<PAGE>   1
                                   FORM 10-Q

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



             [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                For the Quarterly Period Ended December 31, 1998

                                       OR

             [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

               For the Transition Period from _______ to _______

                         Commission File Number 0-25400

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


       DELAWARE                                             75-2421746
 ----------------------                               ------------------------
(State of Incorporation)                             (I.R.S. Employer I.D. No.)

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


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

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

                                    Yes  X     No
                                        ----       ----

At February 8, 1999 there were 17,145,524 shares of registrant's common stock
outstanding.

<PAGE>   2

              DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
                                   FORM 10-Q
                               DECEMBER 31, 1998

                                     INDEX

<TABLE>
<CAPTION>
PART I.     FINANCIAL INFORMATION                                    PAGE NUMBER
<S>   <C>                                                                   <C>
      Item 1.  Financial Statements:
                  Unaudited Consolidated Balance Sheets as of 
                     December 31, 1998 and March 31, 1998.................   3

                  Unaudited Interim Consolidated Statements of Income for 
                        the Three and Nine Months Ended December 31, 1998 
                        and 1997 .........................................   5

                  Unaudited Interim Consolidated Statements of Cash Flows 
                        for the Nine Months Ended December 31, 1998 and 
                        1997..............................................   6

                  Notes to Unaudited Interim Condensed Consolidated
                        Financial Statements.............................    7

      Item 2.  Management's Discussion and Analysis of Financial
                  Condition and Results of Operations ...................   17

      Item 4.  Submission of Matters to a Vote of Security Holders.......   25

PART II.    OTHER INFORMATION

      Item 6.  Exhibits and Reports on Form 8-K .........................   25


SIGNATURES            ...................................................   26
</TABLE>



                                       2
<PAGE>   3

PART I.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS


              DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES

                     UNAUDITED CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)


                                     ASSETS

<TABLE>
<CAPTION>
                                                                          December 31,    March 31,
                                                                             1998         1998 (a)
                                                                          ------------    --------- 
<S>                                                                        <C>           <C>
CURRENT ASSETS:
    Cash                                                                   $     499      $   2,087
    Accounts receivable, net of allowance for doubtful accounts of
       $2,600 and $2,765 at December 31, 1998 and March 31, 1998,
       respectively                                                          127,237        127,563

    Inventories, net:
        Inventories, excluding Priority Fulfillment Services Division         80,977         81,956
        Inventories, Priority Fulfillment Services Division                   34,359         11,634

    Prepaid expenses and other current assets                                  4,282          3,944
                                                                           ---------      ---------
                  Total current assets                                       247,354        227,184
                                                                           ---------      ---------

PROPERTY AND EQUIPMENT, at cost:
    Furniture, fixtures and equipment                                         34,141         28,391
    Leasehold improvements                                                     2,349          1,907
                                                                           ---------      ---------
                                                                              36,490         30,298
    Less - Accumulated depreciation and amortization                         (19,172)       (15,025)
                                                                           ---------      ---------
                  Net property and equipment                                  17,318         15,273

EMPLOYEE RECEIVABLE                                                              478            459

OTHER ASSETS                                                                   9,393             --

EXCESS OF COST OVER NET ASSETS ACQUIRED,
    net of accumulated amortization of $1,459 and $931 at December 31,
    1998 and  March 31, 1998, respectively                                    17,139         14,929
                                                                           ---------      ---------

                  Total assets                                             $ 291,682      $ 257,845
                                                                           =========      =========
</TABLE>

----------------------
(a)  Retroactively restated to combine the financial positions of Daisytek
     International Corporation ("Daisytek") with The Tape Company, Inc. ("The
     Tape Company"), which was acquired by Daisytek during June 1998 and
     accounted for as a pooling of interests. (see Footnotes 1 and 3 of these
     Interim Unaudited Consolidated Financial Statements).


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


                                       3
<PAGE>   4

              DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES

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

                      LIABILITIES AND SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                          December 31,     March 31,
                                                                             1998          1998 (a)
                                                                          ------------     --------- 
<S>                                                                        <C>           <C>
CURRENT LIABILITIES:
    Current portion of long-term debt                                       $     135      $   3,010
    Trade accounts payable                                                     86,905         87,390
    Accrued expenses                                                            8,551          9,768
    Income taxes payable                                                           77          1,484
    Deferred income tax liability                                               1,356          1,546
                                                                            ---------      ---------
                  Total current liabilities                                    97,024        103,198
                                                                            ---------      ---------

LONG-TERM DEBT, less current portion                                           41,043         16,916
                                                                            ---------      ---------

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY:
    Preferred stock, $1.00 par value; 1,000,000 shares authorized
        at December 31, 1998 and March 31, 1998; none issued
        and outstanding                                                            --             --
    Common stock, $0.01 par value; 30,000,000 and 20,000,000 shares
      authorized at December 31, 1998 and March 31, 1998, respectively;
      17,145,524 and 16,935,896 shares issued and outstanding at
      December 31, 1998 and March 31, 1998, respectively 
                                                                                  171            169
    Additional paid-in capital                                                 91,552         89,879
    Retained earnings                                                          64,206         49,614
    Cumulative foreign currency translation adjustment                         (2,314)        (1,931)
                                                                            ---------      ---------
                  Total shareholders' equity                                  153,615        137,731
                                                                            ---------      ---------

                  Total liabilities and shareholders' equity                $ 291,682      $ 257,845
                                                                            =========      =========
</TABLE>

----------------------
(a)  Retroactively restated to combine the financial positions of Daisytek with
     The Tape Company, which was acquired by Daisytek during June 1998 and
     accounted for as a pooling of interests. (see Footnotes 1 and 3 of these
     Interim Unaudited Consolidated Financial Statements).


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


                                       4
<PAGE>   5
              DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES

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

<TABLE>
<CAPTION>
                                                             Three Months Ended         Nine Months Ended
                                                                December 31,              December 31,
                                                         ------------------------    -------------------------
                                                           1998         1997 (a)       1998          1997 (a)
                                                         -------       ----------    --------       ----------
<S>                                                    <C>           <C>            <C>            <C>
Net sales                                               $ 225,507     $ 197,775      $ 668,247      $ 570,612
Cost of sales                                             198,721       176,407        588,211        509,295
                                                        ---------     ---------      ---------      ---------
              Gross profit                                 26,786        21,368         80,036         61,317
Selling, general and administrative expenses               17,877        13,641         51,970         39,257
Acquisition and acquisition integration costs                 197            --            732             --
                                                        ---------     ---------      ---------      ---------
              Income from operations                        8,712         7,727         27,334         22,060
Interest expense                                              617           681          2,258          1,927
                                                        ---------     ---------      ---------      ---------
              Income before income taxes                    8,095         7,046         25,076         20,133
Provision for income taxes                                  3,159         2,622          9,511          7,462
                                                        ---------     ---------      ---------      ---------
              Net income                                $   4,936     $   4,424      $  15,565      $  12,671
                                                        =========     =========      =========      =========

