ALLSTAR SYSTEMS INC, 424B1, 1997-07-08

ALLSTAR SYSTEMS INC
424B1, 1997-07-08
COMPUTERS & PERIPHERAL EQUIPMENT & SOFTWARE

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PROSPECTUS

1,767,500 SHARES

LOGO -- ALLSTAR SYSTEMS, INC.

COMMON STOCK

Of the 1,767,500 shares of Common Stock, $.01 par value per share ("Common
Stock") offered hereby (the "Offering"), 1,500,000 shares are being sold by
Allstar Systems, Inc. ("Allstar" or the "Company") and 267,500 shares are
being sold by a stockholder of the Company (the "Selling Stockholder"). The
Company will not receive any of the proceeds from any sale of Common Stock by
the Selling Stockholder. See "Principal and Selling Stockholders."

Prior to this Offering, there has been no public market for the Common
Stock. For information relating to the factors considered in determining the
initial public offering price, see "Underwriting." The Common Stock has been
approved for listing on the Nasdaq National Market under the symbol "ALLS."

SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK
OFFERED HEREBY.

------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) STOCKHOLDER
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share................................. $6.00 $0.45 $5.55 $5.55
- ------------------------------------------------------------------------------------------------------------------
Total(3).................................. $10,605,000 $795,375 $8,325,000 $1,484,625
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Excludes the value of warrants to purchase up to 176,750 shares of Common
Stock at an exercise price per share equal to the greater of 120% of the
initial public offering price per share or $9.60 per share, issuable upon
exercise of warrants to be issued to Sutro & Co. Incorporated and Cruttenden
Roth Incorporated (the "Representatives") upon the closing of this
Offering (the "Representatives' Warrants"). Also excludes a
non-accountable expense allowance payable to the Representatives. The
Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."

(2) Before deducting estimated expenses of $826,000 payable by the Company.

(3) The Company has granted the Underwriters an option, exercisable for 45 days
from the date of this Prospectus, to purchase a maximum of 265,125
additional shares of Common Stock from the Company solely to cover
over-allotments, if any. If such option is exercised in full, the total
Price to Public, Underwriting Discount and Proceeds to Company will be
$12,195,750, $914,681 and $9,796,444, respectively. See "Underwriting."

------------------------

The shares of Common Stock are offered by the several Underwriters subject
to receipt and acceptance by them and subject to their right to reject any order
in whole or in part and to withdraw, cancel or modify this Offering without
notice. It is expected that delivery of the certificates for the shares will be
made on or about July 10, 1997.

SUTRO & CO. INCORPORATED CRUTTENDEN ROTH
INCORPORATED

------------------------

THE DATE OF THIS PROSPECTUS IS JULY 7, 1997
<PAGE>
[GRAPHICS]

The graphics on page two of the Prospectus are on the inside front cover,
seen when first opening the Prospectus. Page two contains at the bottom the
stabilization and other language set forth below. Page two also contains a copy
of the Company's logo below which are the following pictures: (i) computer
products; (ii) a call center agent working on a computer; (iii) a technician
explaining a computer system to another person while seated in front of the
computer; and (iv) two phone systems. Each of the pictures is in one of the four
quadrants of the space and represents the four business divisions of the
Company. Below each of the pictures is a caption of the business division that
the picture represents, which are Computer Products, CTI Software, IT Services,
and Telecom Systems, respectively.

Prior to the Offering, the Company has not been subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). The Company intends to furnish its stockholders with annual reports
containing consolidated financial statements audited by independent certified
public accountants following the end of each fiscal year and with quarterly
reports containing unaudited summary financial information for each of the first
three quarters of each fiscal year.

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF
THE COMPANY, INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING
TRANSACTIONS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."

<PAGE>
PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ
IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION HEREIN AND IN THE COMPANY'S
CONSOLIDATED FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, INCLUDED
ELSEWHERE IN THIS PROSPECTUS. ALL REFERENCES TO THE "COMPANY" OR TO
"ALLSTAR" REFER TO ALLSTAR SYSTEMS, INC., ITS PREDECESSORS AND SUBSIDIARIES.
UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS (I) REFLECTS THE
REINCORPORATION OF THE COMPANY AS A DELAWARE CORPORATION IN OCTOBER 1996 AND THE
RESULTING 8.15-FOR-1 SHARE CONVERSION OF THE COMMON STOCK AND (II) ASSUMES THAT
THE UNDERWRITERS' OVER-ALLOTMENT OPTION WILL NOT BE EXERCISED. SEE
"BUSINESS -- HISTORY AND REINCORPORATION" AND "UNDERWRITING." A GLOSSARY OF
NAMES AND CERTAIN TECHNICAL TERMS IS LOCATED AFTER THE COMPANY'S CONSOLIDATED
FINANCIAL STATEMENTS IN THIS PROSPECTUS BEGINNING AT PAGE G-1.

THE COMPANY

The Company is a growing regional provider of computer and
telecommunications hardware and software products and related services. The
Company primarily markets its products and services in Texas from two locations
in the Houston and Dallas-Fort Worth metropolitan areas. The Company's customer
base of approximately 3,400 accounts is comprised primarily of mid-sized
companies and regional offices of larger companies in commercial, educational
and governmental sectors. The Company positions itself to provide its customers
with single-source solutions for both their computer and telecommunications
needs by offering a broad range of products and services and by providing the
expertise to support integrated computer and telecommunications applications.

The Company's revenue is derived from sales of computer hardware and
software ("Computer Products"), computer-related information technology services
("IT Services"), telecommunications equipment and services ("Telecom Systems")
and the Company's proprietary computer/telephone integration software ("CTI
Software"). The Company is an authorized reseller of computer products from
Compaq, Hewlett-Packard, IBM, Microsoft, Novell and other leading manufacturers.
Long-standing relationships with leading aggregators and wholesale distributors
of computer hardware and software products enable the Company to provide its
customers with competitive product pricing and ready product availability. IT
Services include system design, installation, integration and support services.
With respect to Telecom Systems, the Company markets, installs and services
telecommunications equipment, including large PBX telephone systems from NEC and
Mitel, and smaller "key systems," including products from Inter-Tel, Macrotel
and NEC. In 1995, the Company introduced proprietary CTI Software products which
facilitate computer and telephone integration ("CTI"), primarily for
telemarketing, call center and other high volume calling applications.

The Company believes that the trend toward CTI is likely to continue and
that integrated voice, data and video communication will become more prevalent
and affordable. The Company believes open architecture CTI standards and
solutions will develop as they did in the computer industry. As the technology
and management of telecommunications and computer systems converge over the next
decade, the Company expects that customers will demand products and services
which integrate telecommunications and computer technologies.

For the year ended December 31, 1996, the Company's operating income
increased 81.5% on a 32.1% increase in total revenue from the prior year. For
the year ended December 31, 1995, the Company produced a 91.3% increase in
operating income on a 42.2% increase in total revenue compared to 1994. The
Company's growth has been particularly influenced by the expansion of its
Computer Products and IT Services operations into the Dallas-Fort Worth market
and the launch of its Telecom Systems business, which completed its first full
year of operations in 1995.

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<PAGE>
The Company's goal is to expand its regionally-based business as a provider
of computer and telephone hardware and software products and related services.
To achieve this objective, the Company intends to pursue several key strategies:

EXPAND GEOGRAPHICALLY. The Company intends to open additional offices
within Texas and in new regions to service existing customers and attract new
customers. The Company plans to open two new offices within the next year, the
first in Austin, Texas and the second in San Antonio, Texas. Upon opening an
office in San Antonio, the Company will have branch offices in three of the ten
largest metropolitan areas in the United States.

INCREASE TELECOM SYSTEMS AND CTI SOFTWARE BUSINESSES. The Company began
offering Telecom Systems in 1994 and CTI Software in 1995 to capitalize on the
growing trend in CTI. The Company intends to (i) expand Telecom Systems
operations to the Dallas-Fort Worth market during the third quarter of 1997,
(ii) pursue acquisitions of regional telephone system resellers with established
customer bases in targeted markets and (iii) increase the variety and
capabilities of its CTI Software products through internal development and
acquisitions of complementary software products.

IMPLEMENT INTERNET-BASED NATIONAL MARKETING PROGRAM. The Company intends
to implement a new method of marketing its Computer Products on a nationwide
basis under the trade name "800 PC Deals." By accessing an Internet home page
currently under development, the Company's sales representatives and customers
will be able to obtain product pricing and availability data, enter or change
orders and access customer account status information. The Company plans to
employ experienced sales representatives in selected metropolitan markets who
will be supported by the new Internet-based system and by a national sales
support call center performing order entry and customer service functions. 800
PC Deals is anticipated to begin operation in the second half of 1997.

The Company's executive offices are located at 6401 Southwest Freeway,
Houston, Texas 77074 and its telephone number is (713) 795-2000.

THE OFFERING

Common Stock offered by the 1,500,000 shares
Company............................
Common Stock offered by the Selling 267,500 shares
Stockholder........................
Common Stock to be outstanding after 4,175,000 shares(1)
this Offering......................
Use of proceeds by the Company....... To repay short-term borrowings, for
working capital and for general corporate
purposes. See "Use of Proceeds."
Nasdaq National Market symbol........ ALLS

- ------------

(1) Excludes (i) 417,500 shares of Common Stock reserved for issuance under the
1996 Incentive Stock Plan, of which options to purchase 100,000 shares of
Common Stock will be granted upon closing of the Offering with exercise
prices at or above the initial public offering price, none of which will be
currently exercisable, (ii) restricted stock awards for 14,286 shares which
will be granted upon closing of this Offering to certain key employees, none
of which will be vested, (iii) 100,000 shares reserved for issuance under
the 1996 Non-Employee Director Stock Option Plan, none of which are issued
or outstanding and (iv) 176,750 shares of Common Stock issuable upon
exercise of the Representatives' Warrants.

4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------- ------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Total revenue........................ $ 64,076 $ 91,085 $ 120,359 $ 25,948 $ 26,593
Gross profit......................... 8,535 11,228 16,057 3,221 3,831
Operating income..................... 1,087 2,079 3,773 547 696
Income before provision for income
taxes.............................. 323 861 2,590 250 407
Net income........................... 183 519 1,603 139 253
Net income per share................. $ 0.07 $ 0.19 $ 0.60 $ 0.05 $ 0.09
Weighted average shares
outstanding........................ 2,554,808 2,675,000 2,675,000 2,675,000 2,675,000
</TABLE>
AS OF MARCH 31, 1997
--------------------------
ACTUAL AS ADJUSTED(1)
--------- --------------
BALANCE SHEET DATA:
Working capital...................... $ 2,534 $ 10,033
Total assets......................... 27,301 27,301
Short-term borrowings(2)............. 10,411 2,912
Long-term debt....................... -- --
Stockholders' equity................. 4,580 12,079

- ------------

(1) As adjusted gives effect to this Offering and the application of the net
proceeds therefrom. See "Use of Proceeds."

(2) See Note 5 to the Company's Consolidated Financial Statements. Short-term
borrowings do not include amounts recorded as floor plan financing which are
included in accounts payable.

<PAGE>
RISK FACTORS

IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING RISK
FACTORS, EACH OF WHICH COULD AFFECT THE COMPANY'S FUTURE RESULTS OF OPERATIONS
AND PROSPECTS, SHOULD BE CAREFULLY CONSIDERED IN EVALUATING THE COMPANY AND ITS
BUSINESS BEFORE PURCHASING SHARES OF THE COMMON STOCK OFFERED HEREBY.

RISK OF LOW MARGIN BUSINESS

The Company's past growth in net income has been fueled primarily by sales
growth rather than increased gross profit margins. Given the significant levels
of competition that characterize the computer reseller market, it is unlikely
that the Company will be able to increase gross profit margins in its core
business of reselling computer products which accounted for approximately 90% of
the Company's total revenue in 1994, 1995 and 1996. Moreover, in order to
attract and retain many of its larger customers, the Company frequently must
agree to volume discounts and maximum allowable markups that serve to limit the
profitability of sales to such customers. Accordingly, to the extent that the
Company's sales to such customers increase, the Company's gross profit margins
may be reduced and, therefore, any future increases in net income will have to
be derived from continued sales growth or effective expansion into higher margin
businesses, neither of which can be assured. Furthermore, low margins increase
the sensitivity of the Company's results of operations to increases in costs of
financing. Any failure by the Company to maintain or increase its gross profit
margins and sales levels could have a material adverse effect on the Company's
financial condition and results of operations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

DEPENDENCE ON AVAILABILITY OF CREDIT; DEPENDENCE ON IBMCC; INTEREST RATE
SENSITIVITY

The Company is highly leveraged and the Company's business activities are
capital intensive in that the Company is required to finance accounts receivable
and inventory. In order to obtain necessary working capital, the Company relies
primarily on lines of credit under which the available credit and credit limits
are dependent on the amount and quality of the Company's accounts receivable and
inventory. As a result, the amount of credit available to the Company may be
adversely affected by factors such as delays in collection or deterioration in
the quality of the Company's accounts receivable, inventory obsolescence,
economic trends in the computer industry, interest rate fluctuations and the
lending policies of the Company's lenders. Many of these factors are beyond the
Company's control. Any decrease or material limitation in the amount of capital
available to the Company under its credit lines and other financing arrangements
would limit the ability of the Company to fill existing sales orders, purchase
inventory or expand its sales levels and, therefore, would have a material
adverse effect on the Company's financial condition and results of operations.
In addition, any significant increases in interest rates will increase the cost
of financing to the Company and would have a material adverse effect on the
Company's financial condition and results of operations. Substantially all of
the Company's credit availability is provided by IBM Credit Corporation
("IBMCC"), through which it maintains a base $20.0 million revolving line of
credit facility, and Deutsche Financial Services Corporation ("DFS"), through
which it maintains a $3.0 million line of credit facility to finance certain
inventory purchases. It is anticipated that the Company will continue to rely on
accounts receivable and inventory financing from IBMCC and inventory financing
from DFS to finance future growth. During each of 1994, 1995 and the first seven
months of 1996, the Company was in default of certain financial and other
covenants under both its IBMCC and DFS credit facilities due largely to the
financing of its rapid growth during those periods by short-term indebtedness
under those same credit facilities. Although the Company has periodically sought
and obtained waivers from its lenders for prior defaults of certain covenants
(and may be required to do so in the future), and has obtained amendments to its
credit facilities liberalizing certain other covenants, there can be no
assurance that either of its principal lenders will accommodate future requests
for waivers or amendments. There can be no assurance that financing from IBMCC,
DFS or other lenders will be available to the Company in the future in the
amounts presently available, or at all. The inability of the Company to have
continuous access to such financing at reasonable costs would materially and
adversely impact the Company's financial condition and results of

6
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operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."

