EXHIBIT 99.1

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<Table>
<Caption>
PAGE
----

Report of Independent Auditors .............................................. 2
Report of Independent Public Accountants .................................... 3
Consolidated Balance Sheets as of March 31, 2001 and 2000 ................... 4
Consolidated Statements of Income for the Fiscal Years Ended
March 31, 2001, 2000 and 1999 ............................................. 5
Consolidated Statements of Shareholders' Equity for the
Fiscal Years Ended March 31, 2001, 2000 and 1999 .......................... 6
Consolidated Statements of Cash Flows for the Fiscal Years
Ended March 31, 2001, 2000 and 1999 ....................................... 7
Notes to Consolidated Financial Statements .................................. 8
</Table>

REPORT OF INDEPENDENT AUDITORS

To the Shareholders of Daisytek International Corporation:

We have audited the accompanying consolidated balance sheet of Daisytek
International Corporation and subsidiaries as of March 31, 2001, and the related
consolidated statements of income, shareholders' equity, and cash flows for the
year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

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

In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Daisytek International Corporation and subsidiaries at March 31, 2001, and the
consolidated results of its operations and its cash flows for the year then
ended, in conformity with accounting principles generally accepted in the United
States.

We also audited the adjustments described in Note 4 that were applied to
restate the 2000 and 1999 financial statements. In our opinion, such adjustments
are appropriate and have been properly applied.

ERNST & YOUNG LLP

Dallas, Texas,

May 8, 2001, except as to Note 3, as to
which the date is May 25, 2001,
and Note 4, as to which the
date is January 4, 2002

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders of Daisytek International Corporation:

We have audited the accompanying consolidated balance sheet of Daisytek
International Corporation (a Delaware corporation) and subsidiaries as of March
31, 2000, and the related consolidated statements of income, shareholders'
equity, and cash flows for each of the two years then ended prior to the
restatements (and, therefore, are not presented herein) to reflect the
discontinued operations of Business Supplies Distributors as described in Note 4
to the restated financial statements included on pages 4-24. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Daisytek International
Corporation and subsidiaries as of March 31, 2000, and the results of their
operations and their cash flows for each of the two years in the period ended
March 31, 2000, in conformity with accounting principles generally accepted in
the United States.

ARTHUR ANDERSEN LLP

Dallas, Texas,
May 4, 2000

DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

<Table>
<Caption>
MARCH 31,
------------------------------
2001 2000
------------ ------------

ASSETS

CURRENT ASSETS:
Cash and cash equivalents ...................................... $ 1,971 $ 28,172
Accounts receivable, net of allowance for doubtful
accounts of $4,979 and $5,784 at March 31, 2001 and
2000, respectively .......................................... 134,966 143,693
Inventories, net ............................................... 83,615 71,308
Prepaid expenses and other current assets ...................... 7,194 7,450
Income taxes receivable ........................................ -- 3,714
Deferred tax asset, net ........................................ -- 249
Current assets of discontinued subsidiary ...................... 94,682 49,451
------------ ------------
Total current assets ................................... 322,428 304,037
------------ ------------
PROPERTY AND EQUIPMENT, at cost:
Furniture, fixtures and equipment .............................. 23,325 52,491
Leasehold improvements ......................................... 3,641 5,692
------------ ------------
26,966 58,183
Less -- Accumulated depreciation and amortization .............. (15,569) (27,523)
------------ ------------
Net property and equipment .................................. 11,397 30,660
OTHER ASSETS ..................................................... 550 1,046
EXCESS OF COST OVER NET ASSETS ACQUIRED, net ..................... 46,493 37,003
------------ ------------
Total assets ........................................... $ 380,868 $ 372,746
============ ============

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
Current portion of long-term debt .............................. $ 1,436 $ 42,392
Trade accounts payable ......................................... 39,762 44,568
Accrued expenses ............................................... 8,940 13,821
Income taxes payable ........................................... 1,172 --
Deferred tax liability, net .................................... 359 --
Current liabilities of discontinued subsidiary ................. 93,490 49,335
------------ ------------
Total current liabilities .............................. 145,159 150,116
------------ ------------
LONG-TERM DEBT, less current portion ............................. 76,607 2,431
COMMITMENTS AND CONTINGENCIES (Note 12)
MINORITY INTEREST ................................................ -- 9,513
SHAREHOLDERS' EQUITY:
Preferred stock, $1.00 par value; 1,000,000 shares
authorized at March 31, 2001 and 2000, none issued
and outstanding ............................................. -- --
Common stock, $0.01 par value; 30,000,000 shares
authorized and 17,689,850 and 17,600,164 shares
issued at March 31, 2001 and 2000, respectively ............. 177 176
Additional paid-in capital ..................................... 94,663 136,736
Retained earnings .............................................. 92,415 76,340
Accumulated other comprehensive loss ........................... (6,043) (2,566)
Treasury stock at cost, 3,352,305 shares at March 31, 2001 ..... (22,110) --
------------ ------------
Total shareholders' equity ............................. 159,102 210,686
------------ ------------
Total liabilities and shareholders' equity ............. $ 380,868 $ 372,746
============ ============
</Table>

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

DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES

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

<Table>
<Caption>
FISCAL YEARS ENDED MARCH 31,
-----------------------------------------
2001 2000 1999
---------- ---------- ----------

Net revenues .................................................................... $1,012,130 $ 987,206 $ 916,518
Cost of revenues ................................................................ 894,766 880,471 808,151
---------- ---------- ----------
Gross profit .................................................................. 117,364 106,735 108,367
Selling, general and administrative expenses .................................... 88,193 95,471 70,648
Nonrecurring costs .............................................................. 6,940
Acquisition related costs ....................................................... -- 619 1,111
Loss of disposition of business ................................................. -- (1,000) 2,800
---------- ---------- ----------
Income from operations ........................................................ 22,231 11,645 33,808
Interest expense ................................................................ 3,857 3,186 2,797
---------- ---------- ----------
Income from continuing operations before income taxes and minority interest ... 18,374 8,459 31,011
Provision for income taxes ...................................................... 7,384 4,602 11,823
---------- ---------- ----------
Income from continuing operations before minority interest ...................... 10,990 3,857 19,188
Minority interest ............................................................... 47 566 --
---------- ---------- ----------
Income from continuing operations ............................................... 11,037 4,423 19,188
Discontinued operations (Note 4):
Income from operations of discontinued subsidiary, net of tax ................. 389 116 --
---------- ---------- ----------
Income before cumulative effect of accounting change ............................ 11,426 4,539 19,188
Cumulative effect of accounting change, net of tax ............................ -- -- (405)
---------- ---------- ----------
Net income ...................................................................... $ 11,426 $ 4,539 $ 18,783
========== ========== ==========

NET INCOME PER COMMON SHARE:
Basic
Income from continuing operations .......................................... $ 0.69 $ 0.26 $ 1.12
Income from operations of discontinued subsidiary, net of tax .............. 0.03 -- --
---------- ---------- ----------
Income before cumulative effect of accounting change ....................... 0.72 0.26 1.12
Cumulative effect of accounting change, net of tax ....................... -- -- (0.02)
---------- ---------- ----------
Net income ................................................................. $ 0.72 $ 0.26 $ 1.10
========== ========== ==========
Diluted
Income from continuing operations .......................................... $ 0.69 $ 0.24 $ 1.08
Income from operations of discontinued subsidiary, net of tax .............. 0.02 0.01 --
---------- ---------- ----------
Income before cumulative effect of accounting change ....................... 0.71 0.25 1.08
Cumulative effect of accounting change, net of tax ....................... -- -- (0.02)
---------- ---------- ----------
Net income ................................................................. $ 0.71 $ 0.25 $ 1.06
========== ========== ==========

WEIGHTED AVERAGE COMMON AND COMMON SHARE EQUIVALENTS
OUTSTANDING:
Basic ...................................................................... 15,904 17,248 17,101
Diluted .................................................................... 16,108 18,186 17,789
</Table>

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

DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)

<Table>
<Caption>
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER
---------------------------- PAID-IN RETAINED COMPREHENSIVE
SHARES AMOUNT CAPITAL EARNINGS LOSS
------------ ------------ ------------ ------------ -------------

BALANCE AT MARCH 31,
1998 ....................... 16,935,896 $ 170 $ 85,501 $ 53,991 $ (1,931)
Net income ................... -- -- -- 18,783 --
Other comprehensive
income -- foreign
currency translation
adjustment ................. -- -- -- -- (266)

Comprehensive income .........