Net income per common share:
              Basic                                     $    0.29     $    0.30      $    0.91      $    0.87
              Diluted                                   $    0.28     $    0.29      $    0.88      $    0.83

Pro forma data (b):
    Net income                                          $   4,936     $   4,424      $  15,565      $  12,671
    Pro forma adjustments:
              Provision for income taxes                       --           (79)          (291)          (253)
              Acquisition related costs, net of tax            --            --            246             --
                                                        ---------     ---------      ---------      ---------
    Pro forma net income                                $   4,936     $   4,345      $  15,520      $  12,418
                                                        =========     =========      =========      =========
    Pro forma net income per common share:
              Basic                                     $    0.29     $    0.30      $    0.91      $    0.86
              Diluted                                   $    0.28     $    0.28      $    0.88      $    0.82

Weighted average common and
    common share equivalents outstanding:
              Basic                                        17,140        14,607         17,083         14,505
              Diluted                                      17,572        15,283         17,734         15,235
</TABLE>

-----------------------
(a)  Retroactively restated to combine the results of operations of Daisytek
     with The Tape Company, which was acquired by Daisytek during June 1998 and
     accounted for as a pooling of interests. (see Footnotes 1 and 3 of these
     Interim Unaudited Consolidated Financial Statements).

(b)  Pro forma data includes the following adjustments: (1) The Tape Company
     included a business unit organized as a subchapter S corporation, whereby
     income taxes were paid individually by the owners. The pro forma provision
     for income tax adjustment is provided to reflect income tax under a
     corporate tax structure; (2) Daisytek incurred various acquisition related
     accounting, legal and other costs applicable to the acquisition of The
     Tape Company. The pro forma adjustment for acquisition related costs, net
     of tax, excludes such costs from pro forma net income for the nine months
     ended December 31, 1998.


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

                                       5
<PAGE>   6

              DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES

            UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                          Nine Months Ended
                                                                            December 31,
                                                                      --------------------------
                                                                        1998            1997(a)
                                                                      --------        ----------
<S>                                                                   <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income                                                        $   15,565       $  12,671
    Adjustments to reconcile net income to net cash
       provided by (used in) operating activities --
       Depreciation and amortization                                       5,132           3,558
       Provision for doubtful accounts                                     1,885           1,322
       Deferred income tax (benefit) provision                              (198)          1,626
       Changes in operating assets and liabilities --                               
           Accounts receivable                                               469          (7,734)
           Inventories, net                                              (22,708)         (5,750)
           Trade accounts payable and accrued expenses                      (805)            103
           Income taxes payable                                           (1,351)            705
           Prepaid expenses and other current assets                        (693)         (1,771)
                                                                      ----------       ---------
                Net cash (used in) provided by operating activities       (2,704)          4,730
                                                                      ----------       ---------

CASH FLOWS FROM INVESTING ACTIVITIES:                                 
    Purchases of property and equipment                                   (6,053)         (3,809)
    Cost of acquired businesses                                           (6,552)             --
    Advances to employees, net                                              (119)            (81)
    Increase in other assets                                              (9,393)             --
                                                                      ----------       ---------
                Net cash used in investing activities                    (22,117)         (3,890)
                                                                      ----------       ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Proceeds from revolving line of credit, net                           27,324          (1,382)
    Payments on capital leases and notes payable                          (5,074)           (502)
    Net proceeds from exercise of stock options                            1,675           3,601
    Distributions to shareholders of pooled company                         (973)         (1,374)
    Payment to former shareholder of pooled company                           --            (809)
                                                                      ----------       ---------
                Net cash provided by (used in) financing activities       22,952            (466)
                                                                      ----------       ---------
EFFECT OF EXCHANGE RATES ON CASH                                             281             (12)
                                                                      ----------       ---------
NET INCREASE (DECREASE) IN CASH                                           (1,588)            362
CASH, beginning of period                                                  2,087             557
                                                                      ----------       ---------
CASH, end of period                                                   $      499       $     919
                                                                      ==========       =========
</TABLE>

------------------------
(a)  Retroactively restated to combine the cash flows of Daisytek with The Tape
     Company, which was acquired by Daisytek during June 1998 and accounted for
     as a pooling of interests. (see Footnotes 1 and 3 of these Interim
     Unaudited Consolidated Financial Statements).


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

                                       6

<PAGE>   7
              DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
                      NOTES TO UNAUDITED INTERIM CONDENSED
                       CONSOLIDATED FINANCIAL STATEMENTS

1.   BASIS OF PRESENTATION:

     The Interim Unaudited Consolidated Financial Statements include the
accounts of Daisytek International Corporation and subsidiaries and the
accounts of companies acquired in business combinations accounted for under 1)
the purchase method from their respective acquisition dates, and 2) the pooling
of interests method, giving retroactive effect for all periods presented
(collectively, the "Company"). See Footnote 3 of these Interim Unaudited
Consolidated Financial Statements for a reconciliation of the Company's
retroactively restated and previously reported revenue, net income, pro forma
net income and weighted average common share and common share equivalents
outstanding, resulting from the business combination with The Tape Company,
Inc. and its affiliates ("The Tape Company"), which was acquired by the Company
during June 1998 and accounted for as a pooling of interests.

     In the opinion of management, the Interim Unaudited Condensed Consolidated
Financial Statements of the Company include all adjustments, consisting of only
normal recurring adjustments, necessary for a fair presentation of the
Company's financial position as of December 31, 1998, its results of operations
for the three and nine months ended December 31, 1998 and 1997, and its results
of cash flows for the nine months ended December 31, 1998 and 1997. Results of
the Company's operations for interim periods may not be indicative of results
for the full fiscal year. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the rules and
regulations promulgated by the Securities and Exchange Commission (the "SEC").

     The Interim Unaudited Condensed Consolidated Financial Statements should
be read in conjunction with the audited Consolidated Financial Statements and
accompanying notes of the Company included in the Company's Form 10-K (File
Number 0-25400) as filed with the SEC on May 29, 1998 (the "Company's Form
10-K"). Accounting policies used in the preparation of the Interim Unaudited
Condensed Consolidated Financial Statements are consistent in all material
respects with the accounting policies described in the Notes to Consolidated
Financial Statements in the Company's Form 10-K.