HIGHLY COMPETITIVE BUSINESS

The Company is engaged in business activities that are intensely
competitive and rapidly changing. The Company believes that the principal
competitive factors in the business in which it operates are relative price and
performance, product availability, technical expertise, adherence to industry
standards, financial stability, service support and reputation. Price
competition has intensified, particularly in the Company's Computer Products and
IT Services businesses, and is likely to continue to intensify. Such price
competition could have a material adverse affect on the Company's financial
condition and results of operations. There can be no assurance that the Company
will be able to continue to compete successfully with existing or new
competitors. The Company's competitors include major computer products and
telephone equipment manufacturers, aggregators and distributors, including
certain manufacturers, aggregators and distributors which supply products to the
Company. Other competitors include established national, regional and local
resellers, systems integrators, telephone systems dealers, computer-telephony
VARs and other CTI software suppliers. Some of the Company's current and
potential competitors have longer operating histories and financial, sales,
marketing, technical and other competitive resources which are substantially
greater than those of the Company. As a result, the Company's competitors may be
able to adapt more quickly to changes in customer needs or to devote greater
resources than the Company to sales and service of its products. Such
competitors could also attempt to increase their presence in the Company's
markets by forming strategic alliances with other competitors of the Company,
offering new or improved products and services to the Company's customers or
increasing their efforts to gain and retain market share through competitive
pricing. See "Business -- Competition."

MANAGEMENT OF GROWTH; REGIONAL CONCENTRATION

The Company has experienced rapid growth which has and may continue to put
strains on the Company's management, operational and financial resources. The
Company's ability to manage growth effectively will require it to continue to
implement and improve its operational, financial and sales systems, to develop
the skills of its managers and supervisors and to hire, train, motivate and
manage its employees. The Company's future growth, if any, is expected to
require the addition of new management personnel and the development of
additional expertise by existing management personnel. There can be no assurance
that the Company will be successful in managing growth, and the failure to do so
could have a material adverse affect on the Company's financial position and
results of operations. Within the next 12 months, the Company intends to open
new offices in Austin and San Antonio. The Company also plans to relocate its
Dallas-Fort Worth office and consolidate substantially all of its warehouse and
distribution operations in the Dallas-Fort Worth metropolitan area. The Company
anticipates that it will incur substantial costs in connection with these new
office openings, including expenditures for furniture, fixtures and equipment.
Additional burdens on the Company's working capital are also expected in
connection with the start-up of such operations. Any significant disruption or
unanticipated expenses in connection with these plans could also have a material
adverse effect on the Company's financial condition and results of operations.
For the foreseeable future, the Company expects that it will continue to derive
most of its total revenue from customers located in or near the metropolitan
areas in Texas in which the Company maintains offices. Accordingly, an economic
downturn in any of those metropolitan areas, or in the region in general, would
likely have a material adverse effect on the Company's financial condition and
results of operations.

DEPENDENCE ON KEY PERSONNEL

The success of the Company for the foreseeable future will depend largely
on the continued services of key members of management, leading salespersons and
technical personnel. There can be no assurance that the departure of one or more
of such key personnel would not have a material adverse effect on the Company's
results of operations. The Company is particularly dependent upon James H. Long,
founder, Chairman of the Board, President and Chief Executive Officer of the
Company, because of his knowledge of the Company's operations, industry
knowledge, marketing skills and relationships with major vendors,

7
<PAGE>
customers and key personnel. The Company does not maintain key personnel life
insurance on any of its executive officers or salespersons other than Mr. Long.
The Company's success also depends in part on its ability to attract, hire,
train and retain qualified managerial, technical and sales and marketing
personnel at a reasonable cost, particularly those involved in providing systems
integration, support services and training. Competition for such personnel is
intense. There can be no assurance that the Company will be successful in
attracting and retaining the qualified personnel, including technical personnel,
it requires to conduct and expand its operations successfully.The Company's
inability to attract, hire, train and retain qualified personnel could have a
material adverse affect on the Company's financial condition and results of
operations.

DEPENDENCE ON CONTINUED AUTHORIZATION TO RESELL AND PROVIDE
MANUFACTURER-AUTHORIZED SERVICES

The Company's future success in both product sales and services depends
largely on its continued status as an authorized reseller of products and its
continued authorization as a service provider. With respect to the Company's
computer hardware and software product sales and service, the Company maintains
sales and service authorizations with many industry-leading manufacturers,
including Compaq, Hewlett-Packard, IBM, Microsoft and Novell. In addition, some
of such agreements are based upon the Company's continued supply relationship
with Inacom or another aggregator or distributor approved by such manufacturers.
With respect to the Company's Telecom Systems business, the Company maintains
sales and service authorizations with industry-leading manufacturers, including
Active Voice, AVT, NEC, Inter-Tel, Macrotel and Mitel. Without such sales and
service authorizations, the Company would be unable to provide the range of
products and services currently offered. In addition, loss of manufacturer
authorizations for products that have been financed under the Company's credit
facilities constitutes an event of default under such credit facilities. In
general, the agreements between the Company and its products manufacturers
either provide for fixed terms or for termination on 30 days prior written
notice. There can be no assurance that such manufacturers will continue to
authorize the Company as an approved reseller or service provider.

DEPENDENCE ON SUPPLIERS

The Company's business depends upon its ability to obtain an adequate
supply of products and parts at competitive prices and on reasonable terms. The
Company's suppliers are not obligated to have product on hand for timely
delivery to the Company nor can they guarantee product availability in
sufficient quantities to meet the Company's demands. There can be no assurance,
therefore, that such products will be available as required by the Company at
prices or on terms acceptable to the Company. The Company procures a majority of
computers, computer systems, components and parts primarily from Inacom and
Ingram in order to obtain competitive pricing, maximize product availability and
maintain quality control. The Company's purchases from Inacom accounted for
approximately, 46.4%, 36.6% and 57.0% of the Company's total product purchases
in 1994, 1995 and 1996, respectively. In August 1996, the Company renewed its
long-term supply arrangement with Inacom and is obligated under the terms of
that agreement to purchase at least 80% of its Computer Products from Inacom,
but only to the extent that such products are made available within a reasonable
period of time at reasonably competitive pricing. The Company's purchases from
its second largest supplier, Ingram, accounted for approximately 14.1%, 20.6%
and 14.7% of the Company's total product purchases in 1994, 1995 and 1996,
respectively. There can be no assurance that the Company will be able to
continue to obtain necessary products from Inacom or Ingram on terms acceptable
to the Company, if at all. There can be no assurance that such relationships
will continue or that, in the event of a termination of its relationships with
either Inacom or Ingram, or both of such suppliers, it would be able to obtain
alternative sources of supply without a material disruption in the Company's
ability to provide products to its customers. Any material disruption in the
Company's supply of products would have a material adverse effect on the
Company's financial condition and results of operations. See
"Business -- Supply and Distribution."

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<PAGE>
RAPID TECHNOLOGICAL CHANGE

The business in which the Company competes is characterized by rapid
technological change and frequent introduction of new products and product
enhancements. The Company's success depends in large part on its ability to
identify and obtain products that meet the changing requirements of the
marketplace. There can be no assurance that the Company will be able to identify
and offer products necessary to remain competitive or avoid losses related to
obsolete inventory and drastic price reductions. The Company attempts to
maintain a level of inventory required to meet its near term delivery
requirements by relying on the ready availability of products from its principal
suppliers. Accordingly, the failure of the Company's suppliers to maintain
adequate inventory levels of products demanded by the Company's existing and
potential customers and to react effectively to new product introductions could
have a material adverse effect on the Company's financial condition and results
of operations. In addition, because certain products offered by the Company are
subject to manufacturer or distributor allocations, which limit the number of
units available to the Company, there can be no assurance that the Company will
be able to offer new products or product enhancements to its customers in
sufficient quantity to meet demand. Failure of the Company to gain sufficient
access to such new products or product enhancements could also have a material
adverse effect on the Company's financial condition and results of operations.
See "Business -- Supply and Distribution."

RELIANCE ON KEY CUSTOMERS

The Company's top ten customers (which varied from period to period)
accounted in the aggregate for approximately 31.4%, 27.9% and 33.2% of the
Company's total revenue during 1994, 1995 and 1996, respectively. During 1996,
the Company had one customer that accounted for 11.2% of its total revenue.
Based upon historical results and existing relationships with customers, the
Company believes that a substantial portion of its total revenue and gross
profit will continue to be derived from sales to existing customers. There are
no long-term commitments by such customers to purchase products or services from
the Company. Product sales by the Company are typically made on a purchase order
basis. A significant reduction in orders from any of the Company's largest
customers could have a material adverse effect on the Company's financial
condition and results of operations. Similarly, the loss of any one of the
Company's largest customers or the failure of any one of such customers to pay
its accounts receivable on a timely basis could have a material adverse effect
on the Company's financial condition and results of operations. There can be no
assurance that the Company's largest customers will continue to place orders
with the Company or that orders by such customers will continue at their
previous levels. There can be no assurance that the Company's service customers
will continue to enter into service contracts with the Company or that existing
contracts will not be terminated. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Results of Operations" and
"Business -- Customers."

RELIANCE ON MANAGEMENT INFORMATION SYSTEMS

The Company's success is largely dependent on the accuracy, quality and
utilization of the information generated by its customized management
information systems, which affects its ability to manage its sales, accounting,
inventory and distribution systems. The Company anticipates that it will
continually need to refine and enhance its management information systems as the
Company grows and the needs of its business evolve. In view of the Company's
reliance on information and telephone communication systems, any interruption or
errors in these systems could have a material adverse effect on the Company's
financial condition and results of operations. The Company's new Internet-based
system, through which 800 PC Deals will operate, is currently under development
and its implementation may encounter technical difficulties. There can be no
assurance that the new system will function as expected. See "Business --
Management Information Systems."

ACQUISITION RISK

The Company intends to pursue potential acquisitions of complementary
businesses. The success of this strategy depends not only upon the Company's
ability to acquire complementary businesses on a cost-

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effective basis, but also upon its ability to integrate acquired operations into
its organization effectively, to retain and motivate key personnel and to retain
customers of acquired firms. No specific acquisitions are being negotiated or
planned as of the date of this Prospectus and there can be no assurance that the
Company will be able to find suitable acquisition candidates or be successful in
acquiring or integrating such businesses. Furthermore, there can be no assurance
that financing required for any such transactions will be available on
satisfactory terms.

INTELLECTUAL PROPERTY PROTECTION

The Company's success depends in part upon the protection of its
intellectual property from unauthorized use. The Company has filed for, but has
not yet received, federal copyright protection for StrataDial and StrataVoice,
two of the Company's proprietary CTI software products. The Company is also
seeking federal trademark protection for its CTI Software products and the 800
PC Deals trade name. The Company presently relies primarily on trade secrecy and
confidentiality agreements with customers and employees to establish and protect
its rights in its intellectual property. However, without federal copyright and
federal trademark protection, there can be no assurance that the Company's
present protective measures will be adequate to prevent unauthorized use or
disclosure of its intellectual property or independent third party development
of the same or similar technology. Additionally, the prevention of unauthorized
use and disclosure of the Company's intellectual property will likely become
more difficult as its CTI Software business grows.

CONTROL BY, AND BENEFITS TO, EXISTING STOCKHOLDERS

Upon completion of this Offering, James H. Long, founder, Chairman of the
Board, President and Chief Executive Officer of the Company, will own 50.7% of
the outstanding Common Stock. Mr. Long will have the ability to control the
election of a majority of the members of the Company's Board of Directors,
approve (or prevent the approval of) certain matters requiring the approval of
stockholders and exert significant influence over the affairs of the Company.
The existing stockholders of the Company will benefit from this Offering,
principally through the increased liquidity of their holdings, which may result
from the creation of a public market for Common Stock, and through the potential
unrealized gains in the value of the Common Stock held by them. Mr. Long has
granted to the Selling Stockholder an option to purchase up to 118,000 shares of
Common Stock held by Mr. Long at the initial public offering price, such option
being conditioned on the successful completion of this Offering. If exercised,
the Selling Stockholder may benefit through the potential unrealized gains in
the value of any shares of Common Stock acquired by exercise of the option. Mr.
Long has personally guaranteed the Company's indebtedness to IBMCC and,
therefore, may be deemed to benefit from the application of a portion of the net
proceeds of this Offering to repay a substantial portion of the amounts
outstanding under the Company's accounts receivable revolving line of credit
with IBMCC. See "Use of Proceeds," "Management's Discussion and Analysis of
Financial Condition and Results of Operation -- Liquidity and Capital
Resources," "Principal and Selling Stockholders" and "Description of Capital
Stock."

NO PRIOR MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE

Prior to this Offering, no public market for the Common Stock existed and
there can be no assurance that an active market will develop upon completion of
this Offering or, if developed, that such market will be sustained. The initial
public offering price of the Common Stock was determined through negotiations
between the Company and the Representatives of the Underwriters and may not be
indicative of the market price of the Common Stock after this Offering. See
"Underwriting." The market price for the Common Stock may be volatile and
subject to fluctuations resulting from news announcements concerning the Company
or its industry, general securities market conditions or other factors.

It is anticipated that a significant number of the shares of Common Stock
being offered hereby will be sold to clients of the Representatives. Although
the Representatives have advised the Company that they intend to make a market
in the Common Stock following this Offering, they have no legal obligation to do
so. The Representatives, if they become market makers, could be a dominating
influence in the market for

10
<PAGE>
the Common Stock, if one develops. The prices and the liquidity of the Common
Stock may be significantly affected by the degree, if any, of the
Representatives' participation in such market. There can be no assurance that
any market activities of the Representatives, if commenced, will be continued.

