The accompanying condensed consolidated financial statements include the accounts of Systemax Inc. and its wholly-owned subsidiaries (collectively, the “Company” or “Systemax”). The Company is a corporate supplier of personal computers (PCs), notebook computers, computer related products and industrial products in North America and Europe. Systemax markets these products through an integrated system of distinctively branded full-color direct mail catalogs, proprietary “e-commerce” Internet sites and personalized “relationship marketing” to business customers.

Net income (loss) per common share - basic was calculated based upon the weighted average number of common shares outstanding during the respective periods presented. Net income (loss) per common share – diluted was calculated based upon the weighted average number of common shares outstanding and included the equivalent shares for dilutive options outstanding during the respective periods.

All intercompany accounts and transactions have been eliminated in consolidation.

Comprehensive income (loss) – Comprehensive income (loss) consists of net income (loss) and foreign currency translation adjustments and is included in the Condensed Consolidated Statement of Shareholders’ Equity. For the six month periods comprehensive income (loss) was ($19,968,000) in 2000 (as restated) and $13,083,000 in 1999 net of tax effects on currency translation adjustments of $1,429,000 in 2000 and $1,749,000 in 1999. For the three month periods, comprehensive income (loss) was ($15,781,000) in 2000 (as restated) and $3,937,000 in 1999 net of tax effects on foreign currency translation adjustments of $580,000 in 2000 and $799,000 in 1999.

In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements contain all normal and recurring adjustments necessary to present fairly the financial position of the Company as of June 30, 2000 and the results of operations for the six month periods ended June 30, 2000 and 1999, cash flows for the six months ended June 30, 2000 and 1999 and changes in stockholders’ equity for the six months ended June 30, 2000. The December 31, 1999 condensed consolidated balance sheet has been extracted from the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 1999.

These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements as of December 31, 1999 and for the period then ended. The results for the six months ended June 30, 2000 are not necessarily indicative of the results for an entire year.

In December 1999, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 101 (“SAB 101”), “Revenue Recognition in Financial Statements.” SAB 101 summarizes certain SEC views in applying generally accepted accounting principles to revenue recognition in financial statements. The Company is required to adopt SAB 101 no later than the first quarter of fiscal 2001. Systemax is currently evaluating the impact of SAB 101 on the Company’s results of operations and financial position.

The Company is engaged in a single reportable segment, the marketing and sales of various business products. Financial information relating to the Company’s operations by geographic area was as follows:

Subsequent to the issuance of the Company’s financial statements in its Form 10-Q for the six months ended June 30, 2000, the Company discovered accounting irregularities at a subsidiary company related principally to inventory and sales returns. These irregularities had the effect of overstating certain asset values as of June 30, 2000 and overstating income for the three months and six months ended June 30, 2000. The restatement does not affect previously reported net cash flows for the period or future periods.

As a result, the accompanying financial statements as of June 30, 2000 and for the three months and six months ended June 30, 2000 have been restated from the amounts previously reported to properly reflect these items. A summary of the effects of the restatement is as follows (in thousands, except per share data):

Three Months Ended June 30, 2000 Compared to Three Months Ended June 30, 1999

Net sales for the three months ended June 30, 2000 decreased 2% to $406 million compared to $414 million in the year-ago quarter. The decrease was attributable to lower North American computer related product sales. The total number of orders shipped decreased 8% compared to the year-ago quarter while the average order value increased 6% from the prior year. European sales increased 13% to $127 million (representing 31% of worldwide sales) compared to $112 million in the year-ago quarter. The effect of changes in exchange rates on European sales for the three months resulted in an 8% unfavorable comparison.

Gross profit was $44.3 million, or 10.9% of sales, compared to $76.2 million, or 18.4% of sales, in the year-ago quarter, a decrease of $31.9 million. The decrease in the gross profit percentage was due to increased technical support and service costs and losses on liquidation of excess inventory in the Company’s PC assembly business. Increased relationship marketing sales and a relatively lower sales contribution from higher-margin industrial products affected the gross profit percentage unfavorably.

