly Period Ended June 30, 1997 dated August 14, 1997.
(12)     Incorporated by reference from Quarterly Report on Form 10-Q for the
         Quarterly Period Ended December 31, 1997 dated February 17, 1998.