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

     Presented as follows, for informational purposes only, are the Company's
unaudited interim consolidated statements of income for the three and nine
month periods ended December 31, 1998 and 1997 (in thousands, except per share
data):


                                       7
<PAGE>   8
              DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
                      NOTES TO UNAUDITED INTERIM CONDENSED
                       CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                             Three Months Ended December 31,
                                                 --------------------------------------------------------
                                                                 1997               %           1997
                                                   1998       Reported (a)        Change     Restated (b)
                                                 --------    -------------       --------   -------------
<S>                                              <C>          <C>                <C>         <C>
Net sales                                        $ 225,507     $ 186,586           20.9%       $ 197,775
Cost of sales                                      198,721       167,823                         176,407
                                                 ---------     ----------                      ---------
    Gross profit                                    26,786        18,763           42.8%          21,368
Selling, general and administrative expenses        17,877        11,508           55.3%          13,641
Acquisition integration costs                          197            --                              --
                                                 ---------     ----------                      ---------
    Income from operations                           8,712         7,255           20.1%           7,727
Interest expense                                       617           548                             681
                                                 ---------     ----------                      ---------
    Income before income taxes                       8,095         6,707                           7,046
Provision for income taxes                           3,159         2,569                           2,622
                                                 ---------     ----------                      ---------
    Net income                                   $   4,936     $   4,138           19.3%       $   4,424
                                                 =========     ==========                      =========
Net income per common share:
    Basic                                        $    0.29     $    0.30           -3.3%       $    0.30
    Diluted                                      $    0.28     $    0.29           -3.5%       $    0.29

Pro forma data (c):
    Net income                                   $   4,936     $   4,138                       $   4,424
    Pro forma adjustments:
       Provision for income taxes                       --            --                             (79)
                                                 ---------     ----------                      ---------
    Pro forma net income                         $   4,936     $   4,138           19.3%       $   4,345
                                                 =========     ==========                      =========
    Pro forma net income per common share:
       Basic                                     $    0.29     $    0.30           -3.3%       $    0.30
       Diluted                                   $    0.28     $    0.29           -3.5%       $    0.28

Weighted average common and common share
     equivalents outstanding:
       Basic                                        17,140        13,632           25.7%          14,607
       Diluted                                      17,572        14,308           22.8%          15,283
</TABLE>

-----------------------
(a)  Results previously reported for Daisytek prior to the acquisition of The
     Tape Company.

(b)  Retroactively restated to combine the results of operations of Daisytek
     with The Tape Company, which was acquired by Daisytek during June 1998 and
     accounted for as a pooling of interests.

(c)  The Tape Company included a business unit organized as a subchapter S
     corporation, whereby income taxes were paid individually by the owners.
     The pro forma provision for income tax adjustment is provided to reflect
     income tax under a corporate tax structure.



                                       8
<PAGE>   9
              DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
                      NOTES TO UNAUDITED INTERIM CONDENSED
                       CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                             Nine Months Ended December 31,
                                                   --------------------------------------------------
                                                                   1997           %        1997
                                                     1998       Reported (a)    Change  Restated (b)
                                                   ---------   -------------   -------- -------------
<S>                                               <C>            <C>            <C>      <C>
Net sales                                          $ 668,247      $ 538,966       24.0%   $ 570,612
Cost of sales                                        588,211        485,026                 509,295
                                                   ---------      ---------               ---------
     Gross profit                                     80,036         53,940       48.4%      61,317
Selling, general and administrative expenses          51,970         33,143       56.8%      39,257
Acquisition and acquisition integration costs            732             --                      --
                                                   ---------      ---------               ---------
     Income from operations                           27,334         20,797       31.4%      22,060
Interest expense                                       2,258          1,619                   1,927
                                                   ---------      ---------               ---------
     Income before income taxes                       25,076         19,178                  20,133
Provision for income taxes                             9,511          7,342                   7,462
                                                   ---------      ---------               ---------
     Net income                                    $  15,565      $  11,836       31.5%   $  12,671
                                                   =========      =========               =========
Net income per common share:
     Basic                                         $    0.91      $    0.87        4.6%   $    0.87
     Diluted                                       $    0.88      $    0.83        6.0%   $    0.83

Pro forma data (c):
     Net income                                    $  15,565      $  11,836               $  12,671
     Pro forma adjustments:
         Provision for income taxes                     (291)            --                    (253)
         Acquisition related costs, net of tax           246             --                      --
                                                   ---------      ---------               ---------
     Pro forma net income                          $  15,520      $  11,836       31.1%   $  12,418
                                                   =========      =========               =========
     Pro forma net income per common share:
         Basic                                     $    0.91      $    0.87        4.6%   $    0.86
         Diluted                                   $    0.88      $    0.83        6.0%   $    0.82

Weighted average common and
     common share equivalents outstanding:
         Basic                                        17,083         13,530       26.3%      14,505
         Diluted                                      17,734         14,260       24.4%      15,235
</TABLE>

------------------
(a)  Results previously reported for Daisytek prior to the acquisition of The
     Tape Company.

(b)  Retroactively restated to combine the results of operations of Daisytek
     with The Tape Company, which was acquired by Daisytek during June 1998 and
     accounted for as a pooling of interests.

(c)  Pro forma data includes the following adjustments: (1) The Tape Company
     included a business unit organized as a subchapter S corporation, whereby
     income taxes were paid individually by the owners. The pro forma provision
     for income tax adjustment is provided to reflect income tax under a
     corporate tax structure; (2) Daisytek incurred various acquisition related
     accounting, legal and other costs applicable to the acquisition of The
     Tape Company. The pro forma adjustment for acquisition related costs, net
     of tax, excludes such costs from pro forma net income for the nine months
     ended December 31, 1998.


                                       9
<PAGE>   10
              DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
                      NOTES TO UNAUDITED INTERIM CONDENSED
                       CONSOLIDATED FINANCIAL STATEMENTS

2.   ORGANIZATION AND NATURE OF BUSINESS:

     The Company is 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, warehouse clubs and other retailers who resell the
products to end-users.

     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, logistic and support
services to client companies worldwide. PFS customizes these services to meet
specific requirements of these companies. PFS's call-center service includes:
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. Through
the newly created PFSWEB division of PFS, the Company now offers an outsourcing
solution to companies conducting sales over the Internet by providing the
infrastructure needed to support Web-based activity, including online order
processing, warehousing and shipping of product. The Company plans to continue
seeking strategic partnerships with existing business partners and marketing
its outsourcing services beyond its own industry. PFS and PFSWEB utilize
primarily the Company's centralized distribution facility in Memphis, Tennessee
and also the Company's foreign distribution facilities, and maintain
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
and PFSWEB presently provide their 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 professional-grade audio and video media products (pro-tape products) to the
filmed entertainment and multimedia industries. The Company further expanded
its operations in the distribution of pro-tape products through the acquisition
of The Tape Company in June 1998. Through Steadi-Systems and The Tape Company,
the Company distributes a wide array of professional-grade audio and video
media products and video hardware and is an authorized distributor for leading
manufacturers such as Sony, Fuji, JVC, Avid and others to customers including
production companies, post-production operations, and television stations.