Selling, general and administrative expenses for the quarter decreased by $2.6 million or 3.9% to $64.7 million compared to $67.3 million in the second quarter of 1999. These expenses for the second quarter of 1999 included a one-time charge of $4.1 million for reserves related to certain contingencies and a write-off of goodwill. Selling, general and administrative expenses increased $1.5 million in 2000 after excluding the effect of these one-time charges in 1999. This increase resulted from continued expansion of our relationship marketing sales organizations and was partially offset by a decrease in net advertising costs. As a percentage of sales, selling, general and administrative expenses were 15.9% compared to 16.3% in the year-ago quarter (or 15.3% excluding the one-time charges).

The Company incurred a loss from operations for the current quarter of $20.4 million compared to an operating profit of $8.9 million in the year-ago quarter. The Company incurred an operating loss in its North American operations in the current quarter compared to an operating profit last year. Operating income in Europe increased to $3.4 million from $0.6 million in the year-ago quarter. During the quarter, the Company sold its internet auction subsidiary, EZBid Inc., and closed a small software sales subsidiary, which together will eliminate approximately $5 million in operating losses on an annualized basis.

Other – net consists principally of interest expense in 2000 while it also included interest income in 1999, resulting from increased borrowings and less cash available for investment.

As a result of the above, the net loss for the quarter was $14.5 million, or $.43 per basic and diluted share, compared to net income of $5.2 million, or $.15 per basic and diluted share, in the second quarter of 1999.

Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999

Net sales for the six months ended June 30, 2000 increased 2% to $855 million compared to $835 million in the year-ago period. The net increase of $19 million resulted from strong performance by the Company’s European operations. The number of orders shipped increased marginally compared to the year-ago period, with the average order value up 3% from the prior year. Sales during the period from North American operations decreased 5% to $574 million compared to $606 million in the first half of 1999. European sales increased 22% to $280 million compared to $229 million a year ago. The effect of changes in exchange rates on European sales for the six months resulted in a 6% unfavorable comparison.

Gross profit was $113 million, or 13.2% of sales, compared to $156 million, or 18.6% of sales, in the year-ago period, a decrease of $43 million. The decrease in the gross profit percentage was due to the aforementioned costs associated with the Company’s PC assembly business and the continuing trend of increased sales of PCs and brand name products, which generally have a lower gross profit percentage than our other products. Increased relationship sales and a relatively lower sales contribution from higher-margin industrial products affected the gross profit percentage unfavorably.

Selling, general and administrative expenses for the six months increased by $7 million or 5% to $136 million compared to $129 million in the first half of 1999. The increase resulted from continued expansion of our relationship marketing sales organizations and investments in the Company’s “e-commerce” Internet business offset by decreased net advertising costs. The prior year period also included a one-time charge of $4.1 million for reserves related to certain contingencies and a write-off of goodwill. As a percentage of sales, selling, general and administrative expenses increased to 15.9% compared to 15.5% in the year-ago period (or 15.0% excluding the one-time charges).

The Company incurred a loss from operations for the period of $23.7 million compared to an operating profit of $26.1 million a year ago. North American operations incurred an operating loss for the period. Operating income in Europe increased to $9.6 million from $4.6 million in the year-ago quarter.

Other – net consisted principally of interest expense in 2000 while it also included interest income in 1999, resulting from increased borrowings and less cash available for investment.

Income taxes consist of foreign income taxes paid or payable reduced by an income tax benefit for U. S. operating loss carrybacks. No tax benefit was recorded for unrealized U. S. net operating loss carryforwards.

As a result of the above, net loss for the six months was $17.1 million, or $.49 per basic and diluted share, compared to net income of $16.0 million, or $.44 per basic and diluted share, in the first half of 1999.