POTENTIAL EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE ON PRICE OF COMMON STOCK

Upon completion of this Offering, the 1,767,500 shares of Common Stock
offered hereby will be freely tradeable by persons other than affiliates of the
Company without restriction. The remaining 2,407,500 shares held by current
stockholders of the Company will be eligible for resale, subject to the
provisions of Rule 144 under the Securities Act. The Company, its existing
stockholders and its officers and directors have agreed for a period of 180 days
after the date of this Prospectus not to, directly or indirectly, offer, sell,
contract to sell, grant any option to sell or otherwise dispose of any shares of
Common Stock, or other securities substantially similar, or securities
convertible into or exercisable or exchangeable for or any rights to purchase or
acquire Common Stock or other securities substantially similar (except for the
grant of options or of restricted stock awards pursuant to the 1996 Incentive
Stock Plan or the 1996 Non-Employee Director Stock Option Plan), without the
prior written consent of the Representatives. After this Offering, the Company
anticipates it will also have outstanding employee and director stock options
and restricted stock awards for an aggregate of 134,286 shares of Common Stock
and plans to file registration statements on Form S-8 with respect to the
issuance of such shares. Accordingly, such shares will generally be freely
tradeable upon issuance, except to the extent held by affiliates.

The Company has agreed to grant demand and incidental or "piggyback"
registration rights to the Representatives with respect to the resale by them of
the 176,750 shares of Common Stock issuable upon the exercise of the
Representatives' Warrants.

Sales of substantial amounts of the Common Stock in the public market,
whether by purchasers in this Offering or other stockholders of the Company, or
the perception that such sales could occur, may adversely affect the market
price of the Common Stock. See "Shares Eligible for Future Sale."

ANTI-TAKEOVER CONSIDERATIONS

The Company's Certificate of Incorporation and Bylaws contain certain
provisions that may delay, deter or prevent a change in control of the Company.
Among other things, these provisions authorize the board of directors of the
Company to issue shares of preferred stock on such terms and with such rights,
preferences and designations as the board of directors of the Company may
determine without further stockholder action and limit the ability of
stockholders to call special meetings or amend the Company's Certificate of
Incorporation or Bylaws. Each of these provisions, as well as the Delaware
business combination statute could, among other things, restrict the ability of
certain stockholders to effect a merger or business combination or obtain
control of the Company. See "Description of Capital Stock -- Preferred Stock"
and "-- Certain Anti-Takeover Provisions."

DILUTION

A purchaser of Common Stock in this Offering will experience an immediate
and substantial dilution in the net tangible book value of its shares of $3.11
per share. See "Dilution."

ABSENCE OF DIVIDENDS

The Company expects to retain cash generated from operations to support its
cash needs and does not anticipate the payment of any dividends on the Common
Stock for the foreseeable future. In addition, the Company's credit facilities
with IBMCC and DFS prohibit the declaration or payment of dividends, unless
consent is obtained from each lender. See "Dividend Policy."

11
<PAGE>
USE OF PROCEEDS

The net proceeds to the Company from the sale of the Common Stock offered
hereby, after deducting underwriting discounts and commissions and estimated
Offering expenses payable by the Company, are estimated to be $7.5 million. The
Company will receive no proceeds from the sale of Common Stock by the Selling
Stockholder. See "Principal and Selling Stockholders."

The Company intends to use an estimated $7.5 million (approximately 100% of
the estimated net proceeds) to repay a substantial portion of the Company's
outstanding short-term indebtedness under its accounts receivable revolving line
of credit with IBMCC. The outstanding balance under this accounts receivable
revolving line of credit, which was incurred to finance working capital, was
$10.4 million at March 31, 1997. Amounts outstanding under the accounts
receivable revolving line of credit bear interest at a fluctuating rate equal to
the prime interest rate plus 2.0%. At March 31, 1997, the interest rate in
effect for the IBMCC accounts receivable revolving line of credit was 10.5% per
annum. Principal and interest outstanding under the credit facility are due upon
termination of the facility, which remains in effect for successive 13 month
periods until terminated by the Company or IBMCC upon 60 days written notice.

The Company intends to expend an estimated $1.0 million for leasehold
improvements and other capital expenditures, a majority of which will be
expended in connection with the planned consolidation of its warehouse
facilities into a single facility in the Dallas-Fort Worth area, the relocation
of its Dallas branch office and the opening of two branch offices in Austin and
San Antonio, Texas. All or a portion of the $1.0 million in capital expenditures
currently budgeted by the Company for such purposes may be paid from the net
proceeds of the Offering remaining after repayment of short-term indebtedness,
depending on the availability of remaining net offering proceeds at the time of
such expenditures and the availability of other sources of funds. Any remaining
proceeds available for working capital and general corporate purposes may be
used to acquire complementary businesses and technologies. The Company is not
currently a party to any commitments or agreements and is not currently involved
in any negotiations with respect to any acquisitions. Pending such uses, the
Company intends to invest the net proceeds from this Offering in short-term,
interest-bearing securities or accounts. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."

DIVIDEND POLICY

The Company has never declared or paid a cash dividend on the Common Stock.
The Company intends to retain any future earnings for reinvestment in its
business and does not intend to pay cash dividends in the foreseeable future.
Under the Company's credit facilities with IBMCC and DFS, the Company is
prohibited from declaring or paying dividends unless consent is obtained from
each lender. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."

12
<PAGE>
CAPITALIZATION

The following table sets forth the capitalization of the Company (i) as of
March 31, 1997 and (ii) as adjusted to reflect the sale by the Company of
1,500,000 shares of Common Stock offered hereby and the application of the
estimated net proceeds therefrom. This table should be read in conjunction with
"Use of Proceeds," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
of the Company, including the Notes thereto, included elsewhere in this
Prospectus.

AS OF MARCH 31, 1997
--------------------------
ACTUAL AS ADJUSTED
--------- ------------
(IN THOUSANDS)
Short-term borrowings(1)............. $ 10,411 $ 2,912
--------- ------------
Long-term debt....................... -- --
Stockholders' equity:
Preferred Stock; $.01 par value;
5,000,000 shares authorized; no
shares outstanding............. -- --
Common Stock:
$.01 par value; 50,000,000
shares authorized;
2,675,000 shares
outstanding (4,175,000
shares as
adjusted)(2)............ 27 42
Additional paid-in capital...... 1,479 8,963
Retained earnings............... 3,074 3,074
--------- ------------
Total stockholders'
equity.................. 4,580 12,079
--------- ------------
Total capitalization.... $ 14,991 $ 14,991
========= ============

- ------------

(1) See Note 5 to the Company's Consolidated Financial Statements. Short-term
borrowings do not include amounts recorded as floor plan financing which are
included in accounts payable.

(2) Excludes (i) 417,500 shares of Common Stock reserved for issuance under the
1996 Incentive Stock Plan, of which options to purchase 100,000 shares of
Common Stock will be granted upon closing of this Offering with exercise
prices at or above the initial public offering price, none of which will be
currently exercisable, (ii) restricted stock awards for 14,286 shares which
will be granted upon closing of this Offering to certain key employees, none
of which will be vested, (iii) 100,000 shares reserved for issuance under
the 1996 Non-Employee Director Stock Option Plan, none of which are issued
or outstanding and (iv) 176,750 shares of Common Stock issuable upon
exercise of the Representatives' Warrants.

13
<PAGE>
DILUTION

The net tangible book value of the Company as of March 31, 1997, was $4.6
million or $1.71 per share. Net tangible book value per share represents the
total tangible assets of the Company reduced by its total liabilities and
divided by the number of outstanding shares of Common Stock. After giving effect
to the sale of Common Stock by the Company in this Offering and the application
of the estimated net proceeds therefrom, the net tangible book value of the
Company at March 31, 1997, would have been $12.1 million or $2.89 per share.
This represents an immediate increase in net tangible book value of $1.18 per
share to existing holders of Common Stock and an immediate dilution of $3.11 per
share to new investors purchasing shares of Common Stock in this Offering. The
following table illustrates this dilution per share:

Initial public offering price per share......... $ 6.00
Net tangible book value per
share as of March 31, 1997...... $ 1.71
Increase per share attributable
to new investors................ 1.18
---------
Adjusted net tangible book value per share after
this Offering................................... 2.89
---------
Dilution per share to new investors............. $ 3.11
=========

Utilizing the foregoing assumptions, the following table summarizes the
number of shares purchased from the Company, the total consideration paid to the
Company and the average price per share paid by existing holders of Common Stock
and by new investors purchasing shares of Common Stock from the Company in this
Offering:
<TABLE>
<CAPTION>
SHARES PURCHASED(1)(2) TOTAL CONSIDERATION AVERAGE
---------------------- ------------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- ------- -------------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders................ 2,675,000 64.1% $ 1,505,700 14.3% $0.56
New investors........................ 1,500,000 35.9 9,000,000 85.7 6.00
----------- ------- -------------- -------
Total........................... 4,175,000 100.0% $ 10,505,700 100.0%
=========== ======= ============== =======
</TABLE>
- ------------

(1) Sales of Common Stock by the Selling Stockholder in this Offering will
reduce the number of shares held by existing stockholders to 2,407,500
shares, or 57.7% of the total number of shares of Common Stock outstanding
after this Offering, and will increase the number of shares held by new
investors to 1,767,500 shares, or 42.3% of the total number of shares of
Common Stock outstanding after this Offering.

14
<PAGE>
SELECTED FINANCIAL DATA

The following sets forth certain selected financial data derived from the
audited financial statements of the Company for the years ended December 31,
1992, 1993, 1994, 1995 and 1996 and contains selected financial data derived
from the unaudited financial statements of the Company for the three months
ended March 31, 1996 and 1997. The unaudited financial statements of the Company
as of and for the three months ended March 31, 1996 and 1997 reflect all
adjustments necessary in the opinion of management (consisting only of normal
recurring adjustments), for a fair presentation of such financial data. The
selected financial data set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's Consolidated Financial Statements, including the
Notes thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Total revenue........................... $ 31,180 $ 49,536 $ 64,076 $ 91,085 $ 120,359 $ 25,948 $ 26,593
Cost of sales and services.............. 25,371 42,289 55,541 79,857 104,302 22,727 22,762
--------- --------- --------- --------- --------- --------- ---------
Gross profit........................ 5,809 7,247 8,535 11,228 16,057 3,221 3,831
Selling, general and administrative
expenses.............................. 6,063 6,060 7,448 9,149 12,284 2,674 3,135
--------- --------- --------- --------- --------- --------- ---------
Operating income (loss)............. (254) 1,187 1,087 2,079 3,773 547 696
Interest expense (net of other
income)............................... 243 644 764 1,218 1,183 297 289
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before provision
(benefit) for income taxes........ (497) 543 323 861 2,590 250 407
Provision (benefit) for income taxes.... (122) 229 140 342 987 111 154
--------- --------- --------- --------- --------- --------- ---------
Net income (loss)................... $ (375) $ 314 $ 183 $ 519 $ 1,603 $ 139 $ 253
========= ========= ========= ========= ========= ========= =========
SUPPLEMENTAL DATA:
Net income (loss) per share............. $ (0.18) $ 0.15 $ 0.07 $ 0.19 $ 0.60 $ 0.05 $ 0.09
Weighted average shares outstanding..... 2,118,600 2,120,242 2,554,808 2,675,000 2,675,000 2,675,000 2,675,000
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------------- AS OF
1992 1993 1994 1995 1996 MARCH 31, 1997
--------- --------- --------- --------- --------- --------------------
(IN THOUSANDS)
BALANCE SHEET DATA:
Working capital......................... $ (269) $ 1,307 $ 1,363 $ 1,732 $ 2,291 $ 2,534
Total assets............................ 8,796 17,431 19,077 24,266 24,720 27,301
Short-term borrowings(1)................ 2,806 6,896 8,972 9,912 9,975 10,411
Long-term debt.......................... 47 43 -- -- -- --
Stockholders' equity.................... 208 2,022 2,205 2,724 4,327 4,580
</TABLE>
- ------------
(1) See Note 5 to the Company's Consolidated Financial Statements. Short-term
borrowings do not include amounts recorded as floor plan financing which are
included in accounts payable.

<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

THE FOLLOWING DISCUSSION IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE
READ IN CONJUNCTION WITH, THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS,
INCLUDING THE NOTES THERETO, INCLUDED ELSEWHERE IN THIS PROSPECTUS.

OVERVIEW

The Company was formed in 1983 to engage in the business of reselling
computer hardware and software products and providing related services. To date,
most of its revenue has been derived from Computer Products sales. In addition,
the Company derives revenue from providing IT Services to purchasers of Computer
Products and other customers. The Company operated from a single office in
Houston, Texas until 1992 when it opened a branch office in Dallas, Texas. In
1994, the Company began offering Telecom Systems in its Houston office. In the
fourth quarter of 1995, the Company acquired and began marketing CTI Software.

The Company's gross margin varies substantially between each of its
businesses. The Company's Computer Products sales have produced a gross margin
ranging from 10.3% to 10.4% over the three year period ended December 31, 1996,
due to the commodity nature of the Computer Products market. The gross margin
for IT Services, which reflects direct labor costs, has ranged from 30.4% to
40.9% over the same period. This variation is primarily attributable to the
pricing and the mix of services provided, and to the level of direct labor as a
component of cost during any given period. The gross margin for Telecom Systems,
which includes both product sales and services, has varied between 23.0% and
42.7% since the Company entered the Telecom Systems market in 1994. This
variation reflects the different mix of product sales and the amount of
services-related revenue from period to period. The gross margin for CTI
Software was 40.2% in 1996, primarily due to the amount expended by the Company
to acquire and develop the software relative to the licensing value of the CTI
Software. CTI Software accounted for approximately 1.1% of the Company's
revenues in 1996.