                                      10
<PAGE>   11
              DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
                      NOTES TO UNAUDITED INTERIM CONDENSED
                       CONSOLIDATED FINANCIAL STATEMENTS

3.   BUSINESS COMBINATIONS:

     During June 1998, the Company completed the acquisition of The Tape
Company through a stock-for-stock merger. Under the terms of the acquisition,
accounted for as a pooling of interest, the Company exchanged 974,864 shares of
Company common stock for all of The Tape Company's common stock. The Tape
Company is a Chicago, Illinois-based independent distributor of professional
grade audio and video media products. Retroactively restated and previously
reported revenue, net income, pro forma net income and weighted average common
share and common share equivalents outstanding are as follows (in thousands,
except per share data):

<TABLE>
<CAPTION>
                                                                Three Months Ended December 31, 1997
                                                         -------------------------------------------------
                                                          Daisytek -
                                                          Previously         The Tape         Daisytek -
                                                           Reported           Company          Restated
                                                         -----------         --------         -----------
<S>                                                    <C>                 <C>              <C>
Net sales                                               $    186,586       $     11,189      $    197,775
Net income                                              $      4,138       $        286      $      4,424
Net income per common share:
              Basic                                     $       0.30                         $       0.30
              Diluted                                   $       0.29                         $       0.29

Pro forma data (a):
    Net income                                          $      4,138       $        286      $      4,424
         Pro forma adjustment for income taxes                    --                (79)              (79)
                                                        ------------       ------------      ------------
    Pro forma net income                                $      4,138       $        207      $      4,345
                                                        ============       ============      ============
    Pro forma net income per common share:
              Basic                                     $       0.30                         $       0.30
              Diluted                                   $       0.29                         $       0.28

Weighted average common and 
     common share equivalents outstanding:
              Basic                                           13,632                               14,607
              Diluted                                         14,308                               15,283
</TABLE>

(a)  The Tape Company included a business unit organized as a subchapter S
     corporation, whereby income taxes were paid individually by the owners.
     The pro forma provision for income tax adjustment is provided to reflect
     income tax under a corporate tax structure.


                                      11
<PAGE>   12
              DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
                      NOTES TO UNAUDITED INTERIM CONDENSED
                       CONSOLIDATED FINANCIAL STATEMENTS


<TABLE>
<CAPTION>
                                                                Nine Months Ended December 31, 1997
                                                         -------------------------------------------------
                                                          Daisytek -
                                                          Previously          The Tape         Daisytek -
                                                           Reported            Company          Restated
                                                         -----------          --------         -----------
<S>                                                    <C>                 <C>              <C>
Net sales                                               $    538,966       $     31,646      $    570,612
Net income                                              $     11,836       $        835      $     12,671
Net income per common share:
              Basic                                     $       0.87                         $       0.87
              Diluted                                   $       0.83                         $       0.83

Pro forma data (a):
    Net income                                          $     11,836       $        835      $     12,671
         Pro forma adjustment for income taxes                    --               (253)             (253)
                                                        ------------       ------------      ------------
    Pro forma net income                                $     11,836       $        582      $     12,418
                                                        ============       ============      ============
    Pro forma net income per common share:
              Basic                                     $       0.87                         $       0.86
              Diluted                                   $       0.83                         $       0.82

Weighted average common and 
     common share equivalents outstanding:
              Basic                                           13,530                               14,505
              Diluted                                         14,260                               15,235
</TABLE>

(a)  The Tape Company included a business unit organized as a subchapter S
     corporation, whereby income taxes were paid individually by the owners.
     The pro forma provision for income tax adjustment is provided to reflect
     income tax under a corporate tax structure.

In December 1998, the Company acquired accounts receivable and fixed assets of
Forex Telegistics B.V. for cash consideration of $3.7 million. The purchase
price has been allocated to the assets based on fair values at the date of
acquisition. This resulted in costs in excess of fair value of approximately
$0.1 million, which is being amortized on a straight line basis over 20 years.

4.   INVENTORIES:

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



                                      12
<PAGE>   13
              DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
                      NOTES TO UNAUDITED INTERIM CONDENSED
                       CONSOLIDATED FINANCIAL STATEMENTS


5.   DEBT:

     Debt as of December 31, 1998 and March 31, 1998, is as follows (dollars in
thousands):

<TABLE>
<CAPTION>
                                                                                  December 31,      March 31,
                                                                                      1998            1998
                                                                                  ------------      ---------
<S>                                                                                <C>             <C>
Revolving line of credit with commercial banks, interest (weighted average rate
     of 6.5% at December 31, 1998) at the Company's option at the prime rate of
     a bank (7.75% at December 31, 1998) or the Eurodollar rate plus 
     0.625% to 1.125% (6.3% at December 31, 1998), due December 31, 2000           $   25,700      $       --
     

Revolving line of credit with commercial bank, interest at the Australian Bank
     Bill Rate plus 0.75% or the Australian bank's overnight rate plus
     0.75% (5.6% at December 31, 1998), due December 31, 2000                           4,064           4,410

Revolving line of credit with commercial bank, interest (weighted average rate
     of 6.3% at December 31, 1998) at the Canadian bank's cost of funds plus
     0.65% (6.1% at December 31, 1998) or the Canadian bank's
     prime rate (6.75% at December 31, 1998), due December 31, 2000                    11,240           8,101

Revolving line of credit with commercial bank, interest payable monthly at the
     Federal Funds rate plus 2%, due October 31, 1998, and secured by a
     blanket lien on all assets of The Tape Company and affiliates                         --           2,161

Term loan with commercial bank, payable monthly at a rate of $25 plus interest
     at 7.65%, due October 31, 2002 and secured by a blanket lien
     on all assets of The Tape Company and affiliates                                      --           1,400

Note payable to individual, payable monthly at a rate of $41 including
     interest at a rate of 6.66%, due July 25, 2007                                        --           3,413

Notes payable and obligations under capital leases for warehouse equipment,
     computer equipment, office furniture, fixtures and transportation
     equipment, interest at varying rates ranging from 7.5% to 10.2%, with
     lease terms varying from three to seven years                                        174             441
                                                                                   ----------      ----------

        Long-term debt                                                                 41,178          19,926

Less:  Current portion of long-term debt                                                 (135)         (3,010)
                                                                                   ----------      ----------

        Long-term debt, less current portion                                       $   41,043      $   16,916
                                                                                   ==========      ==========
</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. The Facility
accrues interest, at the Company's option, at the prime rate of a bank or the
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, 


                                      13
<PAGE>   14
              DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
                      NOTES TO UNAUDITED INTERIM CONDENSED
                       CONSOLIDATED FINANCIAL STATEMENTS


investments and asset sales. As of December 31, 1998, the Company had borrowed
$25.7 million under the Facility, leaving $39.3 million available for
additional borrowings. 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, as amended in
July 1998, expires on December 31, 2000 and allows the Company to borrow
Australian dollars up to a maximum of $7.5 million (Australian), or
approximately $4.6 million (U.S.) at December 31, 1998. The Australian Facility
accrues interest at the Australian Bank Bill Rate plus 0.75% or the Australian
bank's overnight rate plus 0.75%. A commitment fee of 0.25% is charged on the
total amount of the Australian Facility. As of December 31, 1998, the Company
had borrowed approximately $4.1 million (U.S.), leaving approximately $0.5
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, as amended in July
1998, expires on December 31, 2000 and allows the Company to borrow Canadian or
U.S. dollars up to a maximum of $15.0 million (Canadian), or approximately $9.8
million (U.S.) at December 31, 1998. The Company had borrowed the maximum
available under the Canadian Facility at December 31, 1998. The Canadian
Facility accrues interest at the Company's option at the Canadian 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 December 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 2000, the expiration date of the note. The Company had no borrowings
outstanding under this promissory note agreement at December 31, 1998.