Liquidity and Capital Resources

The Company’s primary capital needs are to finance working capital for sales growth, investments in property, equipment and information technology and business acquisitions. Cash and cash equivalents totaled approximately $18 million at June 30, 2000. For the six months ended June 30, 2000, the Company generated cash from operating activities of $7 million compared to $11 million generated in the year ago period. The decrease resulted from the net loss in 2000, offset by improvement in changes in accounts receivable, inventories and other current assets and liabilities. Cash was used in investing activities in 2000 for the purchase of capital equipment, including a new distribution center in Georgia and investments in information technology. Cash was used in financing activities for the purchase of additional treasury shares and repayment of long-term debt. The Board of Directors of the Company has authorized the repurchase of up to 6,350,000 shares of common stock. Through June 30, 2000, the Company has purchased 4,127,700 shares, of which 1,133,500 were purchased during 2000 (183,700 in the second quarter). Cash outlays were financed by additional short-term borrowings from banks. For the six months ended June 30, 2000, cash and cash equivalents increased by $476,000.

The Company believes it has access to adequate funds for continued operations and growth through its available cash balances and funds generated by operations and secured and unsecured lines of credit maintained with financial institutions.

Forward Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of that term in the Private Securities Litigation Reform Act of 1995 (Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934). Additional written or oral forward looking statements may be made by the Company from time to time, in filings with the Securities Exchange Commission or otherwise. Statements contained in this report that are not historical facts are forward looking statements made pursuant to the safe harbor provisions referenced above. Forward-looking statements may include, but are not limited to, projections of revenue, income or loss and capital expenditures, statements regarding future operations, financing needs, access to funds, compliance with financial covenants in loan agreements, plans for acquisition or sale of assets or businesses and consolidation of operations of newly acquired businesses, and plans relating to products or services of the Company, assessments of materiality, predictions of future events and the effects of pending and possible litigation, as well as assumptions relating to the foregoing. In addition, when used in this discussion, the words “anticipates”, “believes”, “estimates”, “expects”, “intends”, “plans” and variations thereof and similar expressions are intended to identify forward-looking statements.

Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified based on current expectations. Consequently, future events and actual results could differ materially from those set forth in, contemplated by, or underlying the forward-looking statements contained in this report. Statements in this report, particularly in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations”, and the Notes to Consolidated Financial Statements describe certain factors, among others, that could contribute to or cause such differences. Other factors that could contribute to or cause such differences include, but are not limited to, unanticipated developments in any one or more of the following areas: (i) the Company’s ability to manage rapid growth as a result of internal expansion and strategic acquisitions, (ii) the effect on the Company of volatility in the price of paper and periodic increases in postage rates, (iii) the operation of the Company’s management information systems, (iv) the general risks attendant to the conduct of business in foreign countries, including currency fluctuations associated with sales not denominated in United States dollars, (v) significant changes in the computer products retail industry, especially relating to the distribution and sale of such products, (vi) competition in the PC, notebook computer, computer related products, office products and industrial products markets from superstores, direct response (mail order) distributors, mass merchants, value added resellers, the Internet and other retailers, (vii) the potential for expanded imposition of state sales taxes, use taxes, or other taxes on direct marketing and e-commerce companies, (viii) the continuation of key vendor relationships including the ability to continue to receive vendor supported advertising, (ix) timely availability of existing and new products, (x) risks involved with e-commerce, including possible loss of business and customer dissatisfaction if outages or other computer-related problems should preclude customer access to the Company, (xi) risks associated with delivery of merchandise to customers by utilizing common delivery services such as UPS, including possible strikes, (xii) risks due to shifts in market demand and/or price erosion of owned inventory, (xiii) borrowing costs, (xiv) changes in taxes due to changes in the mix of U.S. and non-U.S. revenue, (xv) pending or threatened litigation and investigations and (xvi) the availability of key personnel, as well as other risk factors which may be detailed from time to time in the Company’s Securities and Exchange Commission filings.

Readers are cautioned not to place undue reliance on any forward-looking statements contained in this report, which speak only as of the date hereof. The Company undertakes no obligation to publicly release the result of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unexpected events.