In 1995 and 1996, the Company's revenues increased at rates of 42.2% and
32.1%, respectively. A significant portion of the increased revenue was
generated by the Company's Dallas office which opened in mid-1992. While the
Dallas office has experienced significant revenue growth, its gross margins have
been below those of the Company's Houston office. This difference partly results
from the Company's effort to increase its market share in Dallas by generally
pricing sales of Computer Products at gross margins lower than those realized in
the Houston office. The Houston office, on the other hand, has realized higher
gross margins due in part to sales of higher margin products and services
offered by Telecom Systems and CTI Software, which do not currently operate in
the Dallas office.

In order to reduce freight costs and selling, general and administrative
expenses associated with product handling, the Company began in 1995 to drop
ship a higher percentage of orders directly from its suppliers to its customers.
This initiative has resulted in the percentage of drop shipped orders (measured
by the cost of goods dropped shipped as a percentage of total cost of goods)
growing from 2.1% in 1994 to 9.0% in 1995 and to 18.1% in 1996. While the
Company does not believe that it is in its best interest to drop ship all
orders, it does intend to increase the volume of drop shipments in Computer
Products with the expectation of reducing its freight, distribution and
administrative costs related to these revenues.

A significant portion of Company's selling, general and administrative
expenses relate to personnel costs, some of which are variable and others of
which are relatively fixed. The Company's variable personnel costs are
substantially comprised of sales commissions, which are typically calculated
based upon the Company's gross profit on a particular salestransaction and thus
generally fluctuate with the Company's overall gross profit. The remainder of
the Company's selling, general and administrative expenses are relatively more
fixed and, while still somewhat variable, do not vary with increases in revenue
as directly as do sales commissions.

Manufacturers of many of the computer products resold by the Company have
consistently reduced unit prices near the end of a product's life cycle, most
frequently following the introduction of newer, more advanced models. While the
major manufacturers of computer products have a policy of providing price
protection to resellers when prices are reduced, on occasion, and particularly
during 1994, manufacturers introduced new models of their products and then
reduced the price of, or discontinued, the older models

16
<PAGE>
without price protection. In these instances, the Company often sells the older
models at reduced prices, which adversely affects gross margin.

Inacom is the largest supplier of products sold by the Company. Purchases
from Inacom accounted for approximately 46.4%, 36.6% and 57.0% of the Company's
total product purchases in 1994, 1995 and 1996, respectively. In August 1996,
the Company renewed its long-term supply arrangement with Inacom and agreed to
purchase at least 80% of its Computer Products from Inacom, but only to the
extent that such products are made available within a reasonable period of time
at reasonably competitive pricing. Inacom does not carry certain product lines
sold by the Company and Inacom may be unable to offer reasonable product
availability and reasonably competitive pricing from time to time on those
product lines that it carries. The Company thus expects that less than 80% of
its total purchases will be made from Inacom, and that any increase or decrease
over historical levels in the percentage of products it purchases from Inacom
under the new Inacom agreement will not have any material impact on the
Company's results of operations.

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, certain
financial data derived from the Company's consolidated statements of operations
and indicates the percentage of total revenue for each item.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------------------- -------------------
1994 1995 1996 1996
------------------- ------------------- -------------------- -------------------
AMOUNT % AMOUNT % AMOUNT % AMOUNT %
------- --------- ------- --------- -------- --------- ------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA(1):
Revenue:
Computer Products.................. $57,792 90.2 $81,654 89.6 $107,251 89.1 $23,381 90.1
IT Services........................ 6,167 9.6 7,900 8.7 7,996 6.6 2,019 7.8
Telecom Systems.................... 117 0.2 1,458 1.6 3,824 3.2 390 1.5
CTI Software....................... -- -- 73 0.1 1,288 1.1 158 0.6
Total revenue.................... 64,076 100.0 91,085 100.0 120,359 100.0 25,948 100.0
Gross profit(1):
Computer Products.................. 5,962 10.3 8,466 10.4 11,172 10.4 2,427 10.4
IT Services........................ 2,523 40.9 2,404 30.4 3,008 37.6 594 29.4
Telecom Systems.................... 50 42.7 335 23.0 1,359 35.5 119 30.5
CTI Software....................... -- -- 23 31.5 518 40.2 81 51.3
Total gross profit............... 8,535 13.3 11,228 12.3 16,057 13.3 3,221 12.4
Selling, general and
administrative expenses............ 7,448 11.6 9,149 10.0 12,284 10.2 2,674 10.3
Operating income................... 1,087 1.7 2,079 2.3 3,773 3.1 547 2.1
Interest expense (net of
other income)...................... 764 1.2 1,218 1.3 1,183 1.0 297 1.1
Income before provision for income
taxes............................ 323 0.5 861 1.0 2,590 2.1 250 1.0
Provision for income taxes........... 140 0.2 342 0.4 987 0.8 111 0.4
Net income......................... 183 0.3 519 0.6 1,603 1.3 139 0.6
PER OFFICE DATA(1):
Houston Office:
Revenue.......................... 41,057 64.1 53,095 58.3 57,929 48.1 13,555 52.2
Gross profit..................... 5,946 14.5 6,880 13.0 9,470 16.4 1,986 14.7
Dallas Office:
Revenue.......................... 23,019 35.9 37,990 41.7 62,430 51.9 12,393 47.8
Gross profit..................... 2,589 11.2 4,348 11.5 6,587 10.6 1,235 10.0
</TABLE>
1997
-------------------
AMOUNT %
------- ---------

OPERATING DATA(1):
Revenue:
Computer Products.................. $23,182 87.2
IT Services........................ 2,031 7.6
Telecom Systems.................... 953 3.6
CTI Software....................... 427 1.6
Total revenue.................... 26,593 100.0
Gross profit(1):
Computer Products.................. 2,469 10.7
IT Services........................ 867 42.7
Telecom Systems.................... 303 31.8
CTI Software....................... 192 45.0
Total gross profit............... 3,831 14.4
Selling, general and
administrative expenses............ 3,135 11.8
Operating income................... 696 2.6
Interest expense (net of
other income)...................... 289 1.1
Income before provision for income
taxes............................ 407 1.5
Provision for income taxes........... 154 0.6
Net income......................... 253 0.9
PER OFFICE DATA(1):
Houston Office:
Revenue.......................... 14,566 54.8
Gross profit..................... 2,228 15.3
Dallas Office:
Revenue.......................... 12,027 45.2
Gross profit..................... 1,603 13.3

- ------------

(1) Percentages shown are percentages of total revenue, except gross profit
percentages which represent gross profit by each business category as a
percentage of revenue for each such category.

17
<PAGE>
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
1996

TOTAL REVENUE. Total revenue increased by $645,000 (2.5%) from $25.9
million in the three months ended March 31, 1996 to $26.6 million in the 1997
period. Revenue from Computer Products, which comprised 87.2% of total revenue,
decreased by $199,000 (0.9%). Revenue from Computer Products for the 1996 period
was favorably impacted by the delivery and acceptance of a significant portion
of the Computer Products sold to a single customer as part of a large
"roll-out" installation in several of that customer's offices. No comparable
large "roll-out" installation was made during the 1997 period. Revenue from IT
Services remained substantially unchanged at $2.0 million in the three months
ended March 31, 1996 as compared to the same period in 1997 because of the
Company's implementation of a program at the beginning of 1996 to replace less
profitable hardware maintenance and repair services with a variety of services
that were expected to generate higher gross margins. This program resulted in
the elimination of certain IT Services customer relationships which had been
producing lower than average gross margin. The loss of this lower margin revenue
was offset, however, by sales to new IT Services customers and to existing
customers, generally at higher gross margins than those earned on sales to the
former customers. Revenue from IT Services as a percentage of total revenue
remained substantially unchanged from the year earlier period. Revenue from
Telecom Systems increased by $563,000 (144.4%) from $390,000 in the three months
ended March 31, 1996 to $953,000 in the 1997 period. The increase in Telecom
Systems revenue was primarily the result of hiring additional sales personnel
and expanding marketing efforts, which resulted in the addition of new
customers. Revenue from Telecom Systems as a percentage of total revenue
increased from 1.5% in the 1996 period to 3.6% in the 1997 period. CTI Software
revenue increased by $269,000 (170.3%) from $158,000 in the three months ended
March 31, 1996 to $427,000 in the 1997 period. The growth in CTI Software
revenues was primarily due to increased marketing efforts which resulted in the
addition of new customers. Revenue from CTI Software, as a percentage of total
revenue, increased from 0.6% in the 1996 period to 1.6% in the 1997 period.

GROSS PROFIT. Gross profit increased by $610,000 (18.9%) from $3.2 million
in the three months ended March 31, 1996 to $3.8 million in the three months
ended March 31, 1997, while gross margin increased from 12.4% in the 1996 period
to 14.4% in the 1997 period. The gross margin for Computer Products increased
from 10.4% in the three months ended March 31, 1996 to 10.7% in the 1997 period,
which was primarily a result of a large "roll-out" type transaction, which
usually produces lower gross margin, being substantially completed during the
1996 period. The gross margin from IT Services increased from 29.4% in the three
months ended March 31, 1996 to 42.7% during the 1997 period. As noted above,
this increase was primarily attributable to the replacement of less profitable
IT Services business with more profitable business from new and existing IT
Services customers. The gross margin for Telecom Systems sales increased from
30.5% in the 1996 period to 31.8% in the 1997 period, reflecting higher margin
services and increased support services revenues. The gross margin for CTI
Software decreased from 51.3% in the three months ended March 31, 1996 to 45.0%
in the 1997 period, which was primarily a result of increased spending on
technical staff related to new product development.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by $461,000 (17.2%) from $2.7 million in the
three months ended March 31, 1996 to $3.1 million in the 1997 period. As a
percentage of total revenue, selling, general and administrative expenses
increased from 10.3% in the 1996 period to 11.8% in the 1997 period. The
increase as a percentage of total revenue resulted primarily from the hiring of
new employees in sales and sales support functions, as well as additional
personnel hired for IT Services administration and other general administration
functions.

OPERATING INCOME. Operating income increased by $149,000 (27.2%) from
$547,000 in the three months ended March 31, 1996 to $696,000 in the 1997
period. Operating income increased as a percentage of total revenue from 2.1% in
the 1996 period to 2.6% in the 1997 period.

INTEREST EXPENSE (NET OF OTHER INCOME). Interest expense (net of other
income) declined slightly from $297,000 during the three months ended March 31,
1996 to $289,000 during the 1997 period. Despite a small increase in the
effective interest rate paid by the Company during the three months ended March
31, 1997, due to lower average borrowings on the Company's lines of credit
during such period, interest expense (net of other income) remained
substantially unchanged.

18
<PAGE>
NET INCOME. Net income, after a provision for income taxes totaling
$154,000 (reflecting an effective tax rate of 37.8% compared to 44.4% in the
1996 period), increased by $114,000 (82.0%) from $139,000 in the three months
ended March 31, 1996 to $253,000 in the 1997 period.

YEAR ENDED DECEMBER 31, 1996 COMPARED TO THE YEAR ENDED DECEMBER 31, 1995

TOTAL REVENUE. Total revenue increased by $29.3 million (32.1%) from $91.1
million in 1995 to $120.4 million in 1996. Revenue from Computer Products, which
comprised 89.1% of total revenue, increased by $25.6 million (31.3%). The
increase in Computer Products revenue was generally attributable to increased
sales to new and existing customers resulting from the hiring of additional
sales personnel. Revenue from IT Services increased by $96,000 (1.2%) from $7.9
million in 1995 to $8.0 million in 1996. The marginal increase was primarily the
result of the Company's implementation of a program at the beginning of 1996 to
replace less profitable hardware maintenance and repair services with a variety
of services that were expected to generate higher gross margins. This program
resulted in the elimination of certain IT Services customer relationships which
had been producing lower than average gross margin. The loss of this lower
margin revenue was offset, however, by sales to new IT Services customers and to
existing customers, generally at higher gross margins than those earned on sales
to the former customers. Revenue from IT Services as a percentage of total
revenue decreased from 8.7% in 1995 to 6.6% in 1996 due to both the minimal
growth in IT Services revenues and to growth in the Company's three other
business categories. Revenue from Telecom Systems, which comprised 3.2% of total
revenue, increased by $2.4 million (162.3%). This increase in Telecom Systems
revenue was primarily the result of hiring additional sales personnel and adding
new customers, of which one customer accounted for $699,000 (29.5%) of the
increase, and expanding advertising and marketing efforts. Sales of CTI
Software, which commenced during the fourth quarter of 1995, contributed total
revenue of $1.3 million during 1996, which comprised 1.1% of the Company's total
revenue.

GROSS PROFIT. Gross profit increased by $4.8 million (43.0%) from $11.2
million in 1995 to $16.1 million in 1996, while gross margin increased from
12.3% in 1995 to 13.3% in 1996. The gross margin for Computer Products remained
consistent at 10.4% for both periods. The gross margin from IT Services
increased from 30.4% in 1995 to 37.6% in 1996. As noted above, this increase was
primarily attributable to the replacement of less profitable IT Services
business with more profitable business from new and existing IT Services
customers. The gross margin for Telecom Systems sales increased from 23.0% in
1995 to 35.5% in 1996. In 1995, Telecom Systems was generally selling products
and services at lower gross margin than in the 1996 period in order to gain
market share during its first year of operation. In addition, gross margin for
Telecom Systems increased in 1996 due to the purchase of a large, complex system
by a single customer at a higher than usual margin. CTI Software sales resulted
in a gross margin of 40.2% in 1996, which was the first full year of operations
for the Company's CTI Software business.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by $3.1 million (34.3%) from $9.1 million in
1995 to $12.3 million in 1996. As a percentage of total revenue, selling,
general and administrative expenses increased from 10.0% in 1995 to 10.2% in
1996. Of the dollar increase, $1.2 million was attributable to increased sales
compensation due to increased gross profits and an increase in the number of
sales personnel and $1.0 million was attributable to increases in non-sales
personnel costs. The increase as a percentage of total revenue resulted
primarily from increased gross margins and the related increase in the variable
component of selling, general and administrative expenses that fluctuates with
gross profit, and from the increase in bad debt expense, a portion of which was
due to actual losses and a portion of which was due to increases in reserves for
potential future losses.