     In conjunction with the business combination with The Tape Company,
certain debt of The Tape Company, including the revolving line of credit due
October 31, 1998, the term loan with commercial bank due October 31, 2002, and
the note payable to individual due July 25, 2007, were paid in full by the
Company and were retired.

6.    SUPPLEMENTAL CASH FLOW INFORMATION (in thousands):

<TABLE>
<CAPTION>
                                                  Nine Months Ended
                                                    December 31,
                                                ---------------------
                                                  1998          1997
                                                -------        ------

<S>                                           <C>            <C>
Cash paid during the period for:
     Interest                                  $   2,040     $   1,952
     Income taxes                              $  11,305     $   4,617
</TABLE>


                                      14
<PAGE>   15
              DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
                      NOTES TO UNAUDITED INTERIM CONDENSED
                       CONSOLIDATED FINANCIAL STATEMENTS


7.   STOCK OPTIONS:

     During the nine months ended December 31, 1998, the Company granted
options to certain employees under its employee stock option plans (the
"Plans"). These options were granted at the fair market value of the Company's
common stock at the date of the grant. Such options become exercisable over a
three to five year period starting with the date of grant, based on vesting
percentages.

<TABLE>
<CAPTION>
                                          Shares            Price per Share
                                         --------          -----------------
    <S>                                <C>                  <C>
    Outstanding, March 31, 1998         1,725,974            $0.64 - $22.44
         Granted                        2,694,892           $12.88 - $22.88
         Exercised                       (207,830)           $0.64 - $16.25
         Canceled                        (126,830)           $9.75 - $22.88
                                       ----------            $2.65 - $22.88
    Outstanding, December 31, 1998      4,086,206
                                       ==========
</TABLE>

8.   COMPREHENSIVE INCOME

     In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income." SFAS No. 130 requires companies to report comprehensive
income, which is defined as all changes in equity during a period, except those
resulting from investment by owners and distribution to owners. The Company
adopted SFAS No. 130 during the nine months ended December 31, 1998.
Comprehensive income for the Company includes net income and foreign currency
translation adjustments for the Company's foreign subsidiaries where the local
currency is the functional currency. The Company's comprehensive income, net of
income taxes, is as follows (in thousands):


<TABLE>
<CAPTION>
                                                    Three Months Ended                  Nine Months Ended
                                                       December 31,                        December 31,
                                                  -----------------------             ----------------------
                                                    1998            1997                1998          1997
                                                  -------         -------             -------       --------
<S>                                                 <C>          <C>                 <C>           <C>
  Net income                                      $  4,936        $  4,424            $ 15,565      $ 12,671
  Comprehensive income adjustments:
       Cumulative translation adjustment                52            (144)               (383)         (536)
                                                  --------        --------            --------      --------
  Comprehensive income                            $  4,988        $  4,280            $ 15,182      $ 12,135
                                                  ========        ========            ========      ========
</TABLE>

9.    NEW ACCOUNTING STANDARDS:

     In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." SFAS No. 131 is effective for fiscal
years beginning after December 15, 1997; however, earlier adoption is
permitted. SFAS No. 131 requires the disclosure of financial and descriptive
information about reportable operating segments. SFAS No. 131 modifies 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
standard and its potential impact on disclosures and will adopt the
pronouncement in its fiscal year 1999 annual financial statements.

     In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 requires that an entity
recognize all derivative financial instruments as either assets or liabilities
in the statement of financial position and measure those instruments at fair
value. If certain conditions are met, a derivative may be used to hedge certain
types of transactions, including foreign currency exposures of a net investment
in a foreign operation. The Company presently utilizes derivative financial
instruments only to hedge its net investment in certain of its foreign
operations. SFAS No. 133 requires gains or losses on these financial
instruments to be included in other comprehensive income as a part of the
cumulative translation adjustment. The Company currently complies with the


                                      15
<PAGE>   16
              DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
                      NOTES TO UNAUDITED INTERIM CONDENSED
                       CONSOLIDATED FINANCIAL STATEMENTS


provisions of SFAS No. 133 in its accounting treatment of these financial
instruments. SFAS No. 133 is effective for fiscal years beginning after June
15, 1999, with initial application as of the beginning of an entity's fiscal
quarter. Early adoption of the standard is allowed, however, the statement
cannot be applied retroactively to financial statements of prior periods.



                                      16
<PAGE>   17

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

    The Interim Unaudited Consolidated Financial Statements include the
accounts of Daisytek International Corporation and the accounts of companies
acquired in business combinations accounted for under 1) the purchase method
from their respective acquisition dates, and 2) the pooling of interests
method, giving retroactive effect for all periods presented.

FORWARD-LOOKING INFORMATION

     The matters discussed in this report on Form 10-Q, 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, and the matters set forth in the Company's
Report on Form 10-K filed on May 29, 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).

BUSINESS STRATEGY

     Daisytek International is a low cost distributor and outsourcing services
provider. The Company bases its continued growth on the following strategies:

          1)  Focus on the growing consumable computer supplies and
              professional tape industries in the U.S. and international
              markets.

          2)  Expand international presence.

          3)  Capitalize on outsourcing trend through expansion of its PFS and
              PFSWEB operations.

          4)  Seek acquisitions to supplement growth in the Company's computer
              consumables supplies business, professional tape business, and
              fulfillment services or to add selected product lines.

     The Company specializes in consumable computer supplies that have longer
life cycles and lower risk of technological obsolescence than hardware and
software products. The Company believes that the growth in demand for these
products remains strong due to the advancement and reduction in price points of
printer and computer technologies, which in turn grows the installed base of
equipment that consumes the products we distribute. Continuing automation of
the workplace and the tremendous growth in color printing technologies that use
consumable supplies at higher rates also fuel the demand for our product
offering. The Company offers these products to its customers using value-added
services such as next-business-day delivery, the latest order cutoff times in
the industry, order confirmation, product drop-shipping, and customized product
catalogs. The Company plans to expand sales to existing customers including
those in the contract stationers, value-added resellers, computer and
office-product dealer, and superstore channels. The Company is also focusing on
new distribution channels such as mass merchants, and grocery and convenience
stores.

     The Company continues to research new markets to expand its international
consumables computer supplies business. Many international markets are emerging
markets that have exponentially higher growth opportunities for consumable
computer supplies compared with the United States. Presently, Daisytek operates
sales and distribution centers in Canada, Mexico, Australia and Singapore and
exports products into Latin America and throughout the rest of the world. The
Company's consumable-supplies experience and broad product range place Daisytek
in a competitive position in emerging international markets.