Distribution of earnings
to The Tape Company
shareholders ............... -- -- -- (973) --
Net proceeds from
exercise of common
stock options .............. 223,953 2 1,838 -- --
Issuance of common
stock ...................... 2,533 -- 55 -- --
------------ ------------ ------------ ------------ ------------
BALANCE AT MARCH 31,
1999 ....................... 17,162,382 172 87,394 71,801 (2,197)
Net income ................... -- -- -- 4,539 --
Other comprehensive
income -- foreign
currency translation
adjustment ................. -- -- -- -- (369)

Comprehensive income .........

PFSweb offering .............. -- -- 42,955 -- --
Deferred compensation
expense on PFSweb stock
options .................... -- -- 48 -- --
Employee stock purchase
plan ....................... 31,823 -- 368 -- --
Net proceeds from
exercise of common
stock options .............. 402,548 4 5,926 -- --
Issuance of common
stock ...................... 3,411 -- 45 -- --
------------ ------------ ------------ ------------ ------------
BALANCE AT MARCH 31,
2000 ....................... 17,600,164 176 136,736 76,340 (2,566)
Net income ................... -- -- -- 11,426 --
Other comprehensive
income -- foreign
currency translation
adjustment ................. -- -- -- -- (3,789)
Disposition of PFSweb ........ -- -- (42,826) 4,649 312

Comprehensive income .........

Treasury stock
purchases .................. -- -- -- -- --
Employee stock purchase
plan ....................... 42,801 1 328 -- --
Net proceeds from
exercise of common
stock options .............. 39,333 360 -- --
Issuance of common
stock ...................... 7,552 -- 65 -- --
------------ ------------ ------------ ------------ ------------
BALANCE AT MARCH 31,
2001 ....................... 17,689,850 $ 177 $ 94,663 $ 92,415 $ (6,043)
============ ============ ============ ============ ============

TREASURY STOCK
----------------------------- TOTAL COMPREHENSIVE
SHARES AMOUNT EQUITY INCOME
------------ ------------ ------------ -------------

BALANCE AT MARCH 31,
1998 ....................... -- $ -- $ 137,731
Net income ................... -- -- 18,783 $ 18,783
Other comprehensive
income -- foreign
currency translation
adjustment ................. -- -- (266) (266)
------------
Comprehensive income ......... $ 18,517
============
Distribution of earnings
to The Tape Company
shareholders ............... -- -- (973)
Net proceeds from
exercise of common
stock options .............. -- -- 1,840
Issuance of common
stock ...................... -- -- 55
------------ ------------ ------------
BALANCE AT MARCH 31,
1999 ....................... -- -- 157,170
Net income ................... -- -- 4,539 $ 4,539
Other comprehensive
income -- foreign
currency translation
adjustment ................. -- -- (369) (369)
------------
Comprehensive income ......... $ 4,170
============
PFSweb offering .............. -- -- 42,955
Deferred compensation
expense on PFSweb stock
options .................... -- -- 48
Employee stock purchase
plan ....................... -- -- 368
Net proceeds from
exercise of common
stock options .............. -- -- 5,930
Issuance of common
stock ...................... -- -- 45
------------ ------------ ------------
BALANCE AT MARCH 31,
2000 ....................... -- -- 210,686
Net income ................... -- -- 11,426 $ 11,426
Other comprehensive
income -- foreign
currency translation
adjustment ................. -- -- (3,789) (3,789)
Disposition of PFSweb ........ -- -- (37,865) 312
------------
Comprehensive income ......... $ 7,949
============
Treasury stock
purchases .................. (3,352,305) (22,110) (22,110)
Employee stock purchase
plan ....................... -- -- 329
Net proceeds from
exercise of common
stock options .............. -- -- 360
Issuance of common
stock ...................... -- -- 65
------------ ------------ ------------
BALANCE AT MARCH 31,
2001 ....................... (3,352,305) $ (22,110) $ 159,102
============ ============ ============
</Table>

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

DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<Table>
<Caption>
FISCAL YEARS ENDED MARCH 31,
------------------------------------------
2001 2000 1999
---------- ---------- ----------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (excluding operations of discontinued subsidiary) ... $ 11,037 $ 4,423 $ 18,783
Adjustments to reconcile net income to net cash provided
by operating activities, net of effects of acquisitions
and dispositions:
Depreciation and amortization ............................... 7,438 9,242 6,048
Provision for doubtful accounts ............................. 3,360 7,670 2,863
Minority interest ........................................... (47) (566) --
Other ....................................................... 16 48 --
Deferred income tax benefit ................................. (394) (112) (1,683)
Change in operating assets and liabilities, net of
effects of acquisitions and dispositions:
Accounts receivable ......................................... 4,142 1,357 (12,564)
Inventories, net ............................................ (3,787) 49,762 (16,279)
Prepaid expenses and other current assets ................... 3,621 1,765 (1,222)
Trade accounts payable and accrued expenses ................. (19,390) (64,656) 17,923
Income taxes payable ........................................ 2,016 (4,302) (884)
---------- ---------- ----------
Net cash provided by operating activities from continuing
operations .................................................... 8,012 4,631 12,985
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment ............................ (7,549) (15,175) (10,523)
Acquisitions of businesses, net of cash acquired ............... (17,131) (21,132) (20,585)
Disposition of subsidiary ...................................... (22,113) -- --
Disposition of business ........................................ -- -- 4,736
Decrease (increase) in notes receivable and other assets ....... 1,615 8,618 (12,187)
---------- ---------- ----------
Net cash used in investing activities ............................ (45,178) (27,689) (38,559)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (payments on) revolving lines of credit,
net ......................................................... 36,647 (910) 28,686
Payments to acquire treasury stock ............................. (22,110) -- --
Payments on capital leases and notes payable ................... (4,650) (8,533) (4,787)
Net proceeds of PFSweb initial public offering ................. -- 53,014 --
Net proceeds from sale of stock, exercise of stock options
and issuance of common stock ................................ 738 6,343 1,906
Distributions to former shareholders of The Tape
Company ..................................................... -- -- (973)
---------- ---------- ----------
Net cash provided by financing activities ........................ 10,625 49,914 24,832
---------- ---------- ----------
Effect of exchange rates on cash ................................. 340 (235) 206
---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS ............................................... (26,201) 26,621 (536)
CASH AND CASH EQUIVALENTS at beginning of year ................... 28,172 1,551 2,087
---------- ---------- ----------
CASH AND CASH EQUIVALENTS at end of year ......................... $ 1,971 $ 28,172 $ 1,551
========== ========== ==========

Net cash provided by operating activities from discontinued
operations ................................................... $ 671 $ 14 $ --
</Table>

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

DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

Daisytek International Corporation ("Daisytek" or the "Company") is a leading
wholesale distributor of computer and office supplies and professional tape
products, in addition to providing marketing and demand generation services. The
Company sells its products and services in the United States, Canada, Australia,
Mexico, South America and Europe. Prior to the spin-off of PFSweb, Inc.
("PFSweb") during July 2000, the Company also provided transaction management
services to both traditional and electronic commerce companies.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company
and its wholly-owned and majority-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statement and accompanying notes. Actual results could differ from those
estimates.

Revenue Recognition

The Company recognizes product revenue upon shipment of product to customers
and provides for estimated returns and allowances. The Company permits its
customers to return defective products (many of which are then returned by the
Company to the manufacturer) and incorrect shipments for credit against other
purchases. The Company offers terms to its customers that it believes are
standard for its industries. PFSweb service fee revenues were recognized at the
time the service was provided to the client.

Cash and Cash Equivalents

Cash equivalents are defined as short-term highly liquid investments with
original maturities of three months or less.

Inventories

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

Property and Equipment

Property and equipment is stated at cost. Depreciation expense is computed
by a straight-line method over estimated useful lives of the respective assets
which range from three to seven years. Expenditures for maintenance and repairs
are charged to operations as incurred, whereas expenditures for renewal and
betterments are capitalized and depreciated over the remaining useful lives of
the assets.

Excess of Cost over Net Assets Acquired

Excess of cost over net assets acquired is generally amortized by the
straight-line method over estimated useful lives of 15 to 40 years. Amortization
expense for each of the fiscal years 2001, 2000 and 1999 was approximately $2.0
million, $1.5 million and $0.7 million, respectively. Accumulated amortization
of intangible assets was $5.2 million at March 31, 2001 and $3.2 million at
March 31, 2000.

DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Impairment of Long-Lived Assets

The Company periodically evaluates whether events or circumstances have
occurred that indicate that excess of cost over net assets acquired and other
long-lived assets may not be recoverable or that the remaining useful life may
warrant revision. When such events or circumstances are present, the Company
assesses the recoverability of long-lived assets by determining whether the
carrying value will be recovered through the expected undiscounted future cash
flows. In the event the sum of the expected undiscounted future cash flows
resulting from the use of the asset is less than the carrying value of the
asset, an impairment loss equal to the excess of the asset's carrying value over
its fair value is recorded. To date, no such impairment has been recognized.

Foreign Currency Translation and Transactions

For the Company's Canadian and Australian subsidiaries, the local currency
is the functional currency. All assets and liabilities are translated at
exchange rates in effect at the end of the period, and income and expense items
are translated at the average exchange rates for the period. Translation
adjustments are reported as a separate component of shareholders' equity.

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

Interest Rate Swaps

The Company's interest rate swap agreements are used to manage well-defined
interest rate risks related to the Company's outstanding debt and are not used
for trading purposes. Under interest rate contracts, the differential to be paid
or received is recognized in income or expense over the life of the contract as
an adjustment to interest expense.

Cumulative Effect of Accounting Change

In 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5, Reporting on the Costs of Start-up Activities,
requiring these costs to be accounted for as period expenses. During fiscal
1999, the Company adopted this pronouncement and recorded a cumulative effect
charge to income, net of income taxes, as of April 1, 1998, of $0.4 million.

Income Taxes

DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Stock Option Plans

The Company accounts for its stock-based award plans in accordance with
Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued
to Employees, and related interpretations, under which compensation expense is
recorded to the extent that the current market price of the underlying stock
exceeds the exercise price at the date of grant. Note 8 provides pro forma net
income and pro forma earnings per share disclosures as if the stock-based awards
had been accounted for using the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 123, Accounting for Stock- Based Compensation.

Reclassifications

Certain prior year data has been reclassified to conform to the current
period presentation. These reclassifications had no effect on previously
reported net income, shareholders' equity or net cash flows. During the fourth
quarter of fiscal year 2001, Daisytek restated all prior periods to classify
freight costs billed to customers and rebates paid to customers as components of
net revenues in compliance with Emerging Issues Task Force Issues No. 00-10,
Accounting for Shipping and Handling Fees and Costs, and No. 00-14, Accounting
for Certain Sales Incentives. Freight costs billed to customers and rebates paid
to customers had previously been recorded as a component of cost of sales.

Freight costs incurred by the Company continue to be recorded as a component
of cost of sales.

Recent Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133, as
amended by SFAS No. 137 and SFAS No. 138, was adopted by the Company effective
April 1, 2001. This statement establishes accounting and reporting standards for
derivative instruments and hedging activities and requires the Company to
recognize all derivative instruments on the balance sheet at fair value. The
adoption of SFAS 133 did not have a material impact on the Company's financial
statements.

The Financial Accounting Standards Board has proposed new accounting for
business combinations that, among other things, would change the accounting for
goodwill recorded in business acquisitions as of the date of the new Statement.
An important part of the proposed Statement is that amortization of goodwill
would cease for both assets acquired prior to the effective date of the
Statement and for any new goodwill acquired after the effective date of the
Statement. Rather than amortizing these assets, goodwill would be reviewed for
impairment using a "market value" approach. The proposed Statement is expected
to be issued in July 2001. As the amortization of the excess of cost over net
assets acquired is a significant non-cash expense of the Company, this proposed
Statement, if finalized in its current form, could have a material impact on the
financial statements.

NOTE 2 -- 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 interests, the Company exchanged 974,864 shares of Daisytek
common stock for all of The Tape Company's common stock. The Tape Company is an
independent distributor of professional grade audio and video media products.

In March 1999, the Company purchased the professional tape division of VTP,
a Glendale, California-based distributor of professional-grade audio and video
media and professional hardware products for approximately $13.5 million. In
addition, the Company sold certain assets of its professional hardware division
to VTP for approximately $4.7 million. The acquisition of VTP was accounted for
using the purchase method of accounting, and, accordingly, the purchase price
has been allocated to the assets and liabilities assumed based on fair values at
the date of acquisition. This resulted in costs in excess of fair value of
approximately $11.9 million, which is being amortized over 25 years. In
connection with this transaction, the Company recorded a $2.8 million one-time
charge relating to the disposition of its hardware division. In fiscal year
2000, the Company reversed $1.0 million of this charge as management was able to
avoid some of the costs associated with this disposition. The accompanying
consolidated financial statements include the results of this entity from the
date of acquisition. This acquisition is not material to the financial position
or results of operations of the Company.

DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

On October 1, 1999, the Company acquired certain assets and liabilities of
Arlington Industries, Inc., a specialty wholesaler of copier and fax
consumables, for an initial price of approximately $19.5 million. This
transaction was accounted for using the purchase method of accounting and the
related goodwill is being amortized over 20 years. The purchase agreement
provides for an adjustment to the purchase price based on certain performance
criteria for each of the twelve-month periods ended September 30, 2000 and 2001.
The first performance period has been achieved and the Company has increased the
original purchase price and goodwill by approximately $1.6 million, which is
being amortized over the remaining life of the asset. The entire cost of the
acquisition was funded through the Company's available cash. The accompanying
consolidated financial statements include the results of this entity from the
date of acquisition. This acquisition is not material to the financial position
or results of operations of the Company.

On May 3, 2000, the Company acquired certain assets and liabilities of B.A.
Pargh Company, LLC, a wholesaler of office products and customer of PFSweb, for
approximately $2.5 million. In addition, as part of this acquisition, the
Company paid off approximately $6.5 million in assumed debt. The acquisition was
accounted for by the purchase method of accounting for business combinations and
the related cost in excess of fair value of approximately $3.6 million is being
amortized over 20 years. The entire cost of the acquisition was funded through
the Company's credit facility. The accompanying consolidated financial
statements include the results of this entity from the date of acquisition. This
acquisition is not material to the financial position or results of operations
of the Company.

Effective October 1, 2000, the Company acquired the capital stock of Etertin
y CIA, S.A. in Buenos Aires, Argentina, a wholesale distributor of computer
supplies and accessories, for approximately $5.8 million, of which $1.0 million
is subject to adjustment for realization of assets at lower than book value
acquired. In addition, the Company assumed approximately $4.7 million in debt.
The acquisition was accounted for by the purchase method of accounting for
business combinations and the related goodwill of approximately $6.5 million is
being amortized over 20 years. The entire cost of the acquisition was funded
through the Company's credit facility. The accompanying consolidated financial
statements include the results of this entity from the date of acquisition. This
acquisition is not material to the financial position or results of operations
of the Company.

NOTE 3 -- PFSWEB SPIN-OFF

Daisytek completed the spin-off PFSweb, its international provider of
transaction management services to both traditional and e-commerce companies,
during July 2000. In December 1999, PFSweb completed an initial public offering
("IPO") of 3,565,000 shares of its common stock. On July 7, 2000, the Company
announced the completion of the spin-off of PFSweb by means of a tax-free
distribution of Daisytek's remaining 80.1 percent ownership of PFSweb. The pro
rata distribution of 14,305,000 shares of PFSweb was made at the close of
business July 6, 2000 to Daisytek shareholders of record as of June 19, 2000.
Based on the shares outstanding of each company on the record date, Daisytek
shareholders received approximately 0.81 shares of PFSweb stock for each share
of Daisytek stock they owned on the record date. In June 2000, the Company
received a favorable private letter ruling from the Internal Revenue Service
regarding the tax-free treatment of the distribution of Daisytek's remaining
ownership in PFSweb. Daisytek and PFSweb are party to a tax indemnification and
allocation agreement, which governs the allocation of tax liabilities and sets
forth provisions with respect to other tax matters.