OPERATING INCOME. Operating income increased by $1.7 million (81.5%) from
$2.1 million in 1995 to $3.8 million in 1996. Operating income increased as a
percentage of total revenue from 2.3% in 1995 to 3.1% in 1996.

INTEREST EXPENSE (NET OF OTHER INCOME). Interest expense (net of other
income) decreased by $35,000 (2.9%). Interest expense remained substantially
unchanged compared to the increase in revenue due to decreased leverage
resulting from increased use of equity and increased asset turns, together with
advance payments for a large purchase by a single customer in 1996. The
prepayments resulted in reduced accounts receivable and a related reduction in
borrowing.

19
<PAGE>
NET INCOME. Net income, after a provision for income taxes totaling
$987,000 (reflecting an effective tax rate of 38.1% compared to 39.7% in 1995),
increased by $1.1 million from $519,000 in 1995 to $1.6 million in 1996. Net
income increased as a percentage of total revenue from 0.6% in 1995 to 1.3% in
1996.

YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994

TOTAL REVENUE. Total revenue increased by $27.0 million (42.2%) from $64.1
million in 1994 to $91.1 million in 1995. Revenue from Computer Products, which
comprised 89.6% of total revenue, increased by $23.9 million (41.3%). The
increase in Computer Products revenue was generally attributable to increased
sales to new and existing customers resulting from the hiring of additional
sales personnel. Revenue from IT Services, which comprised 8.7% of total
revenue, increased by $1.7 million (28.1%). The increase in revenue from IT
Services was primarily attributable to the addition of support contracts with
new customers and, to a lesser degree, additional non-contract business. Revenue
from Telecom Systems, which comprised 1.6% of total revenue, increased by $1.3
million in the first full year of Telecom Systems operations. The revenue gains
in Telecom Systems were largely the result of the addition of new customers
during 1995.

GROSS PROFIT. Gross profit increased by $2.7 million (31.6%) from $8.5
million in 1994 to $11.2 million in 1995; however, overall gross margin,
expressed as a percentage of revenue, decreased from 13.3% in 1994 to 12.3% in
1995, due primarily to decreased gross margin for IT Services and to higher
revenue growth in the Company's lower gross margin Computer Products business.
The gross margin for Computer Products increased slightly from 10.3% in 1994 to
10.4% in 1995, despite the continuation of the Company's practice of offering
its Computer Products in the Dallas-Fort Worth market at gross margins lower
than it typically obtained in the Houston market in order to increase market
penetration. The gross margin for IT Services decreased from 40.9% in 1994 to
30.4% in 1995 because the Company added certain large customers in 1995 at lower
gross margins. The gross margin for Telecom Systems decreased from 42.7% in 1994
to 23.0% in 1995, which represented its first full year of operations. During
1995, the Company reduced gross margins on most Telecom Systems products in
order to add business during this start-up period.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by $1.7 million (22.8%) from $7.4 million in
1994 to $9.1 million in 1995. As a percentage of total revenue, selling, general
and administrative expenses decreased from 11.6% in 1994 to 10.0% in 1995. The
dollar increase was primarily attributable to increased sales compensation as a
result of increased sales levels. In 1995, however, overall sales compensation
decreased as a percentage of total revenue because the Company completed
implementation of a change in its sales compensation policy, which resulted in a
reduction of overall sales commissions as a percentage of total revenue, and
reclassified certain types of business on which lower commission rates were paid
to sales personnel. Personnel costs, the largest component of general and
administrative expenses, also increased at a substantially slower rate than
total revenue. Certain general and administrative expenses are relatively fixed,
and the Company was able to leverage these expenses as revenue increased during
1995. In addition, certain variable expenses, primarily warehouse personnel and
distribution costs, were reduced as a percentage of total revenue. These
improvements were offset somewhat by certain expenses associated with the
start-up of the Company's Telecom Systems business in 1994.

OPERATING INCOME. Operating income increased by $992,000 (91.3%) from $1.1
million in 1994 to $2.1 million in 1995. Operating income increased as a
percentage of total revenue from 1.7% in 1994 to 2.3% in 1995.

INTEREST EXPENSE (NET OF OTHER INCOME). Interest expense increased by
$454,000 (59.4%) from $764,000 in 1994 to $1.2 million in 1995. Interest expense
increased as a percentage of total revenue from 1.2% in 1994 to 1.3% in 1995.
The increase in interest expense was due principally to increased borrowing to
finance accounts receivable and a nominal increase in the prime rate.

NET INCOME. Net income, after a provision for income taxes totaling
$342,000 (reflecting an effective tax rate of 39.7% compared to 43.3% in 1994),
increased by $336,000 from $183,000 in 1994 to $519,000 in 1995. Net income
increased as a percentage of total revenue from 0.3% in 1994 to 0.6% in 1995.

20
<PAGE>
QUARTERLY RESULTS OF OPERATIONS

The following table sets forth certain unaudited quarterly financial
information for each of the Company's last nine quarters and, in the opinion of
management, includes all adjustments (consisting of only normal recurring
adjustments) which the Company considers necessary for a fair presentation of
the information set forth therein. The Company's quarterly results may vary
significantly depending on factors such as the timing of large customer orders,
timing of new product introductions, adequacy of product supply, variations in
the Company's product costs, variations in the Company's product mix, promotions
by the Company, seasonal influences and competitive pricing pressures.
Furthermore, the Company generally experiences a higher volume of orders of
Computer Products in the fourth quarter, which the Company attributes to
year-end capital spending by its customers. Any decrease in the number of
year-end orders experienced by the Company may not be offset by increased
revenues in the Company's first three quarters. The results of any particular
quarter may not be indicative of results for the full year or any future period.
<TABLE>
<CAPTION>
1995 1996
-------------------------------------------- --------------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenue........................ $20,685 $18,869 $23,726 $27,805 $25,948 $32,202 $29,187 $33,022
Cost of sales and services........... 18,218 16,248 20,717 24,674 22,727 28,234 24,669 28,672
-------- -------- -------- -------- -------- -------- -------- --------
Gross profit..................... 2,467 2,621 3,009 3,131 3,221 3,968 4,518 4,350
Selling, general and administrative
expenses........................... 2,138 2,151 2,460 2,399 2,674 2,992 3,319 3,299
-------- -------- -------- -------- -------- -------- -------- --------
Operating income................. 329 470 549 732 547 976 1,199 1,051
Interest expense (net of other
income)............................ 319 310 276 314 297 285 338 263
-------- -------- -------- -------- -------- -------- -------- --------
Income before provision for
income taxes................... 10 160 273 418 250 691 861 788
Provision for income taxes........... 4 63 108 167 111 223 362 291
-------- -------- -------- -------- -------- -------- -------- --------
Net income....................... $ 6 $ 97 $ 165 $ 251 $ 139 $ 468 $ 499 $ 497
======== ======== ======== ======== ======== ======== ======== ========
Net income per share................. $ 0.00 $ 0.04 $ 0.06 $ 0.09 $ 0.05 $ 0.17 $ 0.19 $ 0.19
</TABLE>
1997
--------
FIRST
QUARTER
--------

Total revenue........................ $26,593
Cost of sales and services........... 22,762
--------
Gross profit..................... 3,831
Selling, general and administrative
expenses........................... 3,135
--------
Operating income................. 696
Interest expense (net of other
income)............................ 289
--------
Income before provision for
income taxes................... 407
Provision for income taxes........... 154
--------
Net income....................... $ 253
========
Net income per share................. $ 0.09
<TABLE>
<CAPTION>
1995 1996
-------------------------------------------- --------------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenue........................ 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0%
Cost of sales and services........... 88.1 86.1 87.3 88.7 87.6 87.7 84.5 86.8
-------- -------- -------- -------- -------- -------- -------- --------
Gross profit..................... 11.9 13.9 12.7 11.3 12.4 12.3 15.5 13.2
Selling, general and administrative
expenses........................... 10.3 11.4 10.4 8.6 10.3 9.3 11.4 10.0
-------- -------- -------- -------- -------- -------- -------- --------
Operating income................. 1.6 2.5 2.3 2.7 2.1 3.0 4.1 3.2
Interest expense..................... 1.5 1.7 1.2 1.1 1.1 0.9 1.2 0.8
-------- -------- -------- -------- -------- -------- -------- --------
Income before provision for
income taxes................... 0.1 0.8 1.1 1.6 1.0 2.1 2.9 2.4
Provision for income taxes........... 0.0 0.3 0.4 0.6 0.4 0.7 1.2 0.9
-------- -------- -------- -------- -------- -------- -------- --------
Net income....................... 0.1 % 0.5 % 0.7 % 1.0 % 0.6 % 1.4 % 1.7 % 1.5%
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>

1997
--------
FIRST
QUARTER
--------
Total revenue........................ 100.0 %
Cost of sales and services........... 85.6
--------
Gross profit..................... 14.4
Selling, general and administrative
expenses........................... 11.8
--------
Operating income................. 2.6
Interest expense..................... 1.1
--------
Income before provision for
income taxes................... 1.5
Provision for income taxes........... 0.6
--------
Net income....................... 0.9 %
========

21
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES

Historically, the Company has satisfied its cash requirements principally
through borrowings under its lines of credit and through operations. The Company
maintains a cash position sufficient to pay only its immediately due obligations
and expenses. When the amount of cash available falls below its immediate needs,
the Company requests advances under the IBMCC credit facility. As the Company's
total revenue has grown, the Company has obtained increases in its available
lines of credit to enable it to finance its growth. The Company's working
capital was $1.7 million, $2.3 million and $2.5 million at December 31, 1995 and
1996 and March 31, 1997, respectively. As of March 31, 1997, the Company had
borrowing capacity under the IBMCC credit facility of $1.2 million.

CASH FLOW

Operating activities used net cash totaling $3.9 million and $123,000
during 1994 and 1995, respectively, and provided net cash totaling $89,000 and
$1.2 million during 1996 and the three months ended March 31, 1997,
respectively. Net cash used in 1994 and 1995 was primarily due to working
capital requirements to finance increased accounts receivable and inventory. In
1996, net cash was provided from operations due primarily to the combined effect
of significantly increased net income, a relatively small year-to-year increase
in accounts receivable and a year-to-year decrease in inventory. During the
three months ended March 31, 1997, net cash was provided from operations due
primarily to increased levels of trade accounts payable which more than offset
lesser increases in accounts receivable and inventory levels, and to a lesser
degree increased net income.

Trade accounts receivable increased $2.0 million, $4.4 million, $695,000
and $676,000 during 1994, 1995, 1996 and the three months ended March 31, 1997,
respectively. Inventory increased $1.7 million and $21,000 in 1994 and 1995,
respectively, decreased $545,000 in 1996 and increased $272,000 in the three
months ended March 31, 1997.

Net cash used in operating activities during 1995 of $123,000 was net of an
accrual of $1.4 million for a delinquent Texas sales tax liability for the
period June 1995 to November 1995. Interest was accrued on the liability;
however, all penalties were waived by the state. The delinquency resulted from a
programming error in the Company's accounting system that has since been
corrected. In September 1996, the Company paid the state the agreed upon sales
taxes. Had the sales taxes been timely paid, net cash used in operations during
1995 would have been approximately $1.5 million and net cash provided by
operations in 1996 would have been $1.5 million.

Investing activities used cash totaling $447,000, $458,000, $952,000 and
$109,000 during 1994, 1995, 1996 and the three months ended March 31, 1997,
respectively. The Company's investing activities that used cash during these
periods were primarily related to capital expenditures. During the next twelve
months, the Company expects to incur an estimated $1.0 million for capital
expenditures, a majority of which is expected to be incurred for leasehold
improvements and other capital expenditures in connection with the planned
consolidation of its warehouse facilities into a single facility in the
Dallas-Fort Worth area, the relocation of its Dallas branch office and the
opening of two branch offices in Austin and San Antonio, Texas. All or a portion
of the $1.0 million in capital expenditures currently budgeted by the Company
for such purposes may be paid from the net proceeds of this Offering, depending
on the availability of remaining net offering proceeds at the time of such
expenditures and other sources of funds. Any such capital expenditures not paid
from the net proceeds of this Offering are presently expected to be financed
from net cash flow from operations or borrowings under the Company's line of
credit with IBMCC. The actual amount and timing of such capital expenditures may
vary substantially depending upon, among other things, the actual facilities
selected, the level of expenditures required to render the facilities suitable
for the Company's purposes and the terms of lease arrangements pertaining to the
facilities.

Financing activities provided cash totaling $3.5 million, $940,000, $63,000
and $436,000 during 1994, 1995, 1996 and the three months ended March 31, 1997,
respectively. In March 1994, the Company received $1.5 million cash proceeds
from the sale of Common Stock to the Selling Stockholder. The primary source of
cash from financing activities each period has been borrowings on the Company's
lines

22
<PAGE>
of credit. The lines of credit have been used principally to finance accounts
receivable balances and inventory purchases.

ASSET MANAGEMENT

The Company's cash flow from operations has been affected primarily by the
timing of its collection of trade accounts receivable. The Company typically
sells its products and services on short-term credit terms and seeks to minimize
its credit risk by performing credit checks and conducting its own collection
efforts. The Company had trade accounts receivable, net of allowance for
doubtful accounts, of $15.8 million and $16.5 million at December 31, 1995 and
1996, respectively, and $17.2 million at March 31, 1997. The number of days'
sales outstanding in trade accounts receivable was 45 days, 45 days, 40 days and
49 days for the years 1994, 1995, 1996 and the three months ended March 31,
1997, respectively. Bad debt expense as a percentage of total revenue for the
same periods was 0.1%, 0.1%, 0.2% and less than 0.1%. The Company's allowance
for doubtful accounts, as a percentage of trade accounts receivable, was 1.6%,
2.8% and 1.3% at December 31, 1994, 1995 and 1996, respectively, and 1.1% at
March 31, 1997.