     Through its PFS business, the Company utilizes its core strengths in
distribution and telemarketing to provide its business partners with end-to-end
transaction management on a global basis, including warehousing and
distribution, telemarketing, order processing, product drop-shipping,
receivable financing and other operating and logistical support services.
Through the newly created PFSWEB division of PFS, the Company now offers an
outsourcing solution for companies to conduct sales over the Internet by
providing 


                                      17
<PAGE>   18
the infrastructure needed to support Web-based activity, including online order
processing, warehousing, and shipping of product. The Company plans to continue
seeking strategic partnerships with existing business partners and marketing
its outsourcing services beyond its own industry. This component of the
Company's business strategy offers the potential for higher margins because it
is primarily fee- and activity-based.

     The Company plans to enhance growth by seeking acquisition opportunities
to supplement growth in the Company's computer consumables business,
professional tape business, and fulfillment services or to add selected product
lines that can capitalize on Daisytek's expertise in distribution and
call-center management. By way of example, the recent purchases of The Tape
Company and Steadi-Systems, distributors of professional-grade audio and video
media products, offered the Company an opportunity to expand its product line
and increase profit margins.

RESULTS OF OPERATIONS FOR THE INTERIM PERIODS ENDED DECEMBER 31, 1998 AND 1997.

    Net Sales. Net sales for the three months ended December 31, 1998, were
$225.5 million as compared to $197.8 million for the three months ended
December 31, 1997, an increase of $27.7 million, or 14.0%. For this same
comparative period, U.S. net sales increased $6.2 million, or 4.1%, while
international net sales increased $21.5 million, or 47.8%. Net sales for the
nine months ended December 31, 1998, were $668.2 million as compared to $570.6
million for the same period in 1997, an increase of $97.6 million, or 17.1%.
U.S. net sales for the nine month period ended December 31, 1998, compared to
the prior year period increased $51.5 million, or 11.8%, and international net
sales increased $46.1 million, or 34.8%. Net sales of professional-grade audio
and video media products and video hardware (pro-tape products) resulting from
the acquisition of Steadi-Systems, Ltd. ("Steadi-Systems") in January 1998
continue to contribute to the overall consolidated revenue growth. The business
combination of Steadi-Systems was accounted for under the purchase method, thus
its results of operations are included in the Company's consolidated results
after the acquisition date. The growth in international net sales was primarily
due to increased sales volume to large accounts, computer and office product
superstores, new customers, and the Company's continued introduction of new
products. The growth in U.S. sales has slowed from previously realized levels.
The Company believes this reduction is due to a slower industry growth as well
as continuing customer consolidation. As a result of the slow-down in the
expected U.S. growth rate, the Company is targeting future organic revenue
growth on a consolidated basis in the next fiscal year of about 15% for both
revenue and earnings.

    Gross Profit. Gross profit for the three months ended December 31, 1998,
was $26.8 million as compared to $21.4 million in the same period in 1997, an
increase of $5.4 million, or 25.2%. Gross profit for the nine months ended
December 31, 1998, was $80.0 million as compared to $61.3 million in the same
period in 1997, an increase of $18.7 million, or 30.5%. This increase is
primarily attributable to increased sales volume in the first half of fiscal
year 1999. The Company's gross profit margin as a percent of net sales was
11.9% for the three month period ended December 31, 1998, as compared to 10.8%
for the same period of 1997. For the nine month periods ended December 31, 1998
and December 31, 1997, the Company's gross profit margin as a percent of net
sales was 12.0% and 10.7%, respectively. The increase in the Company's gross
profit margin as a percentage of net sales was a result of an increase in
pro-tape sales, which have higher margins than the Company's traditional
computer supplies products, as a percent of total net sales. Also, increased
higher margin fee revenue business for Priority Fulfillment Services, Inc.
("PFS") and enhanced product sourcing in fiscal year 1999 contributed to
increased gross profit margins during fiscal year 1999. The Company believes
that the competitive environment, consolidation of its computer supplies
products customers and potentially reduced future product sourcing
opportunities may negatively impact the Company's gross profit margin
percentage during fiscal year 1999. The Company continues to look for
opportunities to offset such impact, including expansion of its higher margin
professional tape and PFS service fee businesses, however, there can be no
assurance that the Company will be successful in doing so.

    SG&A Expenses. SG&A expenses for the three months ended December 31, 1998,
were $17.9 million (excluding acquisition integration costs), or 7.9% of net
sales, as compared to $13.6 million, or 6.9% of net sales, for the three months
ended December 31, 1997. SG&A expenses for the nine months ended December 31,
1998, were $52.0 million (excluding acquisition and integration costs), or 7.8%
of net sales, as compared to $39.3 million, or 6.9% of net sales, for the nine
months ended December 31, 1997. The increase in SG&A expenses was partially a
result of the increase in costs associated with the Company's increased sales
volume. 


                                      18
<PAGE>   19
The increase in SG&A expenses as a percentage of net sales for fiscal year 1999
was primarily due to increased SG&A costs from the addition of Steadi-Systems
and The Tape Company, Inc. and its affiliates ("The Tape Company"), whose SG&A
expenses are higher than the Company's core computer supplies business, and due
to incremental SG&A expenses associated with the PFS business. The Company
continues to incur incremental SG&A expenses to invest in growth areas of the
business, PFS and international operations in particular.

     Acquisition and Integration Costs. During June 1998, the Company completed
the acquisition of The Tape Company through a stock-for-stock merger, which is
accounted for as a pooling of interest in the accompanying Unaudited Interim
Consolidated Financial Statements and notes thereto. Daisytek incurred various
acquisition related accounting, legal and other costs applicable to the
acquisition of The Tape Company of approximately $0.4 million, or approximately
$0.01 per share net of income taxes in June 1998. During the three and nine
months ended December 31, 1998, the Company incurred acquisition integration
costs of $0.2 million and $0.3 million, respectively. The Company expects to
incur additional expenses of approximately $0.4 million in the fourth quarter
relating to The Tape Company merger activities.

    Income from Operations. Income from operations excluding acquisition
integration costs for the three months ended December 31, 1998 was $8.9 million
as compared to $7.7 million for the same period during 1997, an increase of
$1.2 million, or 15.6%. Income from operations excluding acquisition and
acquisition integration costs for the nine months ended December 31, 1998 was
$28.1 million as compared to $22.1 million for the same period during 1997, an
increase of $6.0 million, or 27.1%. This increase was due to increased sales
volume and increased gross profit partially offset by increased SG&A expenses.
Income from operations excluding acquisition integration costs as a percentage
of net sales were 4.0% and 3.9% for the three month periods ended December 31,
1998 and December 31, 1997, respectively. Income from operations excluding
acquisition and integration costs as a percentage of net sales were 4.2% and
3.9% for the nine month periods ended December 31, 1998 and December 31, 1997,
respectively.