As part of the IPO, PFSweb and Daisytek entered into various agreements
governing the transaction management services that PFSweb provided for Daisytek.
Additionally, PFSweb purchased from Daisytek certain fixed assets in the central
distribution complex in Memphis, Tennessee. On May 25, 2001, the Company
completed a transaction to terminate certain transaction management services
agreements between the two companies and to purchase certain Memphis
distribution assets from PFSweb, including those assets previously sold to
PFSweb at the time of the IPO. The aggregate cost of this transaction is
estimated to be approximately $16 million, including $11 million payable to
PFSweb and $5 million to implement segregated information technology platforms
and to expand fulfillment capabilities. The Company expects to recognize a
special charge of approximately $2.7 million after taxes during the first
quarter of fiscal year 2002 related to this transaction. Prior to completion of
the transaction, the Company received a favorable supplemental ruling from the
Internal Revenue Service that the acquisition of certain fixed assets would not
adversely affect the June 2000 Internal Revenue Service ruling. PFSweb will
continue to offer services to Daisytek under a new, separate fee agreement for a
six-month period to support the transfer of fulfillment operations and
transaction processing back to Daisytek, including the transition to a separate
information technology platform.

DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

The following table represents the balance sheet information for PFSweb as
of the date of the spin-off, and is provided to assist in understanding the
impact of the disposition on the consolidated balance sheet of the Company
(amounts in thousands):

<Table>

ASSETS

Cash ............................................................. $ 22,113
Accounts receivable, net ......................................... 10,879
Prepaid expenses and other current assets ........................ 3,420
Property and equipment, net ...................................... 21,557
Other assets ..................................................... 501
----------
Total assets ........................................... $ 58,470
==========
LIABILITIES AND SHAREHOLDERS' EQUITY

Current portion of long-term debt ................................ $ 281
Trade accounts payable ........................................... 5,190
Accrued expenses ................................................. 3,336
Long-term debt, less current portion ............................. 2,342
Shareholders' equity -- minority interest ........................ 9,456
Shareholders' equity -- Daisytek ................................. 37,865
----------
Total liabilities and shareholders' equity ............. $ 58,470
==========
</Table>

NOTE 4 - DISCONTINUED OPERATIONS

During June 2001, the Company announced its decision to exit the IBM master
distribution agreements, under which the Company's subsidiary Business Supplies
Distributors ("BSD") provided financing to enable the Company's former
subsidiary PFSweb to service logistics contracts with IBM. As part of the
Company's plan to completely exit this business, Daisytek completed the sale of
BSD during September 2001 for net proceeds of approximately $0.9 million. The
Company recorded a gain on sale of approximately $0.2 million.

The Company adopted SFAS No. 144, Accounting for the Impairment or Disposal
of Long-Lived Assets, effective as of April 1, 2001. Under the provisions of
SFAS No. 144, the results of operations of BSD, which were previously included
in the Company's computer and office supplies business segment, are presented as
discontinued operations in the accompanying financial statements. The income
from operations of discontinued subsidiary are presented net of tax expense of
approximately $0.2 million, $0.1 million and $0 for the fiscal years ended March
31, 2001, 2000 and 1999, respectively, and include net revenues of approximately
$177.5 million, $83.1 million and $0 for the fiscal years ended March 31, 2001,
2000 and 1999, respectively.

NOTE 5 -- DEBT

Debt as of March 31, 2001 and 2000 consists of the following (in
thousands):

<Table>
<Caption>
MARCH 31,
--------------------------
2001 2000
---------- ----------

Revolving line of credit, United States ............... $ 74,000 $ 32,800
Revolving term loan, Canada ........................... 1,332 --
Revolving line of credit, Canada ...................... 1,275 7,948
Revolving line of credit, Australia ................... 1,287 1,365
Other ................................................. 149 2,710
---------- ----------
78,043 44,823
Less: Current portion of long-term debt ............... (1,436) (42,392)
---------- ----------
Long-term debt, less current portion .................. $ 76,607 $ 2,431
========== ==========
</Table>

DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Revolving Line of Credit, United States

In December 2000, the Company entered into an agreement with certain banks
for a revolving line of credit facility in the United States that has a maximum
borrowing availability of $120.0 million and expires on December 19, 2003.
Availability under the credit facility is subject to certain borrowing base
limitations, including eligible accounts receivable and inventory, as defined.
This credit facility replaced the Company's previous United States credit
facility, which would have expired on January 1, 2001. Borrowings under the
credit facility accrue interest, at the Company's option, at the prime rate of
the lead bank or a Eurodollar rate, plus an adjustment ranging from 1.05% to
2.0% depending on the Company's financial performance. The Company pays fees
ranging from 0.20% to 0.375% on the entire credit facility. The credit 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 net worth, and restrictions on certain activities,
including loans and payments to related parties, incurring additional debt,
acquisitions, investments and asset sales. The credit facility is secured by a
pledge of 100% of the stock of the Company's United States subsidiaries and 65%
of the stock of the Company's material foreign subsidiaries. Upon the occurrence
of a default, the credit facility would also be secured by the Company's other
assets. As of March 31, 2001, the outstanding balance under the Company's United
States credit facility was $74.0 million with a weighted average interest rate
of 6.63%. Based on the Company's borrowing limit at March 31, 2001, $43.8
million was available for future borrowings.

The credit facility also includes an expandable feature to increase the
maximum borrowing to $170 million, subject to various conditions precedent.
During April 2001, the Company added another $30.0 million of available credit
under this feature, increasing the maximum borrowing availability to $150.0
million.

Revolving Term Loan and Revolving Line of Credit, Canada

During August 1999, the Company's Canadian subsidiary entered into an
agreement with a Canadian bank for a revolving term loan. The term loan, which
expires on August 31, 2001, allows the Company to borrow Canadian or U.S.
dollars up to a maximum of 10.0 million Canadian dollars, or approximately $6.3
million. The term loan accrues interest at the Company's option at either the
bank's prime rate plus 0.10% or the bank's U.S. dollar commercial loan rate plus
0.10%. A commitment fee of 0.25% is charged on the unused portion of the term
loan. As of March 31, 2001, the outstanding balance under the Company's Canadian
revolving term loan was 2.1 million Canadian dollars, or approximately $1.3
million, at an interest rate of 6.85%. The Company had 7.9 million Canadian
dollars, or approximately $5.0 million, available for future borrowings.

In December 2000, the Company's Canadian subsidiary entered into an
agreement with a Canadian bank for an unsecured revolving line of credit
facility in addition to the term loan. The Canadian credit facility expires on
January 1, 2002 and replaced the Company's previous Canadian revolving line of
credit facility, which would have expired on December 31, 2000. The Canadian
credit facility allows the Company to borrow Canadian or U.S. dollars up to a
maximum of 5.0 million Canadian dollars, or approximately $3.2 million. For
Canadian dollar borrowings, the Canadian credit facility accrues interest at the
bank's prime rate or the bank's cost of funds plus an adjustment ranging from
1.3% to 2.0% depending on the Company's financial performance. For U.S. dollar
borrowings, the Canadian credit facility accrues interest at the prime rate of
the bank or a Eurodollar rate plus an adjustment ranging from 1.3% to 2.0%
depending on the Company's financial performance. A facility fee of 0.20% to
0.375% is charged on the entire amount of the Canadian credit facility. As of
March 31, 2001, the outstanding balance under the Company's Canadian revolving
line of credit facility was 2.0 million Canadian dollars, or approximately $1.3
million, at an interest rate of 6.75%. The Company had 3.0 million Canadian
dollars, or approximately $1.9 million, available for future borrowings.

During April 2001, the Company refinanced the Canadian revolving term loan
and Canadian revolving credit facility with a single credit facility of 20.0
million Canadian dollars, or approximately $12.7 million, expiring during April
2004. Availability under the credit facility is subject to certain borrowing
base limitations, as defined. For Canadian dollar borrowings, the Canadian
credit facility accrues interest at the bank's prime rate plus 50 basis points.
For U.S. dollar borrowings, the Canadian credit facility accrues interest at the
bank's U.S. dollar base rate in New York plus 50 basis points. The credit
facility includes a standby fee of 0.25% on the unused portion of the credit
facility.

DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Revolving Line of Credit, Australia

In December 2000, the Company's Australian subsidiary entered into an
agreement with an Australian bank for an unsecured revolving line of credit
facility allowing the Company to borrow Australian dollars up to a maximum of
15.0 million Australian dollars, or approximately $7.3 million. The Australian
credit facility expires on January 1, 2002 and replaced the Company's previous
Australian revolving line of credit facility, which would have expired on
December 31, 2000. The Australian credit facility accrues interest at the
Australian Bill Rate plus an adjustment ranging from 1.3% to 2.0% depending on
the Company's financial performance. A facility fee of 0.20% to 0.375% is
charged on the entire amount of the Australian facility. As of March 31, 2001,
the outstanding balance under the Company's Australian credit facility was 2.7
million Australian dollars, or approximately $1.3 million, at an interest rate
of 7.18%. The Company had 12.3 million Australian dollars, or approximately $6.0
million, available for future borrowings.

During May 2001, the Company amended its Australian credit facility to add
another 5.0 million Australian dollars, or approximately $2.4 million, to its
available credit for total maximum credit availability of 20.0 million
Australian dollars, or approximately $9.7 million.

Other

At March 31, 2001, other debt represents notes payable assumed in connection
with the acquisition of Etertin in Argentina, effective October 1, 2000. At
March 31, 2000, other debt represents non-cancelable capital lease agreements
involving warehouse equipment and computer equipment. The Company's property
held under capital leases at March 31, 2000, included in furniture, fixtures and
equipment in the balance sheet, amounted to approximately $2.7 million, net of
accumulated amortization of approximately $0.1 million.

Future maturities of long-term debt at March 31, 2001, giving effect to the
refinancing of the Canadian credit facility, are as follows (in thousands):

<Table>
<Caption>
FISCAL YEAR ENDED MARCH 31,
---------------------------

2002..................... $ 1,436
2003..................... --
2004..................... 74,000
2005..................... 2,607
2006..................... --
Thereafter............... --
--------
$ 78,043
========
</Table>

NOTE 6 -- FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

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

In the opinion of management, credit risk with respect to trade receivables
is limited due to a large number of diversified customers and the geographic
diversification of the Company's customer base. The Company performs ongoing
credit evaluations of its customers and believes that adequate allowances for
any uncollectible trade receivables are maintained. The Company's derivative
instruments are subject to credit risk of non-performance by counterparties
under such agreements. However, this risk is minimal as the Company selects
counterparties with high credit ratings and the majority of the Company's
derivative instruments are with participating banks under its credit facilities.

Currency Rate Management

During fiscal year 2001 and 2000, the Company periodically entered into
foreign currency exchange contracts to manage its foreign currency exchange risk
related to the net investment and intercompany balances applicable to its
foreign subsidiaries. These contracts typically require the exchange of a
foreign currency for U.S. dollars at a fixed rate at a future date. At March 31
2001, many of the Company's outstanding hedges were offset by contracts to
exchange U.S. dollars for a foreign currency at a fixed rate at a future date.
At March 31, 2001, the outstanding contract amounts in U.S. dollars totaled
$16.3 million, including $12.4 million for

DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Eurodollars, $2.6 million for Australian dollars, and $1.3 million for Canadian
dollars. At March 31, 2000, the outstanding contract amounts in U.S. dollars
totaled $19.7 million, including $11.5 million for Australian dollars and $8.2
million for Canadian dollars. The Company had incurred net unrealized gains
(losses) on its foreign currency exchange contracts of ($0.5) million and $0.6
million at March 31, 2001 and 2000, respectively, which are included as a
component of shareholders' equity. Due to the short-term nature of these
contracts, fair value approximates the recorded net unrealized gain (loss).

Interest Rate Management

The Company may enter into interest rate swaps to diversify its risk
associated with interest rate fluctuations. Under these interest rate swaps, the
Company agrees with other parties to exchange, at specified intervals, the
difference between fixed rate and floating rate interest amounts calculated by
reference to an agreed notional principal amount. At March 31, 2001, the Company
had an interest rate swap agreement with a notional amount of $25.0 million and
a fair value loss position of $0.7 million.

NOTE 7 -- SHAREHOLDERS' EQUITY

Public Offerings

In December 1999, PFSweb successfully completed the IPO of 19.9% of its
outstanding stock and sold 3,565,000 shares of common stock at $17 per share.
Net proceeds from the IPO aggregated $53 million and were used to repay PFSweb's
intercompany payable to Daisytek of approximately $27 million and to acquire
from Daisytek all fixed assets in its Memphis distribution facility, as well as
certain assets providing information technology services, for $5.0 million.
Daisytek used these proceeds to repay bank debt. As a result of the IPO, the
Company's additional paid-in capital increased by approximately $43 million.

On July 7, 2000, Daisytek completed the spin-off of PFSweb and distributed
approximately 0.81 shares of PFSweb common stock for each share of Daisytek
common stock owned by Daisytek shareholders. Daisytek's stock price was adjusted
on July 7, 2000 to exclude the value of PFSweb.

Shareholder Rights Plan

On October 15, 1999, the Daisytek Board of Directors declared a dividend
distribution of one Daisytek preferred stock purchase right (a "right") for each
share of the Company's common stock outstanding on October 25, 1999. Each right
entitles the registered shareowners to purchase from the Company one
one-thousandth of a share of preferred stock at an exercise price of $70.00,
subject to adjustment. The rights are not currently exercisable, but would
become exercisable if certain events occurred relating to a person or group
acquiring or attempting to acquire 15 percent or more of the outstanding shares
of common stock. The rights expire on October 25, 2009, unless redeemed or
exchanged by the Company earlier.

Stock Repurchase

On July 10, 2000, the Company announced the authorization by the Board of
Directors of the repurchase of up to 10% of the outstanding shares of its common
stock, and on September 13, 2000, the Company announced the authorization of the
repurchase of up to an additional 10% of the then outstanding shares of common
stock. As of March 31, 2001, the two approved share buy-back programs were
completed and a total of approximately 3.4 million shares have been repurchased
using cash of approximately $22 million.

DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Reconciliation of Earnings per Share

The following table sets forth the computation of basic and diluted earnings
per share (in thousands, except per share amounts). Weighted-average shares
excluded from the calculation that related to potentially dilutive securities
amount to approximately 1.3 million, 0.7 million and 0.6 million for the years
ended March 31, 2001, 2000 and 1999, respectively.

<Table>
<Caption>
FISCAL YEARS ENDED MARCH 31,
----------------------------------------
2001 2000 1999
---------- ---------- ----------

NUMERATOR:
Income from continuing operations .............................. $ 11,037 $ 4,423 $ 19,188
Income from operations of discontinued subsidiary .............. 389 116 --
---------- ---------- ----------
Income before cumulative effect of accounting change ........... 11,426 4,539 19,188
Cumulative effect of accounting change ......................... -- -- (405)
---------- ---------- ----------
Net income ..................................................... $ 11,426 $ 4,539 $ 18,783
========== ========== ==========
DENOMINATOR:
Denominator for basic earnings per share -- Weighted
average shares ................................................. 15,904 17,248 17,101
Effect of dilutive securities:
Stock options .................................................. 204 938 688
---------- ---------- ----------
Denominator for diluted earnings per share -- Adjusted
weighted average shares ........................................ 16,108 18,186 17,789
Net income per common share:
Basic:
Income from continuing operations ........................... $ 0.69 $ 0.26 $ 1.12
Income from operations of discontinued subsidiary ........... 0.03 -- --
---------- ---------- ----------
Income before cumulative effect of accounting change ........ 0.72 0.26 1.12
Cumulative effect of accounting change ...................... -- -- (0.02)
---------- ---------- ----------
Net income .................................................. $ 0.72 $ 0.26 $ 1.10
========== ========== ==========
Diluted:
Income from continuing operations ........................... $ 0.69 $ 0.24 $ 1.08
Income from operations of discontinued subsidiary ........... 0.02 0.01 --
---------- ---------- ----------
Income before cumulative effect of accounting change ........ 0.71 0.25 1.08
Cumulative effect of accounting change ...................... -- -- (0.02)
---------- ---------- ----------
Net income .................................................. $ 0.71 $ 0.25 $ 1.06
========== ========== ==========
</Table>

NOTE 8 -- STOCK PLANS

Employee Stock Purchase Plan

Daisytek provides its employees an opportunity to acquire a proprietary
interest in the company under its 1998 Employee Stock Purchase Plan qualified
under Section 423 of the Internal Revenue Code of 1986. The stock purchase plan
provides for acquisition of Daisytek common stock at a 15% discount of market
value and permits each employee of Daisytek's domestic subsidiaries who have
completed ninety days of service to elect to participate in the plan. Eligible
employees may elect to contribute up to 10% of their compensation with after-tax
dollars up to a maximum annual contribution of $25,000. The Company has reserved
250,000 shares of its common stock under the stock purchase plan. As of March
31, 2001, 74,624 shares of common stock had been purchased under the plan.