With respect to accounts receivable due from Mintech, Inc. ("Mintech"), a
minority-owned business which is wholly-owned by the wife of Anthony Adame, an
executive officer of the Company, the Company typically carries such accounts
until such time as Mintech's customers pay Mintech or until the Company collects
amounts due as the assignee of accounts receivable due from Mintech's customers.
Through March 31, 1997, Mintech has purchased an aggregate of approximately $1.8
million of Computer Products from the Company. No accounts receivable from
Mintech or Mintech's customers have been written off as uncollectible and
payments of such accounts receivable are typically received within time periods
generally consistent with average collection times for the Company's other
customers. See "Certain Relationships and Related Transactions -- Certain
Related Business Transactions."

The Company manages its inventory in order to minimize the amount of
inventory held for resale and the risk of inventory obsolescence and decreases
in market value. The Company attempts to maintain a level of inventory required
to reach only its near term delivery requirements by relying on the ready
availability of products from its principal suppliers. Manufacturers of the
Company's major products generally provide price protection, which reduces the
Company's exposure to decreases in prices. In addition, its suppliers generally
allow for returns of excess inventory, which, on a limited basis, are made
without material restocking fees. Inventory turnover for 1994, 1995, 1996 and
three months ended March 31, 1997 was 8.4 times, 14.6 times 19.2 times and 16.9
times, respectively.

CURRENT DEBT OBLIGATIONS

The principal source of liquidity for the Company, in addition to its cash
from operations, is its revolving line of credit with IBMCC (the "IBMCC
Facility"). The total credit available under the IBMCC Facility is currently
$20.0 million, subject to borrowing base limitations which are generally
computed as a percentage of various classes of eligible accounts receivable and
qualifying inventory. Borrowings are available under the IBMCC Facility for
floor plan financing of inventory from approved manufacturers (the "Inventory
Line"). Available credit under the IBMCC Facility, net of Inventory Line
advances, is used by the Company primarily to carry accounts receivable and for
other working capital and general corporate purposes (the "Accounts Line").
Borrowings under the Accounts Line bear interest at the fluctuating prime rate
plus 2.0% per annum. Under the Inventory Line, IBMCC pays the Company's
inventory vendors directly, generally in exchange for negotiated financial
incentives. Typically, the financial incentives received are such that IBMCC
does not charge interest to the Company until approximately 30 days after the
transaction is financed, at which time the Company is required to either pay the
full invoice amount of the inventory purchased from corporate funds or to borrow
under the Accounts Line for the amount due to IBMCC. Inventory Line advances not
paid within 30 days after the financing date bear interest at the fluctuating
prime rate plus 6.0%. IBMCC is permitted to fix a minimum prime rate for the
IBMCC Facility of not less than the average prime rate in effect at the time the
minimum prime rate is set but has not done so. IBMCC is authorized to change, on
30 days notice, the computation of the borrowing base and to disqualify accounts
receivable upon which advances have been made and require repayment of such

23
<PAGE>
advances to the extent such disqualifications cause the Company's borrowings to
exceed the reduced borrowing base. The IBMCC Facility renews for successive
periods of 13 months unless either party chooses to terminate the arrangement on
60 days notice.

The IBMCC Facility is collateralized by a security interest in
substantially all of the Company's assets, including its accounts receivable,
inventory, equipment and bank accounts. The Company's Chief Executive Officer
and principal stockholder has personally guaranteed the Company's indebtedness
to IBMCC. Collections of the Company's accounts receivable are required to be
applied through a lockbox arrangement to repay indebtedness to IBMCC; however,
IBMCC customarily releases a portion of the Company's daily collections to the
extent that they exceed the daily estimated borrowing base. IBMCC is not
obligated to continue this accommodation. If in the future IBMCC insists that
all lockbox payments be applied to reduce the Company's indebtedness, the
Company would be required to seek funding from IBMCC or other sources to meet
substantially all of its cash needs.

Through most of 1995, the Company's credit limit under the IBMCC Facility
was $15.0 million. From October 1995 through February 1996, IBMCC extended a
temporary increase in the credit limit to $22.5 million and in April 1996
increased the base credit limit to $20.0 million. Effective September 1996, the
Company was notified by IBMCC that it had received further temporary credit
limit adjustments consisting of increases to $30.0 million from September 1996
through February 1997, $28.0 million in March 1997, $25.0 million in April 1997,
and returning to the base limit of $20.0 million thereafter. At March 31, 1997,
the total indebtedness of the Company under the IBMCC Facility was $17.3 million
of which $10.4 million was outstanding under the Accounts Line and $6.9 million
was outstanding under the Inventory Line. The Company's remaining available
credit at March 31, 1997, based on its borrowing base was approximately $1.2
million. The Company intends to apply approximately $7.5 million of the net
proceeds of this Offering to repay a substantial portion of the indebtedness
anticipated to be outstanding under the Accounts Line on the closing date of
this Offering.

The Company has a $3.0 million credit facility with Deutsche Financial
Services (the "DFS Facility") for the purchase of inventory from certain
suppliers. From October 1995 through May 1996, the Company received a temporary
increase in the available credit line to $6.0 million. As in the case of the
IBMCC Inventory Line, advances under the DFS Facility are typically interest
free for 30 days after the financing date for transactions in which adequate
financial incentives are received by DFS from the vendor. Within 30 days after
the financing date, the full invoice amount for inventory financed through DFS
is required to be paid by the Company. Amounts remaining outstanding thereafter
bear interest at the fluctuating prime rate (but not less than 6.5%) plus 6.0%.
DFS retains a security interest in the inventory financed. The DFS Facility is
immediately terminable by either party by written notice to the other. At March
31, 1997, the amount outstanding under the DFS Facility was $1.5 million.

The Company is required to comply with certain key financial and other
covenants under the IBMCC Facility and DFS Facility. During 1994 and 1995 and
the first seven months of 1996, the Company was in default of certain financial
covenants and certain other covenants under the IBMCC Facility and DFS Facility.
For example, the Company was required under the IBMCC Facility to maintain
during 1995 the following financial ratios: net profits after taxes to revenue
of at least 0.5%; annualized revenues to working capital of more than zero but
no greater than 35.0 to 1; and total liabilities to tangible net worth of more
than zero but no more than 12.0 to 1. The ratios actually attained by the
Company for the year ended December 31, 1995, were approximately 0.57%, 43.9 to
1 and 12.7 to 1, respectively. The DFS Facility, for instance, requires that at
all times the Company's indebtedness for borrowed money and capital lease
obligations divided by its tangible net worth plus subordinated debt not exceed
8.0 to 1, but at June 30, 1996, the actual ratio attained by the Company was
approximately 9.18 to 1. In addition to financial ratio covenants, the Company
has violated other covenants under both credit facilities, including timely
filing of periodic financial reports and covenants prohibiting certain
transactions with subsidiaries and other affiliates. IBMCC and DFS have,
however, waived defaults when requested by the Company from time to time. Most
recently, IBMCC and DFS waived certain defaults in August 1996 through December
31, 1996. Additionally, both lenders liberalized certain financial covenants in
connection with their waivers. DFS

24
<PAGE>
increased the maximum permitted ratio for indebtedness for borrowed money plus
capital lease obligations to tangible net worth plus subordinated debt to 9.5 to
1 through December 31, 1996, reverting to 8.0 to 1 thereafter. IBMCC increased
the maximum permissible ratio of annualized revenue to working capital to 56.0
to 1 through 1996 and to 52.0 to 1 thereafter, reserving the right to further
change the ratio upon notice to the Company. The repayment of a substantial
portion of the indebtedness to IBMCC under the Accounts Line upon closing of
this Offering was not a condition to obtaining default waivers from IBMCC and
DFS. Rather, the termination of such waivers in connection with the closing of
the Offering reflects the Company's expectation that it will be in compliance
with the then applicable financial ratios under both the IBMCC Facility and DFS
Facility as of the date it repays a substantial portion of the IBMCC Accounts
Line. The Company has requested waivers of IBMCC and DFS under their respective
credit agreements from time to time in the past and may be required to do so in
the future. Although the Company has previously received waivers when requested,
there can be no assurance that such defaults will be waived as in the past. As
of March 31, 1997, the Company was in compliance with the key financial and
other covenants under both the IBMCC Facility and the DFS Facility. See Note 5
to the Company's Consolidated Financial Statements.

Both the IBMCC Facility and the DFS Facility prohibit the payment of
dividends unless consented to by the lender.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In October 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS No. 123") which determines compensation cost
using the fair value method of accounting. Allstar has elected to continue to
follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees," which determines compensation cost using the intrinsic value
based method of accounting. At March 31, 1997, the Company had no stock options
or similar equity instruments outstanding; accordingly, SFAS No. 123 had no
effect on the consolidated financial statements or notes thereto.

In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 128, "Earnings per Share" ("SFAS No. 128"). SFAS No. 128
requires dual presentation of basic and diluted earnings per share for entities
with complex capital structures. At March 31, 1997, the Company had no stock
options or similar equity instruments outstanding; accordingly, SFAS No. 128
will have no effect on the consolidated financial statements as of and for the
three years in the period ended December 31, 1996 or the three months ended
March 31, 1997 upon its adoption at December 31, 1997.

<PAGE>
BUSINESS

GENERAL

The Company's revenue is derived from sales of Computer Products, IT
Services, Telecom Systems and CTI Software. The Company is an authorized
reseller of computer products from Compaq, Hewlett-Packard, IBM, Microsoft,
Novell and other leading manufacturers. Long-standing relationships with leading
aggregators and wholesale distributors of computer hardware and software
products enable the Company to provide its customers with competitive product
pricing and ready product availability. IT Services include system design,
installation, integration and support services. With respect to Telecom Systems,
the Company markets, installs and services telecommunications equipment,
including large PBX telephone systems from NEC and Mitel, and smaller "key
systems," including products from Inter-Tel, Macrotel and NEC. In 1995, the
Company introduced its proprietary CTI Software products, which facilitate
computer and telephone integration primarily for telemarketing, call center and
other high volume calling applications.

INDUSTRY OVERVIEW

The market for computer products and services has experienced significant
growth in recent years and the use of such products and services within
organizations has been impacted by several concurrent trends. The introduction
of LANs and WANs has allowed organizations to supplement or replace expensive,
centralized mainframe computer systems with more flexible and affordable
PC-based client/server platforms. The emergence of widely accepted industry
standards for hardware and software has increased the acceptance of open
architecture LANs and WANs which can and frequently do contain products from
numerous manufacturers and suppliers. Rapid technological improvements in
computer hardware and the introduction of new software operating systems have
also created the need to expand or upgrade existing networks and systems. At the
same time, price decreases have made such networks and systems affordable to a
larger number of organizations. The Company believes that these trends have
increased the general demand for computer products and related information
technology services.

Distribution channels for computer products changed significantly beginning
in the early 1990s. During that period, many manufacturers of computers began to
scale back their sales forces and, in order to ensure the continued wide
distribution of their products, started to offer their products to wholesale
computer distributors which previously had sold only software and peripheral
equipment. In addition, manufacturers also began allowing resellers to purchase
products from more than one aggregator or distributor, a practice known as
"open sourcing." Expanding computer sales to distributors and allowing open
sourcing intensified price competition among suppliers. The Company believes
that, in general, the manufacturers of its primary product lines are continuing
to rely to a large degree on resellers of computer products to distribute a
significant portion of their products to end-users. Distribution patterns may
continue to evolve, however, and any future changes may significantly affect the
Company's business.

The advent of open architecture networks has also impacted the market for
information technology services. Wider use of complex networks involving a
variety of manufacturers' equipment, operating systems and applications software
has made it increasingly difficult to diagnose problems and maintain the
technical knowledge and repair parts necessary to provide support services. The
Company believes that increased outsourcing of more sophisticated support
services by business and institutional customers has resulted from the technical
complexities created by multi-manufacturer and supplier network systems and

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rapid technological change. Increasingly, organizations seeking computer
products often require prospective vendors not only to offer products from many
manufacturers and suppliers, but to have available and proficient service
expertise to assist them in product selection, system design, installation and
post-installation assistance and service. The Company believes that the ability
to offer customers a comprehensive solution to their information technology
needs, including the ability to work within its customers' corporate
environments as integral members of their management information system staff,
are increasingly important in the marketplace.

Telecommunications systems have evolved in recent years from simple analog
telephone systems to sophisticated digital systems, with modern digital systems
featuring voice processing, automated attendant, voice and fax mail, automatic
call distribution and call accounting. The ability to interface these new
digital phone systems to the user's PC-based computer systems now allows these
telephone systems to interact with the user's computerized data to create
powerful business solutions. New features, such as "caller ID," coupled with a
digital telephone system and integrated with a computer system, can provide
automatic look-up and display of account information while the user is receiving
a new call, thereby increasing productivity and the level of customer service.
Computerized "call accounting" allows an organization with integrated
telephone and computer systems to track telephone usage and long distance toll
billing and easily interface that data with computerized accounting and billing
systems. Integrated voice and facsimile handling allows a user to retrieve, send
and manage voice and facsimile messages on his computer screen. Computerized
telephone number listings allow the user to look up telephone numbers on the
computer and then have the computer dial the number automatically. For more
complex call center applications, computer systems can perform "call blending"
functions during out-bound calling campaigns by automatically routing in-bound
calls to available agents in order to enhance agent productivity.

The Company believes that the evolution of the digital telephone system to
a more open architecture, aided by standards established by Microsoft and Novell
for the interface of telephone and computer technologies, is causing rapid
industry change. This change is creating demand for digital telephone systems
which adhere to these new industry standards. These digital telephone systems,
along with the many software products which are rapidly becoming available for
use in CTI, require sophisticated installation and integration service
capability. The Company believes that the trend toward CTI is likely to continue
and that integrated voice, data and video communication will become more
affordable. As the technology and management of telecommunications and computer
systems converge over the next decade, the Company expects that growth
opportunities will be presented for companies able to provide and service the
latest integrated telecommunications and computer technologies.

BUSINESS STRATEGY

The Company's goal is to expand its regionally-based business as a provider
of computer and telephone hardware and software products and related services.
To achieve this objective, the Company intends to pursue several key strategies:

INCREASE TELECOM SYSTEMS AND CTI SOFTWARE BUSINESSES. The Company began
offering Telecom Systems in 1994 and CTI Software in 1995 to capitalize on the
growing trend in CTI. The Company intends to (i) expand Telecom Systems
operations to the Dallas-Fort Worth market during the third quarter of 1997,
(ii) pursue acquisitions of regional telephone system resellers with established
customer bases in targeted markets, and (iii) increase the variety and
capabilities of its CTI Software products through internal development and
acquisitions of complementary software products.