    Interest Expense. Interest expense for the three months ended December 31,
1998 was $0.6 million as compared to $0.7 million for the three months ended
December 31, 1997. Interest expense for the nine months ended December 31, 1998
was $2.3 million as compared to $1.9 million for the nine months ended December
31, 1997. Interest expense was higher during the first half of fiscal year 1999
primarily due to an increase in the average line of credit, partially offset by
a slight decrease in interest rates during fiscal year 1999. The weighted
average interest rate was 6.7% and 6.9% during the nine months ended December
31, 1998 and 1997, respectively.

    Income Taxes. The effective tax rate was 39.0% and 38.3% (proforma) for the
three months ended December 31, 1998 and 1997, respectively. The proforma
effective tax rate for the nine month periods ended December 31, 1998, and
December 31, 1997, was 39.1% and 38.3%, respectively. The increase in the
effective tax rate is primarily due to non deductible goodwill amortization
from the Steadi-Systems acquisition combined with additional state income taxes
resulting from the acquisitions of both Steadi-Systems and The Tape Company.

LIQUIDITY AND CAPITAL RESOURCES

     Historically, the Company's primary source of cash has been from financing
activities. During the nine months ended December 31, 1998, net cash of $23.0
million was provided by financing activities, compared to net cash used in
financing activities of $0.5 million for the nine months ended December 31,
1997. Cash provided by financing activities was generated primarily from
proceeds from revolving lines of credit during the nine months ended December
31, 1998. In conjunction with the business combination with The Tape Company,
certain debt of The Tape Company, including the revolving line of credit due
October 31, 1998, the term loan with commercial bank due October 31, 2002, and
the note payable to an individual due July 25, 2007, were paid in full by the
Company during the nine months ended December 31, 1998, and were retired.
Included in cash flows from financing activities for the nine months ended
December 31, 1998 and 1997 are distributions made to shareholders of The Tape
Company relating to taxes incurred by these shareholders for earnings of the
business unit of The Tape Company which was organized as a subchapter S
corporation. These distributions were made prior to the business combination
with the Company. During the nine months ended December 31, 1997, cash provided
by financing activities was generated primarily from proceeds 


                                      19
<PAGE>   20
received from the exercise of common stock options. Financing activities should
provide the Company's primary source of cash during the remainder of fiscal
year 1999, primarily to support the Company's growth.

     During the nine months ended December 31, 1998, $2.7 million was used in
operating activities, while net cash of $4.7 million was provided by operating
activities during the nine months ended December 31, 1997. Increased working
capital requirements during the nine months ended December 31, 1998, were
partially funded by cash generated by the Company's operations, with the
remainder provided by financing activities. During the nine months ended
December 31, 1997, increased working capital required to support the Company's
growth was funded by cash generated from operating activities.

     Funds used for investing activities during the nine months ended December
31, 1998 included incremental costs of an acquired business and for capital
expenditures. During May 1998, certain events occurred which were defined in
the acquisition agreement for Steadi-Systems, which caused the Company to incur
approximately $2.9 million in contingent cash payments for that acquisition. In
December 1998, the Company purchased approximately $0.3 million of fixed assets
and approximately $3.2 million of full-recourse accounts receivable to
facilitate the opening of Priority Fulfillment Services Europe B.V. Capital
expenditures of approximately $6.1 million during the nine months ended
December 31, 1998 consisted primarily of additions to upgrade the Company's
management information systems, including the Company's Internet based customer
tools, its on-line catalog and ordering tool (SOLOnet), other methods of
electronic commerce, and general expansion of its facilities, both domestic and
foreign. The principal use of funds for investing activities were for capital
expenditures of $3.8 million for the nine months ended December 31, 1997. The
Company anticipates that its total investment in upgrades and additions to
facilities for fiscal year 1999 will be approximately $8 million.

     Working capital increased to $150.3 million at December 31, 1998 from
$124.0 million at March 31, 1998. This increase of $26.3 million was primarily
attributable to an increase in inventory associated with the Company's PFS
Division. During the nine month periods ended December 31, 1998 and 1997, the
Company generally maintained an accounts receivable balance of approximately 46
to 50 days of sales. Inventory turnover, excluding the PFS Division, was
approximately 9 and 11 turns for the nine month periods ended December 31, 1998
and 1997, respectively. The Company generally maintains an inventory turnover
of approximately 10 to 11 turns, however, inventory turnover was lower during
the nine months ended December 31, 1998, primarily due to increased inventory
levels held by the Company's pro-tape business, as well as inventory purchased
to take advantage of attractive terms. The level of inventory associated with
the PFS division is generally managed by the third party and thus is not
indicative of the inventory turnover maintained by the Company's computer
consumable supplies and pro-tape businesses.

     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 December
31, 1998, the Company had borrowed $25.7 million, leaving $39.3 million
available under the Facility 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.

     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, as amended in
July 1998, expires on December 31, 2000 and allows the Company to borrow
Australian dollars up to a maximum of $7.5 million (Australian), or
approximately $4.6 million (U.S.) at December 31, 1998. The Australian Facility
accrues interest at the Australian Bank Bill Rate plus 0.75% or the Australian
bank's overnight rate plus 0.75%. A commitment fee of 0.25% is charged on the
total amount of the Australian Facility. As of December 31, 1998, the Company
had borrowed approximately $4.1 million (U.S.), leaving approximately $0.5
million (U.S.) available under the Australian Facility for additional
borrowings.


                                      20
<PAGE>   21
     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
December 31, 2000, allows the Company to borrow Canadian or U.S. dollars up to
a maximum of $15.0 million (Canadian), or approximately $9.8 million (U.S.) at
December 31, 1998. The Company had borrowed the maximum available under the
Canadian Facility at December 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 December 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 2000, the expiration date of the note. The Company had no borrowings
outstanding under this promissory note agreement at December 31, 1998.

     During the nine months ended December 31, 1998, approximately 27% 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
fluctuations by denominating substantially all of its non-Canadian and
non-Australian international sales in U.S. dollars. In addition, 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 has the following forward currency exchange contracts outstanding
at December 31, 1998:

<TABLE>
<CAPTION>
       CURRENCY TYPE            US$ CONTRACT AMOUNT           CONTRACT TYPE               EXPIRATION
       -------------            -------------------           -------------               ----------
   <S>                             <C>                   <C>                             <C>
     Canadian Dollars              $9.8 million           Sell Canadian Dollars            May 1999
    Australian Dollars             $1.2 million          Sell Australian Dollars         February 1999
    Australian Dollars             $5.7 million          Sell Australian Dollars          April 1999
</TABLE>

     As of December 31, 1998, the Company had incurred a net unrealized gain of
approximately $0.1 million on the outstanding Australian forward exchange
contracts and an unrealized loss of approximately $0.1 million on the
outstanding Canadian forward exchange contract. 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.

