1.	Basis of Presentation

The accompanying condensed consolidated financial statements of the Company and its wholly-owned subsidiaries are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America are not required in these interim financial statements and have been condensed or omitted. All significant intercompany accounts and transactions have been eliminated in consolidation. Within the second quarter of 2017 and for all periods presented, the Company modified the presentation of certain costs associated with operating our distribution centers as well as with our Purchasing and Product Development personnel. Historically these costs have been included as a component of cost of sales. These costs are now included within Selling, Distribution, and Administrative expenses (“SD&A”). For the second quarter ended June 30, 2017 and 2016, these costs, included within continuing operations, were $10.8 million and $10.1 million, respectively, and for the six months ended June 30, 2017 and 2016 the costs were $21.8 million and $19.4 million, respectively.

On March 24, 2017, certain wholly owned subsidiaries of the Company executed a definitive securities purchase agreement (the “Purchase Agreement”) with certain special purpose companies formed by Hilco Capital Limited (“Hilco” and together with its management team partners, “Purchaser”). Pursuant to the Purchase Agreement, Purchaser acquired all of the Company’s interests in Systemax Europe SARL, which includes its subsidiaries, Systemax Business Services K.F.T., Misco UK Limited, Systemax Italy S.R.L., Misco Iberia Computer Supplies S.L., Misco AB, Global Directmail B.V. and Misco Solutions B.V. (collectively, the “SARL Businesses”). The transaction closed immediately upon execution of the Purchase Agreement.

The Company retained its France technology value added reseller business, which is conducted through its subsidiary, Inmac Wstore S.A.S., which was not part of the sale transaction.

The SARL Businesses were sold on a cash-free, debt-free basis; proceeds were nominal. As part of the transaction, the Company retained a 5% residual equity position in the Purchaser’s acquiring entity, a note receivable and will provide limited transition services to Purchaser for a limited period of time under a transition services agreement. Additional charges may be incurred in the discontinued SARL Businesses related to certain vendor guarantees, provided by the Company, which have a remaining balance as of June 30, 2017 of approximately $0.6 million. These guarantees were revoked by the Company at closing, but remained effective through closing and through a subsequent notice period. Other charges may arise related to statutory tax indemnities given at closing. The Company maintains complete indemnification from the Purchaser related to the vendor guarantees and the Purchaser has pledged certain collateral to assure payment.

The sale of the SARL Businesses met the “strategic shift with major impact” criteria as defined under Accounting Standards Update (“ASU”) 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, which requires disclosures of both discontinued operations and certain other disposals that do not meet the definition of a discontinued operation. Under ASU 2014-08 in order for a disposal to qualify for discontinued operations presentation in the financial statements, the disposal must be a “strategic shift” with a major impact for the reporting entity. If the entity meets this threshold, and other requirements, only the components that were in operation at the time of disposal are presented as discontinued operations. Therefore, the current year and prior year results of the SARL Businesses are included in discontinued operations in the accompanying condensed consolidated financial statements. For the second quarter ended June 30, 2017 and 2016, net sales of the SARL business included in discontinued operations totaled $0.0 million and $123.1 million, respectively, and for the six months ended June 30, 2017 and 2016, net sales included in discontinued operations totaled $117.0 million and $266.1 million, respectively. Net loss of the SARL business included in discontinued operations for the second quarter ended June 30, 2017 and 2016 totaled $1.3 million and $4.3 million, respectively, and for the six months ended June 30, 2017 and 2016, net loss included in discontinued operations totaled $28.2 million and $6.9 million, respectively.