IMPLEMENT INTERNET-BASED NATIONAL MARKETING PROGRAM. The Company intends
to implement a new method of marketing its Computer Products on a nationwide
basis under the trade name "800 PC Deals."

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By accessing an Internet home page currently under development, the Company's
sales representatives and customers will be able to obtain product pricing and
availability data, enter or change orders and access customer account status
information. The Company plans to employ experienced sales representatives in
selected metropolitan markets who will be supported by the new Internet-based
system and by a national sales support call center performing order entry and
customer service functions. 800 PC Deals is anticipated to begin operation in
the second half of 1997.

PRODUCTS AND SERVICES

The Company markets computer and telecommunications hardware and software
products and provides related computer and telecommunications services. The
Company's largest source of revenue is derived from the sale of Computer
Products, which during 1994, 1995, 1996 and the three months ended March 31,
1997, accounted for approximately 90.2%, 89.6%, 89.1% and 87.2%, respectively,
of the Company's total revenue. During 1994, 1995, 1996 and the three months
ended March 31, 1997, IT Services comprised approximately 9.6%, 8.7%, 6.6% and
7.6%, respectively, of the Company's total revenue. The Company began selling
Telecom Systems in 1994 and it accounted for approximately 1.6%, 3.2% and 3.6%
of the Company's total revenue in 1995, 1996 and the three months ended March
31, 1997, respectively. The Company began selling CTI Software in 1995 and it
accounted for approximately 1.1% of the Company's total revenue in 1996 and
approximately 1.6% of the Company's total revenue in the three months ended
March 31, 1997.

COMPUTER PRODUCTS

The Company offers its customers a wide variety of computer hardware and
software products available from over 600 manufacturers and suppliers. The
Company's products include desktop and laptop computers, monitors, printers and
other peripheral devices, operating system and application software, network
products and mid-range host and server systems, including the IBM RS6000,
Hewlett-Packard HP9000 and DEC Alpha systems. The Company is an authorized
reseller of products from a number of leading manufacturers of computer
hardware, software and networking equipment, including Compaq, Hewlett-Packard,
IBM, Microsoft and Novell. Products manufactured by Compaq, Hewlett-Packard and
IBM in the aggregate accounted for approximately 47.5%, 53.7% and 58.9%, for
1994, 1995 and 1996, respectively, of the Company's total inventory purchases.
There can be no assurance that the Company will continue to resell such
manufacturers' products in the future; however, the Company believes that its
relations with all of its major product manufacturers and distributors are
satisfactory.

IT SERVICES

IT Services are provided by the Company both in conjunction with and
separately from its Computer Products sales. The Company typically prices its IT
Services on a time and materials basis or under fixed fee service contracts,
depending on customer preference and the level of service commitment required.
In markets where the Company does not maintain branch offices, it often
subcontracts for necessary technical personnel, particularly where required for
larger scope or prolonged duration contracts. The Company's IT Services include
the following:

o INFORMATION SYSTEMS SUPPORT. The Company is an authorized warranty
service provider for many popular computer and computer peripheral
products and provides hardware repair and maintenance services,
complex network diagnostic services, end user support services and
software diagnostic services. The Company also offers complete
outsourcing of a customer's computer and network management and
technical support needs on a contract basis. The Company provides
on-site service parts stocking, help desk assistance and fixed asset
management and tracking.

o CONTRACT SYSTEMS ENGINEER, TECHNICIAN AND PROGRAMMER STAFFING. The
Company provides short-term supplemental technical staffing, including
hardware and software technicians, help desk personnel, systems and
network engineers and programming staff.

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o SYSTEMS ENGINEERING. The Company provides systems engineering
services including information technology consulting, LAN/WAN design,
on-site and remote network administration, new technology feasibility
and impact analyses and disaster recovery plan analyses.

o INFORMATION TECHNOLOGY PROJECT MANAGEMENT. The Company provides
project management services for major hardware and software upgrades
and conversions, roll-outs of major new hardware and software
installations and large network installations, including multiple city
WAN implementations.

o TELECOMMUNICATIONS AND DATA SYSTEMS CABLING. The Company provides
networking and telecommunications cabling services required for all
major networking topologies, including fiber optic cabling. The
Company also offers cabling services for adding to, moving or changing
existing network systems.

o CONTRACT PROGRAMMING SERVICES. Recently, the Company has begun to
offer contract programming services, primarily related to SQL database
design and implementation, client server applications and Internet
site development.

To support and maintain the quality of these services and to maintain
vendor accreditation necessary to resell and service its significant product
lines, the Company's technical staff participate in various certification and
authorization programs sponsored by hardware manufacturers and software
suppliers. The Company currently has attained several certifications and
authorizations, most notably as a Microsoft Solution Provider and a Novell
Platinum Reseller. The Company's ability to attract and retain qualified
professional and technical personnel is critical to the success of its IT
Services business.

TELECOM SYSTEMS

The Company began its Telecom Systems business in 1994 to capitalize on the
trend toward CTI. The Company currently markets, installs and services business
telephone systems, including large PBX systems and smaller "key systems",
along with a variety of related products including hardware and software
products for data and voice integration, wide area connectivity and telephone
system networking and wireless communications. The Company resells PBX systems
manufactured by NEC and Mitel and smaller "key systems," including products
from Inter-Tel, Macrotel and NEC. Wireless products include products from Uniden
and Spectralink. Software products include voice mail products from Active Voice
and AVT, interactive voice response applications from AVT and call center
activity reporting products from Taske.

The Company currently markets Telecom Systems only from its Houston office.
During the third quarter of 1997, the Company plans to expand Telecom Systems
sales to its Dallas office. The Company also intends to expand its Telecom
Systems products, particularly in the area of CTI products and video
conferencing products, as suitable new products become available for resale.

CTI SOFTWARE

The Company develops and markets proprietary CTI Software, which integrates
business telephone systems and networked computer systems, under the trade name
"Stratasoft." CTI Software is designed to improve the efficiency of
telemarketing operations, in-bound and out-bound call centers and other high
volume calling applications. Basic products offered by the Company are typically
customized to suit a customer's particular needs and are often bundled with
computer hardware supplied by the Company at the customer's request. The Company
entered the CTI Software business in late 1995 by acquiring two CTI products,
currently sold under the names StrataDial and StrataVoice, from a corporation
owned by the individual who presently manages the Company's CTI Software
operations. See "Certain Relationships and Related Transactions -- Acquisition
of Stratasoft Products." A new product, Strata-Interactive, has also been
developed by the Company. The Company now markets these three CTI Software
products, which are described below:

o STRATADIAL. StrataDial is a predictive dialer software product for
out-bound call center applications such as telemarketing, collections,
surveys, lead generation and announcements that require personal
contact. A predictive dialer is a product which is used in call center
applications to dial telephone numbers from lists of computerized data
and pass completed calls to waiting call center employees along with
computerized data used during the call. The call data displayed for
the

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employee might include, for example, the pertinent account balance and
payment history in the case of calling overdue credit card accounts or
a telemarketing script in the case of a telemarketing campaign. The
use of a predictive dialer product in telemarketing substantially
increases worker productivity due to increased call volume. StrataDial
features in-bound/out-bound call blending without requiring an
automated call distribution feature ("ACD") of the PBX telephone
system. Call blending allows call center employees to work on
out-bound calling campaigns when there are no in-bound calls waiting
to be serviced. Upon receipt of an in-bound call to the call center,
the employee automatically receives the next sequential in-bound call
rather than another out-bound campaign call generated by the
predictive dialer. This allows call center employees to be more
productive by allowing them to make out-bound calls during periods in
which there are no in-bound calls to be serviced. StrataDial collects
campaign specific data during the telephone call and provides
comprehensive on line reporting and statistical analysis of the
campaign data. StrataDial also features open architecture which allows
easy interaction with the customer's other database applications.
Dialing parameters and campaign characteristics can be changed without
shutting down the dialer, as is required with many competing products.
Through March 31, 1997, the Company had licensed and installed 42
StrataDial systems.

o STRATAVOICE. StrataVoice is an out-bound dialing product designed for
high volume applications that do not require human interaction.
StrataVoice applications include appointment confirmation and setting,
court appearance notification, surveys, community notification such as
school closings and emergency evacuation, employee updates,
absenteeism notification, telemarketing and market research. A
telephone system utilizing StrataVoice dials a computerized list of
numbers and can ask the contacted person a number of questions,
including branching to other questions and statements based on
responses. StrataVoice also allows the contacted person to leave
messages. Scripting tools are included that allow the user to develop
campaigns. The system builds a database of respondent data and has
comprehensive response reporting capabilities. Through March 31, 1997,
the Company had licensed and installed 96 StrataVoice systems.

o STRATA-INTERACTIVE. Strata-Interactive is an interactive voice
response ("IVR") software product which allows a caller to access
computer information at any time using a simple touch-tone telephone.
Applications for IVR technology vary and include insurance coverage
verification and claims reporting, utility company account information
and outage reporting, bank account information and on-line
transactions, and shipment verification and tracking information.
Strata-Interactive is based upon open architecture and is designed to
work with networked computers. The first installation of the
Strata-Interactive product was completed in the fourth quarter of
1996.

The Company provides CTI Software to its customers pursuant to a written
license agreement with the customer. The Company also intends to pursue
arrangements under which it will seek to license its CTI Software to
manufacturers and other distributors of CTI hardware and software for inclusion
in the CTI products sold by them, although there can be no assurance that it
will be successful in such efforts.

SALES AND MARKETING

DIRECT SALES

The Company markets its products and services primarily through direct
sales representatives. Direct sales representatives are teamed with in-house
customer service representatives and are assigned to specific customer accounts.
The Company believes that direct sales lead to better account penetration and
management, better communications and long-term relationships with its
customers. The Company's sales personnel, including account managers and
customer service representatives, are partially compensated, and in some cases
fully compensated, on the profitability of accounts which they participate in
developing. The Company believes that its past and future growth will depend in
large measure on its ability to attract and retain qualified sales
representatives and sales management personnel. The Company promotes its
products and services through general and trade advertising, participation in
trade shows and telemarketing campaigns. The Company believes that a significant
portion of its new customers originate from word-of-mouth referrals by existing
customers and industry members, such as manufacturer's representatives.
Additionally, Telecom Systems sales personnel seek to capitalize on the many
customer relationships developed by the Company's Computer Products and IT
Services personnel. By virtue of their computer business contacts,

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Computer Products and IT Services personnel often learn at a relatively early
stage that their customers may soon be in the market for telecommunications
equipment and services. Sales leads developed by this synergy are then jointly
pursued. CTI Software is marketed by direct sales representatives to
organizations using telemarketing, call centers or other high volume
telecommunications functions. In addition, StrataVoice is marketed through
resale arrangements between the Company and VARs.

INTERNET-BASED SALES SUPPORT SYSTEM

The Company is in the process of developing an Internet-based sales support
system that will be used by its entire sales force. The system will allow sales
representatives to access information on product pricing and availability, enter
and track specific orders and monitor customer account information. Sales
representatives will be able to access the system from their desktop computers
at the Company's offices or on the Internet. The system will also allow selected
customers to enter and manage their own orders on-line. The Company believes
that when implemented this sales support system will enhance the productivity
and flexibility of its sales force and improve its customer service.

800 PC DEALS

The Company intends to use its proposed Internet-based sales support system
to cost-effectively expand its marketing efforts for Computer Products on a
national level under the trade name 800 PC Deals. Specifically, the Company
intends to employ sales representatives with local experience in targeted
metropolitan markets to establish customer relationships utilizing the new
system. The Company also plans to operate a national sales support call center
to serve sales representatives and customers. Initially, the Company intends to
fulfill a large portion of orders in these new markets by drop shipping product
directly from suppliers to customers. 800 PC Deals is expected to begin
operation in the second half of 1997.

There can be no assurance that the new system will function as expected or,
if so, that its implementation will enable the marketing approach of 800 PC
Deals to be successful. Many factors could influence the performance of 800 PC
Deals, including competition by others using similar systems, technical
difficulties in the implementation of the new Internet-based system, lack of
customer or supplier acceptance and the inability of local, direct sales
representatives to successfully market Computer Products through 800 PC Deals.

CUSTOMERS

The Company focuses its marketing efforts on mid-sized companies and
regional offices of larger companies located in or near the metropolitan areas
in which the Company maintains offices. The Company occasionally provides
Computer Products and IT Services in markets where the Company does not have an
office, typically to branch operations of companies with which the Company has
an established relationship. The Company's customer base is not concentrated in
any industry group. Approximately 3,400 customers purchased products or services
from the Company during 1996. During 1994, 1995 and 1996, the Company's top ten
customers (which varied from period to period) in the aggregate accounted for
approximately 31.4%, 27.9% and 33.2%, respectively, of the Company's total
revenue. In each of the same periods, the largest single customer (which varied
from period to period) accounted for approximately 3.6%, 5.8% and 11.2%. In
1996, the Company's largest single customer was Paging Network, Inc. The
selected customers shown below, each of which purchased products or services in
excess of $100,000 during 1996, illustrate the diversity of the Company's
customer base:

Amoco Corporation
AT&T
Baker Oil Tools, Inc.
Bank America Corporation
Blockbuster Entertainment
Brinks Home Security
3Com Corporation
Castrol Industrial

Chevron Chemical Company
Exxon Corp.
Federal Home Loan Bank
GTE VISNET
H&R Block of South Texas
Ingersoll-Rand
Maxum Health Corp.
MCI Telecommunications Corp.

Motorola, Inc.
Paging Network, Inc.
Southwestern Bell Telephone Co.
Tandy Corp.
Toshiba International Corp.
Transamerica Finance Services
Turner Construction Company
Western Atlas International, Inc.