     The Company believes it will be able to satisfy its working capital needs
for fiscal year 1999, as well as organic business growth and planned capital
expenditures, through funds available under the Company's various line 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.

     The Company may attempt to acquire other businesses to expand its product
line in its core wholesale distribution business and/or in the call-center or
public warehousing industries in connection with its efforts to grow its PFS
business. The Company currently has no agreements to acquire any such
businesses. Should the Company be successful in acquiring 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.


                                      21
<PAGE>   22
YEAR 2000 ISSUE

The Company utilizes a significant number of computer software programs and
information systems in its operations ("IT systems"). The mission-critical IT
systems include the Company's operating, accounting and telecommunications
systems, such as IT software applications that allow the Company to maintain
inventory and customer information and to communicate with its suppliers and
customers. The Company also makes use of a variety of machinery and equipment
in its business which are operated by or reliant upon non-information
technology systems ("non-IT systems"), for example, equipment or mechanical
systems which contain embedded technology such as microcontrollers. To the
extent that the source code of the software applications of these IT systems or
the embedded technologies of these non-IT systems are unable to appropriately
interpret and process the upcoming calendar year 2000, some level of
modification or possible replacement of such applications would be necessary
for proper continuous performance. Without such modification or replacement,
the normal course of the Company's business could be disrupted or otherwise
adversely impacted. This potential problem is commonly referred to as the year
2000 compliance issue ("Y2K").

In fiscal 1997, the Company began to address Y2K. The Company has formed a Y2K
task force under its Chief Information Officer to coordinate and implement
measures designed to prevent disruption in its business operations related to
Y2K. The Company is scheduled to complete the remediation of its
mission-critical IT applications software by June 1999 and its non-mission
critical applications software by September 1999. The Company is assessing the
effect of Y2K on its non-IT systems and intends to modify or replace non-IT
systems as necessary to insure Y2K readiness by September 1999.

The Company has initiated formal communications with all of its significant
suppliers and large customers to determine the extent to which the Company is
vulnerable to those third parties' failure to remediate Y2K. However, there can
be no guarantee that the systems of other companies on which the Company's
systems rely will be timely converted, or that a failure to convert by another
company, or a conversion that is incompatible with the Company's systems, would
not have a material adverse effect on the Company. The Company is developing
contingency plans to address the risks created by third parties' failure to
remediate Y2K. These plans include procuring alternative suppliers, when
available, when the Company is able to conclude that an existing supplier will
not be Y2K ready. The Company is scheduled to complete these contingency plans
by July 1999.

The Company continues to grow through business acquisitions. All prior
acquisitions of the Company, with the exception of The Tape Company acquired in
June 1998, have been converted to the Company's operating system. It is
anticipated that the IT conversion for The Tape Company will be completed by
June 1999. In the unlikely event the conversion is not completed by September
1999, the Company would be forced to move to its contingency plan to meet a
deadline of December 31, 1999. This scenario would require the Company to make
the necessary modifications to the current operating system used by The Tape
Company. Management believes the cost of The Tape Company system upgrade would
not be material and could be completed by the required deadline.

During the nine months ended December 31, 1998, the Company incurred
approximately $0.4 million of expenses related to Y2K. In total, the Company's
assessment and remediation of Y2K has a budget of approximately $0.8 million,
which includes both external costs, such as outside consultants, software and
hardware applications, as well as internal costs, primarily payroll related,
which are not separately tracked. Funding for Y2K expenses will be generated
from on-going operations and available borrowings under the Company's revolving
line of credit facilities.

There can be no assurance that Y2K remediation by the Company or third parties
will be properly and timely completed and failure to do so could have a
material adverse effect on the Company's financial condition. The Company
cannot predict the actual effects of Y2K, which depends on numerous
uncertainties such as: (1) whether major third parties address this issue
properly and timely and (2) whether broad-based or systemic economic failures
may occur. The Company is currently unaware of any events, trends, or
conditions regarding this issue that may have a material effect on the
Company's results of operations, liquidity, and financial position. If Y2K is
not resolved by January 1, 2000, the Company's results of operations or
financial condition could be materially adversely affected.


                                      22
<PAGE>   23
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.

     During fiscal year 1997, the Company, through its PFS business, began
providing product fulfillment and distribution services for third parties.
Certain of these distribution agreements provide that the Company own 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 is 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 the specific event, if any, of 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.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

     In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." SFAS No. 131 is effective for fiscal
years beginning after December 15, 1997; however, earlier adoption is
permitted. SFAS No. 131 requires the disclosure of financial and descriptive
information about reportable operating segments. SFAS No. 131 modifies 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
standard and its potential impact on disclosures and will adopt these
pronouncement in its fiscal year 1999 annual financial statements.

     In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 requires that an entity
recognize all derivative financial instruments as either assets or liabilities
in the statement of financial position and measure those instruments at fair
value. If certain conditions are met, a derivative may be used to hedge certain
types of transactions, including foreign currency exposures of a net investment
in a foreign operation. The Company presently utilizes derivative financial
instruments only to hedge its net investment in certain of its foreign
operations. SFAS No. 133 requires gains or losses on these financial
instruments in other comprehensive income as a part of the cumulative
translation adjustment. The Company currently complies with the provisions of
SFAS No. 133 in its accounting treatment of these financial instruments. SFAS
No. 133 is effective for fiscal years beginning after June 15, 1999, with
initial application as of the beginning of an entity's fiscal quarter. Early
adoption 



                                      23
<PAGE>   24
of the standard is allowed, however, the statement cannot be applied 
retroactively to financial statements of prior periods.



                                      24
<PAGE>   25

PART II.   OTHER INFORMATION

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

None.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

    a)   Exhibits:

<TABLE>
<CAPTION>
          EXHIBIT
            NO.        DESCRIPTION OF EXHIBITS
          --------     -----------------------
          <S>          <C>
           11          Statement re:  Computation of Earnings Per Share

           27.1        Financial Data Schedule for the nine months ended 
                       December 31, 1998.

           27.2        Financial Data Schedule for the nine months ended 
                       December 31, 1997.
</TABLE>

    b) Reports on Form 8-K:

         Form 8-K filed on February 11, 1999 reporting Item 5, the Company's
         press release dated February 3, 1999 announcing three and nine months
         ended December 31, 1998 results.



                                      25
<PAGE>   26
                                   SIGNATURES


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

Date:    February 16, 1999


                                   DAISYTEK  INTERNATIONAL CORPORATION

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



                                      26
<PAGE>   27
                               INDEX TO EXHIBITS

<TABLE>
<CAPTION>
 Exhibit
 Number       Description
 --------     -----------------------
 <S>          <C>
  11          Statement re:  Computation of Earnings Per Share

  27.1        Financial Data Schedule for the nine months ended 
              December 31, 1998.

  27.2        Financial Data Schedule for the nine months ended 
              December 31, 1997.
</TABLE>



                                      25