Stock Option Plans

The Company has established various stock option plans which provide for the
grant of incentive awards in the form of stock options to directors, executive
management, key employees and outside consultants of Daisytek. These plans are
administered by the Compensation Committee of the Board of Directors. Options
issued under these stock option plans have exercise prices equal to the fair
market value of the Company's common stock on the date of issuance, generally
vest over a three-year period from the date of grant and expire ten years after
the date of grant.

DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

In connection with the completion of the PFSweb spin-off as of July 6, 2000,
all outstanding Daisytek options ("Daisytek Pre-spin Options") were adjusted
and/or replaced with Daisytek options (the "Daisytek Post-spin Options") and
PFSweb options (the "PFSweb Post-spin Options," and together with the Daisytek
Post-spin Options, the "Replacement Options"). The exercise price and the number
of shares subject to each of the Replacement Options was established pursuant to
a formula designed to ensure that: (1) the aggregate "intrinsic value" (i.e.,
the difference between the exercise price of the option and the market price of
the common stock underlying the option) of the Replacement Option did not exceed
the aggregate intrinsic value of the outstanding Daisytek Pre-spin Option which
is replaced by such Replacement Option immediately prior to the spin-off and (2)
the ratio of the exercise price of each option to the market value of the
underlying stock immediately before and after the spin-off was preserved. Other
terms and conditions of each Replacement Option, including the time or times
when, and the manner in which, each option is exercisable, the duration of the
exercise period, the permitted method of exercise, settlement and payment, the
rules that apply in the event of the termination of employment of the employee,
the events, if any, that may give rise to an employee's right to accelerate the
vesting or the time or exercise thereof and the vesting provisions, are the same
as those of the replaced Daisytek Pre-spin Option, except that option holders
who are employed by one company are permitted to exercise, and are subject to
all of the terms and provisions of, options to acquire shares in the other
company as if such holder was an employee of such other company.

As of March 31, 2001, Daisytek has authorized an aggregate of 5,550,000
shares of common stock for issuance under the various stock option plans.
Additionally, the Company's Board of Directors authorized an additional
1,999,026 shares for issuance outside the existing plans. The aggregate number
of options available for issuance under the Company's plans at March 31, 2001 is
1,523,953.

The following table summarizes the Company's stock option activity for the
fiscal years ended March 31, 1999, 2000 and 2001:

<Table>
<Caption>
OPTIONS WEIGHTED AVERAGE
OUTSTANDING EXERCISE PRICE
----------- ----------------

Balance at March 31, 1998 .................. 1,725,974 $ 11.66
Granted .................................. 2,773,892 $ 15.68
Exercised ................................ (223,953) $ 7.18
Canceled ................................. (291,844) $ 16.41
----------
Balance at March 31, 1999 .................. 3,984,069 $ 14.37
Granted .................................. 473,500 $ 9.83
Exercised ................................ (402,548) $ 11.73
Canceled ................................. (97,226) $ 16.46
----------
Balance at March 31, 2000 .................. 3,957,795 $ 13.07
Granted .................................. 25,000 $ 10.69
Exercised ................................ (28,800) $ 10.78
Canceled ................................. (70,721) $ 16.20
Terminated -- PFSweb spin-off ............ (3,883,274) $ 14.00
Reissued -- PFSweb spin-off .............. 3,634,736 $ 8.00
Granted .................................. 2,441,000 $ 6.43
Exercised ................................ (10,533) $ 7.44
Canceled ................................. (356,932) $ 8.00
----------
Balance at March 31, 2001 .................. 5,708,271 $ 7.33
==========
</Table>

The following table summarizes information about stock options outstanding
at March 31, 2001:

<Table>
<Caption>
OUTSTANDING EXERCISABLE
----------------------------------------------------------------- -------------------------
WEIGHTED AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE PRICES OPTIONS CONTRACTUAL LIFE EXERCISE PRICE OPTIONS EXERCISE PRICE
----------------- ------- ---------------- -------------- --------- --------------

$1.65 288 2.0 years $ 1.65 288 $ 1.65
$4.88 -- $7.04 2,823,164 8.7 years 6.20 638,867 6.16
$7.38 -- $10.17 2,684,657 7.4 years 8.00 1,628,767 8.00
$11.10 -- $14.31 200,162 7.0 years 13.73 99,321 14.00
--------- ---------
5,708,271 $ 7.33 2,367,243 $ 7.76
========= =========
</Table>

DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

As of March 31, 2001, 2000 and 1999, 2,367,243, 1,038,568 and 413,766,
respectively, of options outstanding were exercisable. The weighted-average fair
value of options granted during fiscal years 2001, 2000 and 1999 was $3.44,
$5.41 and $7.93, respectively.

The Company applies APB Opinion No. 25 in accounting for its stock option
plans and, accordingly, no compensation cost is recognized in the consolidated
financial statements for stock options which have exercise prices equal to or in
excess of the market value of the Company's common stock on the date of
issuance. Had the Company determined compensation cost based on the fair value
of stock options at the grant date under SFAS No. 123, the Company's pro forma
net income and earnings per share would have been as follows:

<Table>
<Caption>
FISCAL YEARS ENDED MARCH 31,
-----------------------------------------
2001 2000 1999
---------- ---------- ----------

Net income (loss):
As reported ................... $ 11,426 $ 4,539 $ 18,783
Pro forma ..................... $ 5,586 $ (3,801) $ 14,169
Earnings (loss) per share:
Basic:
As reported ................ $ 0.72 $ 0.26 $ 1.10
Pro forma .................. $ 0.35 $ (0.22) $ 0.83
Diluted
As reported ................ $ 0.71 $ 0.25 $ 1.06
Pro forma .................. $ 0.35 $ (0.22) $ 0.80
</Table>

The fair value of the options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for fiscal years 2001, 2000 and 1999: risk-free interest rates
ranging from 4.6% to 6.0%; dividend yields of 0%; expected stock volatility
ranging from 41.4% to 56.9%; and expected lives ranging from five to six years.

NOTE 9 -- SUPPLEMENTAL CASH FLOW INFORMATION (IN THOUSANDS):

<Table>
<Caption>
FISCAL YEARS ENDED MARCH 31,
----------------------------------------
2001 2000 1999
---------- ---------- ----------

Cash paid during the period for:
Interest ....................................... $ 5,664 $ 3,853 $ 2,718
Income taxes ................................... $ 3,892 $ 7,669 $ 14,607
Fixed assets acquired under capital leases ....... $ -- $ 2,400 $ 347
</Table>

NOTE 10 -- INCOME TAXES

Deferred taxes reflect the impact of temporary differences between the
amount of assets and liabilities for financial reporting purposes and such
amounts as measured by tax laws and regulations. These differences relate
primarily to provisions for doubtful accounts, capitalization of inventory
costs, reserves for inventory, book versus tax depreciation differences, and
certain accrued expenses deducted for book purposes but not yet deductible for
tax purposes. A reconciliation of the difference between the expected income tax
provision, before operations of discontinued subsidiary and cumulative effect of
accounting change, at the U.S. Federal statutory corporate tax rate of 35%, 34%
and 35% for fiscal year 2001, 2000 and 1999, respectively, and the Company's
effective tax rate is as follows (in thousands):

<Table>
<Caption>
FISCAL YEARS ENDED MARCH 31,
------------------------------------------
2001 2000 1999
---------- ---------- ----------

Provision computed at statutory rate ............................. $ 6,431 $ 2,876 $ 10,854
Impact of foreign taxation at different rate ..................... 487 264 538
State income taxes, net of federal benefit ....................... 373 410 694
Expenses not deductible for tax purposes ......................... 352 420 346
Impact of acquired subchapter S corporation accounted for
as a pooling of interests ...................................... -- -- (291)
Change in valuation reserve ...................................... -- 807 (203)
Other ............................................................ (259) (175) (115)
---------- ---------- ----------
Provision for income taxes ..................................... $ 7,384 $ 4,602 $ 11,823
========== ========== ==========
</Table>

DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

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

<Table>
<Caption>
FISCAL YEARS ENDED MARCH 31,
------------------------------------------
2001 2000 1999
---------- ---------- ----------