As disclosed in our Form 10-K for the fiscal year 2015, on December 1, 2015, the Company sold its North American Technology group operating businesses (“NATG”) and began the wind-down of its remaining NATG operations. The sale of the NATG business in December 2015 had a major impact on the Company and therefore met the strategic shift criteria as defined under ASU 2014-08. The NATG components in operation at the time of the sale were the B2B and Ecommerce businesses and three remaining retail stores. Accordingly, these components and the results of operations have been adjusted in the accompanying condensed consolidated financial statements to reflect their presentation in discontinued operations. The 31 retail stores and warehouse which were closed in 2015 and prior to the transaction, along with allocations of common distribution and back office costs, did not meet the strategic shift criteria and accordingly, are presented as part of the Company’s continuing operations for all periods; other NATG operations that were discontinued by the Company in previous periods are also presented as continued operations for all periods. As a result, the former operations of NATG are now reported both within continuing operations and discontinued operations. During December 2015, and the first quarter of 2016, the Company continued the exit of the NATG business as the Company sold all remaining inventory and closed all remaining retail stores and a warehouse. The wind-down of NATG operations was substantially completed during the second quarter of 2016 and during the remainder of 2016 and into 2017 the Company continued with collecting accounts receivable, settling accounts payable, marketing remaining leased facilities, as well as, settling remaining lease obligations and other contingencies. For the quarters ended June 30, 2017 and 2016, there were no net sales of NATG included in continuing operations and net loss included in continuing operations was $0.4 million and $0.6 million, respectively, and for the six months ended June 30, 2017 and 2016, there were no net sales of NATG included in continuing operations and net loss included in continuing operations was $0.4 million and $2.4 million, respectively. For the quarters ended June 30, 2017 and 2016, net sales of NATG included in discontinued operations was $0 and $(0.1) million, respectively, and for the six months ended June 30, 2017 and 2016, the net sales of NATG totaled $0 and $12.0 million, respectively. Net loss of NATG included in discontinued operations was $4.2 million and $5.4 million for the second quarter of 2017 and 2016, respectively, and for the six months ended June 30, 2017 and 2016 was $6.1 million and $21.6 million, respectively. The Company has financial obligations related to leased facilities of its former NATG business of approximately $61.0 million. Some of these leased facilities have been sublet and others are being marketed for sublet. The Company has engaged nationally recognized real estate firms to market these facilities and to assist in establishing the reserves the Company carries for these lease obligations. As of June 30, 2017 the Company has a reserve of $19.4 million for these lease obligations. The reserves established consider the total lease obligations of $61.0 million, current sublet income streams and projected sublet income streams. On a quarterly basis these reserves are re-evaluated particularly related to the projected sublease income streams. In the second quarter of 2017 the Company recorded additional reserves of approximately $3.4 million for these leased facilities, of which $0.2 million was recorded in continuing operations and $3.2 million was recorded in discontinued operations. The Company expects that further adjustment may be needed in the future for facilities that are not yet sublet if current assumptions do not materialize for the real estate markets these facilities are in.

On September 2, 2016 the Company sold certain assets of its Misco Germany operations which had been reported as part of its European Technology Products Group (“ETG”) segment. As this disposition was not a strategic shift with a major impact as defined under ASU 2014-08, prior and current year results of the German operations are presented within continuing operations in the condensed consolidated financial statements. For the quarters ended June 30, 2017 and 2016, net sales of Misco Germany included in continuing operations were $0 and $11.3 million, respectively, and net loss was $0.1 million and $0.8 million, respectively. For the six months ended June 30, 2017 and 2016, net sales of Misco Germany included in continuing operations were $0 and $26.4 million, respectively, and net loss was $0.2 million and $1.8 million, respectively.

On December 31, 2016 the Company sold its rebate processing business which had been reported as part of its Corporate and Other (“Corporate”) segment. As this disposition was also not a strategic shift with a major impact as defined under ASU 2014-08, prior year results of the rebate processing business are presented within continuing operations in the condensed consolidated financial statements. For the quarter and six months ended June 30, 2016, net sales of the rebate processing business was $0.9 million and $1.9 million, respectively, and net loss was $0.6 million and $1.0 million, respectively.

In the opinion of management, the accompanying condensed consolidated financial statements contain all normal and recurring adjustments necessary to present fairly the financial position of the Company as of June 30, 2017 and the results of operations for the three and six month periods ended June 30, 2017 and 2016, statements of comprehensive income (loss) for the three and six month periods ended June 30, 2017 and 2016, cash flows for the six month periods ended June 30, 2017 and 2016 and changes in shareholders’ equity for the six month period ended June 30, 2017. The December 31, 2016 condensed consolidated balance sheet has been derived from the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016. The current and long term assets and the current and long term liabilities of the SARL Businesses are classified in discontinued operations in the accompanying condensed consolidated balance sheet for 2016.

These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements as of December 31, 2016 and for the year then ended included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016. The results for the six month period ended June 30, 2017 are not necessarily indicative of the results for the entire year.

Systemax manages its business and reports using a 52-53 week fiscal year that ends at midnight on the Saturday closest to December 31. For clarity of presentation herein, fiscal years and quarters are referred to as if they ended on the traditional calendar month. The actual fiscal second quarter ended on July 1, 2017. The second quarters of both 2017 and 2016 included 13 weeks and the first six months of both 2017 and 2016 included 26 weeks.