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

Net sales for the three months ended September 30, 2000 decreased 7% to $410 million compared to $441 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 22% compared to the year-ago quarter while the average order value increased 20% from the prior year. European sales increased 4% to $126 million (representing 31% of worldwide sales) compared to $121 million in the year-ago quarter. The effect of changes in exchange rates on European sales for the three months resulted in a 13% unfavorable comparison.

Gross profit was $47.8 million, or 11.7% of sales, compared to $77.7 million, or 17.6% of sales, in the year-ago quarter, a decrease of $29.9 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 also affected the gross profit percentage unfavorably.

Selling, general and administrative expenses for the quarter increased by $6.9 million or 11.1% to $68.8 million compared to $61.9 million in the third quarter of 1999. This increase resulted from an increase in reserves for uncollectibles, continued expansion of our relationship marketing sales organizations and an increase in net advertising costs. As a percentage of sales, selling, general and administrative expenses were 16.8% compared to 14.0% in the year-ago quarter.

The Company incurred a loss from operations for the current quarter of $21 million compared to an operating profit of $15.8 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 $2.6 million from $2.2 million in the year-ago quarter.

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.

Income taxes consist of foreign income taxes paid or payable reduced by an income tax benefit for U.S. operating loss carrybacks.

As a result of the above, the net loss for the quarter was $14.2 million, or $.42 per basic and diluted share, compared to net income of $9.3 million, or $.26 per basic and diluted share, in the third quarter of 1999.

Nine Months Ended September 30, 2000 Compared to Nine Months Ended September 30, 1999

Net sales for the nine months ended September 30, 2000 decreased 1% to $1.265 billion compared to $1.276 billion in the year-ago period. The net decrease of $11 million resulted from a decrease in the Company’s North American computer supplies business, offset by strong performance in the Company’s European operations. The number of orders shipped decreased 7% compared to the year-ago period, with the average order value up 7% from the prior year. Sales during the period from North American operations decreased 7% to $858 million compared to $926 million in the first nine months of 1999. European sales increased 16% to $407 million compared to $351 million a year ago. The effect of changes in exchange rates on European sales for the nine months resulted in a 9% unfavorable comparison.

Gross profit was $160 million, or 12.7% of sales, compared to $233 million, or 18.3% of sales, in the year-ago period, a decrease of $73 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 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 nine months increased by $14 million or 7.1% to $205 million compared to $191 million in 1999. The increase resulted from continued expansion of our relationship marketing sales organizations and an increase in reserves for uncollectibles, offset by decreased net advertising costs. As a percentage of sales, selling, general and administrative expenses increased to 16.2% compared to 15.0% in the year-ago period.

The Company incurred a loss from operations for the period of $45 million compared to an operating profit of $42 million in the year-ago period. 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 $12.1 million from $6.7 million a year ago. During the second 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 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, the net loss for the nine months was $31.3 million, or $.91 per basic and diluted share, compared to net income of $25.3 million, or $.71 per basic and diluted share, in the first nine months 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 $12 million at September 30, 2000. For the nine months ended September 30, 2000, the Company used cash in operating activities of $10 million compared to $26 million generated in the year ago period. The decrease resulted from the net loss in 2000 and reductions of accounts payable and accrued expenses, offset by reductions in accounts receivable and inventories. 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 September 30, 2000, the Company purchased 4,127,700 shares, of which 1,133,500 were purchased during 2000 (none in the third quarter). Cash outlays were financed by additional short-term borrowings from banks. For the nine months ended September 30, 2000, cash and cash equivalents decreased by $5 million.

The Company maintains uncommitted credit lines with financial institutions totaling approximately $92 million in the United States and Europe, borrowings under which are available at the discretion of the lenders. As of October 16, 2000, the Company signed a security agreement with certain institutions collateralizing certain lines with substantially all of its U.S. accounts receivable. The Company is currently negotiating for future financing with its principal lenders. Borrowings under all of the lines were $66.3 million as of September 30, 2000. The Company believes that it has access to adequate funds for continue operations and growth through its available cash balances and funds generated by operations and secured and unsecured lines of credit maintained with financial institutions but there can be no assurance that the Company will reach satisfactory agreements with its lenders.

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) ability to consummate satisfactory loan agreements with the Company’s lenders, (xiv) borrowing costs, (xv) changes in taxes due to changes in the mix of U.S. and non-U.S. revenue, (xvi) pending or threatened litigation and investigations and (xvii) 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.

The Company is exposed to market risks, which include changes in U.S. and international interest rates as well as changes in currency exchange rates as measured against the U.S. dollar and each other. Systemax may attempt to reduce these risks by utilizing certain derivative financial instruments.

The value of the U.S. dollar affects the Company’s financial results. Changes in exchange rates may positively or negatively affect Systemax’s sales (as expressed in U.S. dollars), gross margins, operating expenses and retained earnings. The Company may engage in hedging programs aimed at limiting in part the impact of certain currency fluctuations. Using primarily forward exchange and foreign currency option contracts, Systemax from time to time hedges certain of its assets that may impact the Statement of Consolidated Income when remeasured according to generally accepted accounting principles. These hedging activities provide only limited protection against currency exchange risks. Factors that could impact the effectiveness of the Company’s hedging programs include accuracy of sales forecasts, volatility of the currency markets, availability of hedging instruments and the credit-worthiness of the parties which have entered into such contracts with the Company. All currency contracts that are entered into by Systemax are for the sole purpose of hedging an existing or anticipated currency exposure, not for speculative or trading purposes. In spite of Systemax’s hedging efforts to reduce the effect of changes in exchange rates against the U.S. dollar, the Company sales or costs could still be adversely affected by changes in those exchange rates.

As of September 30, 2000, the Company had no outstanding forward exchange contracts.

3.1

Certificate of Incorporation. (Incorporated herein by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-1, File No. 33-92052).

3.2

By-laws. (Incorporated herein by reference to Exhibit 3.2 to the Company's Registration Statement on Form S-1, File No. 33-92052).

3.3

Certificate of Amendment of Certificate of Incorporation changing the Company's name to Systemax Inc. (Incorporated herein by reference to the Company's current report on Form 8-K, filed on May 18, 1999).

4.1

Stockholders Agreement. (Incorporated herein by reference to the Company's quarterly report on Form 10-Q for the quarterly period ended June 30, 1995).

4.2

Specimen Stock Certificate. (Incorporated herein by reference to Exhibit 19.1 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999).

10.1

Security Agreement, dated as of October 16, 2000, among the Company, certain subsidiaries of the Company and the Chase Manhattan Bank for itself and as agent for the Bank of New York.

27

Financial Data Schedule.

A report on Form 8-K was filed by the Company on September 8, 2000 concerning the Company's announcement that it had discovered certain irregularities in the financial records of its Midwest Micro subsidiary.

A report on Form 8-K was filed by the Company on September 28, 2000 concerning the Company's investigation of the aforementioned financial irregularities.

A report on Form 8-K was filed by the Company on November 9, 2000 concerning the Company’s announcement of its financial results for the fiscal quarter ended September 30, 2000 and its restatement of financial results for the quarters ended March 31, 2000 and June 30, 2000.