Current
Domestic ................... $ 3,744 $ 1,395 $ 9,857
State ...................... 547 623 1,068
Foreign .................... 3,487 2,696 2,581
---------- ---------- ----------
Total current ...... 7,778 4,714 13,506
---------- ---------- ----------
Deferred
Domestic ................... (278) (151) (1,683)
Foreign .................... (116) 39 --
---------- ---------- ----------
Total deferred ..... (394) (112) (1,683)
---------- ---------- ----------
Total .............. $ 7,384 $ 4,602 $ 11,823
========== ========== ==========
</Table>

The components of the deferred tax asset (liability) as of March 31, 2001
and 2000 are as follows (in thousands):

<Table>
<Caption>
MARCH 31,
--------------------------
2001 2000
---------- ----------

Deferred tax assets:
Allowance for doubtful accounts ................ $ 1,570 $ 1,568
Inventory ...................................... 885 880
Foreign net operating loss carryforwards ....... 3,809 1,974
Other .......................................... 376 1,113
---------- ----------
6,640 5,535
Less -- Valuation reserve ...................... -- (915)
---------- ----------
Total deferred tax assets .............. 6,640 4,620
---------- ----------
Deferred tax liabilities:
Accounts receivable discount ................... 571 1,038
Foreign inventory purchases .................... 2,954 2,437
Intangibles .................................... 810 391
Other .......................................... 2,664 505
---------- ----------
Total deferred tax liabilities ......... 6,999 4,371
---------- ----------
Net deferred tax asset (liability) ............... $ (359) $ 249
========== ==========
</Table>

In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The foreign net operating loss carryforwards at
March 31, 2001 and 2000 relate primarily to taxable losses of the Company's
Mexican subsidiary. These loss carryforwards begin to expire in fiscal year
2013. The foreign net operating loss carryforwards at March 31, 2000 also
include taxable losses related to PFSweb's European subsidiary.

As of March 31, 2000, a valuation allowance was recorded due to
uncertainties regarding the Company's ability to utilize PFSweb deferred tax
assets following its spin-off from the Company. During fiscal year 2001, the
valuation allowance and related deferred tax assets were transferred to PFSweb
upon completion of the PFSweb spin-off.

The Company received a tax benefit due to the exercise of certain stock
options of $1.1 million during fiscal year 2000 and $0.4 million during fiscal
year 1999. The Company recorded income tax expense related to operations of
discontinued subsidiary of approximately $0.2 million and $0.1 million for the
fiscal year 2001 and 2000, respectively.

NOTE 11 -- RELATED PARTY TRANSACTIONS AND RELATIONSHIPS

The Company makes available one-year and three-year loans to its executive
officers and non-employee directors. The one-year loans accrue interest at the
Company's effective borrowing rate (6.9% at March 31, 2001 and 8.0% at March 31,
2000) and the three-year loans accrue interest at the Company's effective
borrowing rate plus one percent. Loan amounts classified as short-term under
these contracts are included in prepaid expenses and other current assets on the
Company's consolidated balance sheets and totaled $0.5 million and $0.3 million
at March 31, 2001 and 2000, respectively. Loan amounts classified as long-term
under these contracts are included in other assets on the Company's consolidated
balance sheets and totaled $0.6 million and $0.5 million at March 31, 2001 and
2000, respectively.

DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

NOTE 12 -- COMMITMENTS, CONTINGENCIES AND GUARANTEES

The Company and its subsidiaries lease facilities and warehouse, office,
transportation and other equipment under operating leases expiring in various
years. In most cases, management expects that, in the normal course of business,
leases will be renewed or replaced by other leases. As discussed in Note 3, the
Company completed a transaction during June 2001 to purchase certain
distribution assets from PFSweb and to terminate certain transaction management
services agreements with PFSweb. As a result, sublease rentals of approximately
$4.8 million that, as of March 31, 2001, were scheduled to be paid by PFSweb
will be now be paid by the Company. Minimum future annual rental payments under
non-cancelable operating leases having original terms in excess of one year are
as follows (in thousands):

<Table>

2002........................ $ 8,549
2003........................ 7,031
2004........................ 6,176
2005........................ 3,225
2006........................ 2,653
Thereafter.................. 3,891
--------
Total minimum lease payments 31,525
Less: sublease rentals...... 7,004
--------
$ 24,521
========
</Table>

Total rental expense under operating leases approximated $6.0 million, $8.8
million and $5.8 million for the fiscal years ended March 31, 2001, 2000 and
1999, respectively.

Although the Company carries products and accessories supplied by numerous
vendors, the Company's net revenues from products manufactured by its ten
largest suppliers were approximately 76%, 78% and 69% of total net revenues
during fiscal years 2001, 2000 and 1999, respectively. The Company has entered
into written distribution agreements with nearly all of its major suppliers. As
is customary in the industry, these agreements generally provide non-exclusive
distribution rights, have one-year renewable terms and are terminable by either
party at any time, with or without cause. Additionally, many of the Company's
suppliers offer rebate programs under which, subject to the Company purchasing
certain predetermined amounts of inventory, the Company receives rebates based
on a percentage of the dollar volume of total rebate program purchases. The
Company also takes advantage of several other programs offered by substantially
all of its suppliers. These include price protection plans under which the
Company receives credits if the supplier lowers prices on previously purchased
inventory and stock rotation or stock balancing privileges under which the
Company can return slow-moving inventory in exchange for other products.

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

In connection with the IPO of PFSweb, the Company has guaranteed certain
PFSweb operating lease obligations. The Company does not expect to make any
payments under its guarantee of the PFSweb operating leases; however, if
performance were required, the amounts listed below would be mitigated by
terminations and/or subleases. The total minimum payments for the PFSweb
operating leases which are guaranteed by the Company are as follows (in
thousands):

<Table>

2002......... $ 4,071
2003......... 4,158
2004......... 2,771
2005......... 1,735
2006......... 1,731
Thereafter... 2,871
--------
Total $ 17,337
========
</Table>

DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

NOTE 13 -- EMPLOYEE SAVINGS PLAN

The Company has a defined contribution employee savings plan under Section
401(k) of the Internal Revenue Code. Substantially all full-time and part-time
U.S. employees are eligible to participate in the plan. The Company, at its
discretion, may match employee contributions to the plan and also make an
additional matching contribution in the form of profit sharing in recognition of
Company performance. For fiscal year 2001, 2000 and 1999, the Company matched
10% of employee contributions resulting in a charge against income of
approximately $143,000, $91,000 and $88,000, respectively.

NOTE 14 -- SEGMENT DATA

The Company currently operates in two reportable business segments --
computer and office supplies and professional tape products. Prior to the
spin-off of PFSweb during July 2000, the Company also provided transaction
management services to both traditional and electronic commerce companies. The
Company's reportable segments are strategic business units that offer different
products and services and are managed separately based on the fundamental
differences in their operations. PFSweb segment revenue includes revenue earned
for certain services provided to the computer and office supplies segment, which
is eliminated in consolidation. The accounting policies of the segments are the
same as those described in Note 1. No single customer accounted for more than
10% of the Company's annual net revenues for the fiscal years ended March 31,
2001, 2000 and 1999.

Computer and Office Supplies

The computer and office supplies segment distributes over 17,000 nationally
known, name-brand computer and office supplies products to more than 35,000
customer locations. Customers include value-added resellers, computer supplies
dealers, office product dealers, contract stationers, buying groups, computer
and office product superstores, grocery stores, drugstores, web-based resellers,
and other retailers who resell the products to end-users. This segment also
includes Virtual Demand, the Company's wholly-owned subsidiary which provides
marketing and demand generation services. The Company began computer and office
supplies distribution in the United States in the 1980s and expanded
internationally into Canada in 1989, Mexico in 1994, Australia in 1996 and
Argentina in 2000. In addition, the Company began distribution to Central and
South America in 1996 from its Miami facility. Computer and office supplies
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.

Professional Tape Products

The professional tape products segment is headquartered in Elmhurst,
Illinois and operates as a distributor of media products to the film,
entertainment and multimedia industries. Daisytek began operating the
professional tape products segment in 1998 and currently distributes more than
2,800 professional tape products to over 23,500 customers. Professional tape
products customers primarily include production and broadcast companies,
advertising and governmental agencies, cable television providers, educational
institutions and healthcare providers. Professional tape products include
videotape, audiotape, motion picture film and data storage media.

PFSweb

The Company's subsidiary PFSweb provided transaction management services to
both traditional and e-commerce companies and sold products and services
primarily in the United States, Canada and Europe. The Company completed the
spin-off of PFSweb during July 2000, as discussed in Note 3.

DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Separate financial data for each of the Company's operating segments is
provided below (in thousands):

<Table>
<Caption>
2001 2000 1999
------------ ------------ ------------

Net revenues:
Computer and office
supplies, excluding
discontinued operations ............. $ 921,793 $ 869,458 $ 802,191
Professional tape products ........... 81,790 93,723 103,346
PFSweb ............................... 15,836 38,619 16,009
Intersegment eliminations ............ (7,289) (14,594) (5,028)
------------ ------------ ------------
Consolidated ......................... 1,012,130 987,206 916,518
Operating contribution (loss):
Computer and office
supplies, excluding
discontinued operations ............. 26,593 25,330 32,956
Professional tape products ........... 3,541 5,085 4,383
PFSweb ............................... (505) (7,940) (238)
Intersegment eliminations ............ (458) (79) 618
------------ ------------ ------------
Consolidated ......................... 29,171 22,396 37,719
Identifiable assets:
Computer and office
supplies, excluding
discontinued operations ............. 247,377 219,356 198,527
Professional tape products ........... 38,809 43,638 48,295
PFSweb ............................... -- 64,840 69,057
Intersegment eliminations ............ -- (4,539) --
Assets of discontinued
subsidiary .......................... 94,682 49,451 --
------------ ------------ ------------
Consolidated ......................... 380,868 372,746 315,879
</Table>

The Company's computer and office supplies segment includes certain expenses
and assets that relate to the professional tape products segment which are not
allocated by management to this segment. These expenses primarily represent: (1)
costs related to the Company's centralized management information, warehouse and
telephone systems and (2) executive, administrative and other corporate costs.
The assets not allocated to the professional tape products segment primarily
relate to the Company's centralized management information and telephone systems
and leasehold improvement on shared facilities.

Transition and certain other costs recorded by the Company have not been
allocated to the reportable segments. These expenses primarily relate to certain
repositioning and separation activities associated with the spin-off of PFSweb.
Other unallocated expenses include certain bad debt allowance increases, legal
and professional fees related to an unsolicited acquisition offer, costs related
to the closing of Singapore, write-downs of inventory, certain charges related
to the closure B.A. Pargh's Nashville headquarters and restructuring activities
for the professional tape products segment. Additionally, certain costs incurred
by the professional tape products segment during fiscal years 2000 and 1999,
including acquisition related costs and a loss on disposition of the
professional tape hardware business, are not included in this segment's
operating contribution.

A reconciliation of segment operating contribution to consolidated income
from operations follows (in thousands):

<Table>
<Caption>
2001 2000 1999
---------- ---------- ----------

Segment operating contribution (loss) ...... $ 29,171 $ 22,396 $ 37,719
Transition and other unallocated costs .... (6,940) (11,132) --
Acquisition related costs .................. -- (619) (1,111)
Loss on disposition of business ............ -- 1,000 (2,800)
---------- ---------- ----------
Consolidated income from operations ........ 22,231 11,645 33,808
========== ========== ==========
</Table>

DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Geographic Information

The Company's computer and office supplies segment has significant
international operations. A summary of this segment by geographic region
follows (in thousands):

<Table>
<Caption>
2001 2000 1999
---------- ---------- ----------

Net revenues -- computer and office supplies:
United States ....................................... $ 593,080 $ 586,191 $ 568,906
Canada .............................................. 128,607 106,556 99,153
Latin America ....................................... 133,418 113,020 87,740
Australia ........................................... 66,409 55,378 39,103
Other ............................................... 279 8,313 7,289
---------- ---------- ----------
$ 921,793 $ 869,458 $ 802,191
========== ========== ==========
Long-lived assets -- computer and office supplies:
United States ....................................... $ 28,734 $ 15,336 $ 14,733
Canada .............................................. 732 973 1,185
Latin America ....................................... 1,715 1,090 1,027
Australia ........................................... 1,910 2,528 2,734
Other ............................................... -- 118 259
---------- ---------- ----------
$ 33,091 $ 20,045 $ 19,938
========== ========== ==========
</Table>

NOTE 15 -- QUARTERLY DATA (UNAUDITED)

Summarized unaudited quarterly financial data for fiscal years 2001 and
2000 are as follows (dollars in thousands, except per share data). Quarterly
data as previously presented in the Company's Form 10-Qs, as applicable, has
been restated to reflect the operations of the Company's subsidiary BSD as
discontinued operations (see Note 4).

<Table>
<Caption>
FISCAL YEAR 2001
------------------------------------------------------------------
4TH QTR. 3RD QTR. 2ND QTR. 1ST QTR.
----------- ----------- ----------- -----------
(UNAUDITED)

Net revenues ....................... $ 264,066 $ 251,034(a) $ 242,305(a) $ 254,725(a)
Income from operations(b) .......... $ 6,155 $ 4,314 $ 6,077 $ 5,685
Operating margin ................. 2.3% 1.7% 2.5% 2.2%
Income before minority interest .... $ 3,006 $ 2,004 $ 3,193 $ 2,787
Percent of net revenues .......... 1.1% 0.8% 1.3% 1.1%
Income from continuing
operations ....................... $ 3,006 $ 2,004 $ 3,193 $ 2,834
Percent of net revenues .......... 1.1% 0.8% 1.3% 1.1%
Net income ......................... $ 3,119 $ 2,206 $ 3,121 $ 2,980
Net margin ....................... 1.2% 0.9% 1.3% 1.2%
Net income per common share:
Basic ............................ $ 0.21 $ 0.15 $ 0.19 $ 0.17
Diluted .......................... $ 0.21 $ 0.15 $ 0.19 $ 0.17
</Table>

DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

<Table>
<Caption>
FISCAL YEAR 2000
---------------------------------------------------------------
4TH QTR. 3RD QTR. 2ND QTR. 1ST QTR.
----------- ----------- ----------- -----------
(UNAUDITED)

Net revenues ..................................... $ 264,375(a) $ 247,580(a) $ 239,504(a) $ 235,747(a)
Income (loss) from operations(b) ................ $ 3,853 $ (2,318) $ 2,502 $ 7,608
Operating margin ............................... 1.5% (0.9)% 1.0% 3.2%
Income (loss) before minority interest ........... $ 2,153 $ (3,420) $ 941 $ 4,183
Percent of net revenues ........................ 0.8% (1.4)% 0.4% 1.8%
Income (loss) from continuing operations ......... $ 2,231 $ (2,932) $ 941 $ 4,183
Percent of net revenues ........................ 0.8% (1.2)% 0.4% 1.8%
Net income (loss) ................................ $ 2,303 $ (2,899) $ 952 $ 4,183
Net margin ..................................... 0.9% (1.2)% 0.4% 1.8%
Net income (loss) per common share:
Basic .......................................... $ 0.13 $ (0.17) $ 0.06 $ 0.24
Diluted ........................................ $ 0.12 $ (0.17) $ 0.05 $ 0.24
</Table>

- ----------

(a) The Company has restated all periods prior to the fourth quarter of
fiscal year 2001 to classify freight costs billed to customers and
rebates paid to customers as components of net revenues in compliance
with Emerging Issues Task Force Issues No. 00-10, Accounting for
Shipping and Handling Fees and Costs, and No. 00-14, Accounting for
Certain Sales Incentives. Freight costs billed to customers and rebates
paid to customers had previously been recorded as a component of cost
of sales.

(b) The quarterly data includes certain unusual charges that affect
comparability, including certain bad debt allowance increases, legal
and professional fees related to an unsolicited acquisition offer,
costs related to the closing of Singapore, write-downs of inventory,
certain charges related to the closure B.A. Pargh's Nashville
headquarters and restructuring activities for the professional tape
products segment. These costs totaled $6.9 million for fiscal year
2001, including $1.9 million, $2.8 million, $1.6 million and $0.6
million for the quarters ended March 31, 2001, December 31, 2000,
September 30, 2000 and June 30, 2000, respectively. These costs totaled
$11.1 million for fiscal year 2000, including $1.8 million, $1.9
million and $7.4 million for the quarters ended March 31, 2000,
December 31, 1999, and September 30, 1999.