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The Company has no long-term written commitments by customers to purchase
products from the Company. In addition, although the Company has service
contracts with many of its large customers, such service contracts are
project-based and terminable upon relatively short notice. A significant
reduction in orders from any of the Company's largest customers could have a
material adverse effect on the Company's financial condition and results of
operations.

SUPPLY AND DISTRIBUTION

The Company relies on aggregators and distributors of computer hardware,
software and peripherals to supply a majority of its Computer Products. Although
the Company uses many industry suppliers, the Company purchases its Computer
Products chiefly from two suppliers, Inacom and Ingram, to obtain competitive
pricing, better product availability and improved quality control. The Company
attempts to develop strategic arrangements with its principal suppliers,
including the coordination of drop shipment orders, the outsourcing of certain
computer configuration services, national roll-out and installation projects and
the sharing of product information. Telecommunications hardware and software
products are generally purchased by the Company on an as-needed basis directly
from the original equipment manufacturer. Suppliers providing trade to the
Company typically maintain a vendor's lien in the goods sold by them to the
Company.

The Company's largest supplier of Computer Products is Inacom, a leading
computer products aggregator. Inacom markets and distributes computer products
and provides various services on a wholesale basis through a network of
franchisees and resellers and also markets its products directly to end-users.
During 1994, 1995 and 1996, the Company purchased from Inacom approximately
46.4%, 36.6% and 57.0%, respectively, of its total inventory purchases. The
Company purchases Computer Products and obtains drop shipping and other services
from Inacom pursuant to an agreement entered into in August 1996 (the "Inacom
Agreement"). Under the Inacom Agreement, the Company is required to purchase at
least 80% of its Computer Products from Inacom, but only to the extent that such
products are made available within a reasonable period of time at reasonably
competitive pricing. Pricing from Inacom is generally based on Inacom's cost
plus a negotiated markup. With certain exceptions, the Company is entitled to
volume discounts at agreed upon levels. The term of the Inacom agreement expires
on December 31, 2001, and automatically renews for successive one year periods
unless notice of non-renewal is given 60 days prior to the end of the renewal
period. A cancellation fee of $570,500 will be payable by the Company in the
event of non-renewal or early termination of the Inacom Agreement by either
party.

The Company's second largest supplier of computer products is Ingram. The
Company also purchases its Computer Products from Ingram on a cost-plus basis.
During 1994, 1995 and 1996, the Company purchased from Ingram approximately
14.1%, 20.6% and 14.7%, respectively, of its total inventory purchases. The
Company's agreement with Ingram provides for volume discounts at agreed upon
levels. The agreement with Ingram may be terminated by either party upon 30 days
prior written notice.

Due to intense price competition among computer products resellers, the
price and shipping terms received by the Company from its suppliers, especially
Inacom and Ingram, are critical to the Company's ability to compete in Computer
Products. From time to time the availability of certain products has been
limited. Although the Company has not experienced unusual product availability
problems and has been generally satisfied with the product pricing and terms
available from its principal suppliers, there can be no assurance that such
relationships will continue or that, in the event of a termination of its
relationship with either Inacom or Ingram, or both, the Company would be able to
obtain an alternative supplier or suppliers without a material disruption in its
ability to provide competitively priced products to its customers.

The Company maintains standard authorized dealership agreements from many
leading manufacturers of computer and telecommunications hardware and software.
Under the terms of these authorized dealership agreements, the Company is
entitled to resell associated products to end-users and to provide warranty
service. The Company's status as an authorized reseller of key product lines is
essential to the operation of the Company's business. In general, the authorized
dealer agreements do not require minimum purchases and include termination
provisions ranging from immediate termination to termination upon 90 days prior

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written notice. Some of such agreements are conditioned upon the continuation of
the Company's supply arrangement with Inacom or another major wholesaler
acceptable to the manufacturer.

The Company operates a warehouse at each of its two current offices for the
purpose of receiving, warehousing, configuring and shipping products. The
Company plans to consolidate its two warehouses into one central regional
warehouse located in the Dallas-Fort Worth metropolitan area in order to achieve
further productivity and efficiency enhancements.

During 1995, the Company began an initiative to drop ship a higher
percentage of its orders directly from the supplier to customers in order to
lower its distribution costs and freight costs. This initiative has resulted in
the percentage of drop shipped orders (measured by the cost of goods drop
shipped as a percentage of total cost of goods) growing from 2.1% during 1994 to
9.0% during 1995 and to 18.1% during 1996. While the Company does not believe
that it is in its best interest to drop ship all orders, it does intend to
continue to move more of its Computer Products distribution toward drop
shipments.

MANAGEMENT INFORMATION SYSTEMS

The Company depends on its customized MIS to manage most aspects of its
business. The Company's MIS provides its sales staff, customer service
representatives and certain customers with product price, information and
availability from its principal suppliers' warehouses throughout the United
States. The Company utilizes its MIS to rapidly source product from a wide range
of suppliers. Purchase order expediting features include overdue shipment and
partial shipment reporting, which enable the Company to identify and resolve
supplier and or freight carrier problems quickly. The purchasing systems are
real time, allowing buyers to act within minutes on a newly received and
credit-approved sales order. The Company's MIS contain productivity tools for
sales lead generation, including integration between telemarketing and prospect
database management. Sales management features include a variety of reports
available for any combination of customer, salesperson, sales team and office
criteria. The Company uses its MIS to manage service contracts, service calls
and work orders, engineer and technician scheduling and time tracking, service
parts acquisition and manufacturer warranties. Reporting can also be generated
for project profitability, contract and customer analysis, parts tracking and
employee time tracking.

EMPLOYEES

As of March 31, 1997, the company employed approximately 320 individuals.
Of these, approximately 85 were employed in sales, marketing and customer
service, 118 were employed in engineering and technical positions and 117 were
employed in administration, finance and MIS. The Company believes that its
ability to recruit and retain highly skilled and experienced technical, sales
and management personnel has been, and will continue to be, critical to its
ability to execute its business plans. None of the Company's employees are
represented by a labor union or are subject to a collective bargaining
agreement. The Company believes that its relations with its employees are good.

COMPETITION

The markets in which the Company competes are all intensely competitive and
changing rapidly. The Company believes that the principal competitive factors in
the business activities in which it operates include relative price and
performance, product availability, technical expertise, adherence to industry
standards, financial stability, service, support and reputation. The Company
believes that it has many direct and indirect competitors in each of its
businesses, none of which is dominant in the Company's geographic markets. The
Company's competitors include major computer products and telephone equipment
manufacturers, aggregators and distributors, including certain manufacturers,
aggregators and distributors which supply products to the Company. Other
competitors include established national, regional and local resellers, systems
integrators, telephone systems dealers, computer-telephony VARs and other CTI
software suppliers. Some of the Company's current and potential competitors have
longer operating histories and financial, sales, marketing, technical and other
competitive resources which are substantially greater than those of the Company.
As the markets in which the Company competes have matured, product price
competition has intensified and is likely to continue to intensify. Such price
competition could adversely

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affect the Company's financial condition and results of operations. There can be
no assurance that the Company will be able to continue to compete successfully
with existing or new competitors.

STATE SALES TAX COLLECTION

The Company presently collects sales tax only on product shipments to
destinations in Texas. Various states have attempted to impose on direct
marketers the burden of collecting sales or use taxes on the sales of products
shipped to those states' residents. The United States Supreme Court in 1992
affirmed its position that it is unconstitutional for a state to impose sales or
use tax collection obligations on an out-of-state mail order company whose only
"nexus" with the state is the distribution of catalogs and other advertising
materials through the mail and whose subsequent delivery of purchased goods is
by United States mail or by interstate common carrier. Legislation has been
introduced in the United States Congress that if enacted would supersede the
Supreme Court's ruling and allow states to impose a tax collection obligation on
out-of-state sellers of goods destined for delivery with the state. If
legislation of this type is enacted, the imposition of a tax collection
obligation on the Company in states to which it ships products may result in
reduced demand for the Company's products and additional administrative expense.

Certain states into which the Company delivers products through drop
shipping arrangements with its principal suppliers have imposed a sales tax
collection obligation on such sales based on the suppliers' (rather than the
Company's) contact with the state. Inacom has advised the Company that, due to
the existence of a nexus between Inacom and these states, Inacom must charge and
collect sales tax on any shipment it delivers into these states, including drop
shipments to the Company's customers in these states. The imposition of sales
taxes on the Company's drop shipments from Inacom will have the effect of
increasing the Company's costs on those shipments. The cost increase will either
be in the form of sales taxes on the products purchased from Inacom for drop
shipment to the taxing states or the higher costs of handling to bring the
product into the Company's Texas facilities and then ship the product to the
end-user's location. While the level of drop shipments to these states is at
present relatively low, an increase in the number of states imposing sales taxes
on these drop shipments could substantially reduce or eliminate any cost savings
to the Company from its plan to reduce shipping and distribution costs by
increasing the percentage of sales to be delivered by drop shipments.

The Company intends in the near term to hire sales representatives for 800
PC Deals to market Computer Products in states other than Texas. The presence of
its sales representatives in these states will impose a state tax collection
obligation in those states, thus reducing the number of markets into which the
Company may ship its Computer Products without collecting sales tax from its
customers. In some cases, the inapplicability of a state sales tax collection
obligation on the Company provides it with a pricing advantage when competing
against companies obligated to collect state taxes from the potential customer.
The Company believes, however, that the purchasing decisions of most of its
customers (who are primarily business organizations) is only slightly influenced
by whether state sales taxes will be collected on their purchase.

FACILITIES

The Company does not own any real property and currently leases all of its
existing facilities. The Company subleases its headquarters and Houston office
which are housed in a free standing building of approximately 49,000 square
feet. See "Certain Relationships and Related Transactions -- Houston Office
Lease." The Houston office sublease expires on December 31, 1998. The Company's
Dallas office is housed in a free-standing building of approximately 20,000
square feet. The Dallas facility lease expires on September 30, 1997. The
Company also leases a storage facility of approximately 7,000 square feet in
Houston. The lease on the storage facility expires on March 9, 1998. The Company
intends to lease other facilities as its business expands. The Company believes
that suitable facilities will be available as needed.

INTELLECTUAL PROPERTY

The Company's success depends in part upon its proprietary technology,
including its Stratasoft software. The Company relies primarily on trade secrecy
and confidentiality agreements to establish and

34
<PAGE>
protect its rights in its proprietary technology. Additionally, the Company has
filed for copyright protection for StrataDial and StrataVoice. The Company also
has applied for registration of Stratasoft, StrataDial, StrataVoice and 800 PC
Deals as trademarks. There can be no assurance that the Company's present
protective measures will be adequate to prevent unauthorized use or disclosure
of its technology or independent third party development of the same or similar
technology. While the Company's competitive position could be affected by its
ability to protect its proprietary and trade secret information, the Company
believes other factors, such as the technical expertise and knowledge of the
Company's management and technical personnel and the timeliness and quality of
support services provided by the Company, to be more significant in maintaining
the Company's competitive position.

The Company's various authorization agreements with manufacturers generally
permit the Company to refer to itself as an authorized dealer of the respective
manufacturer's products and to use their trademarks and trade names for
marketing purposes, but prohibit other uses. The Company considers the use of
these trademarks and trade names in its marketing efforts to be important to its
business.

LEGAL PROCEEDINGS

On July 13, 1996, a former customer brought suit against the Company in the
152nd Judicial District Court of Harris County, Texas. The plaintiff alleges
that the Company failed to provide and complete promised installation and
configuration of certain computer equipment within the time promised by the
Company. Based on these allegations, the plaintiff is suing for breach of
contract, negligence, negligent misrepresentation and other statutory violations
and is seeking actual monetary damages of approximately $3 million and treble
damages under the Texas Deceptive Trade Practices Act. The Company intends to
vigorously defend such action.

The Company is from time to time involved in routine litigation incidental
to its business. The Company believes that none of such proceedings, including
current proceedings, individually or in the aggregate will have a material
adverse effect on the Company.

HISTORY AND REINCORPORATION

The Company was incorporated under Texas law in 1983 under the name
Technicomp Corp. On June 30, 1993, the Company changed its name to
Allstar-Valcom, Inc. and then again, on December 28, 1993, the Company changed
its name to Allstar Systems, Inc. On December 27, 1993, the Company engaged in a
merger in which it was the surviving corporation. In the merger, Allstar
Services, Inc. and R. Cano, Inc., both of which were affiliated with the
Company, were merged with and into Allstar Systems, Inc. in order to streamline
the business. In 1995, the Company formed a wholly owned subsidiary, Stratasoft,
Inc., to purchase and develop its CTI Software. See "Certain Relationships and
Related Transactions -- Acquisition of Stratasoft Products." In October 1996,
the Company effected a reincorporation merger in the state of Delaware through
which the 328,125 shares of the Company's predecessor, Allstar Systems, Inc., a
Texas corporation, which were outstanding prior to the merger, were converted
into approximately 2,675,000 shares of the newly incorporated Delaware
corporation (the "Reincorporation"). The effect of the Reincorporation on the
number of shares outstanding prior to the Reincorporation was similar in effect
to an approximately 8.15-for-1 stock split.

<PAGE>
MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------------------- --- ------------------------------------------------------------------
<S> <C>
James H. Long........................... 38 Chairman of the Board, President and Chief Executive Officer
Donald R. Chadwick...................... 53 Director, Chief Financial Officer, Treasurer and Secretary
Frank Cano.............................. 32 Senior Vice President, Branch Office Operations
Thomas N. McCulley...................... 50 Vice President, Information Systems
Paulette R. Blount...................... 42 Vice President, Purchasing and Distribution
Anthony Adame........................... 40 President, Computer Products Division
Shabbir K. Ali.......................... 34 President, IT Services Division
Michael A. Torigian..................... 38 President, Telecom Systems Division
William R. Hennessy..................... 38 President, Stratasoft, Inc.
G. Chris Andersen....................... 58 Director Nominee
Richard D. Darrell...................... 42 Director Nominee
Jack M. Johnson, Jr. ................... 58 Director Nominee
Donald D. Sykora........................ 66 Director Nominee
</TABLE>
JAMES H. LONG is the founder of the Company and has served as Chairman of
the Board, Chief Executive Officer and President since the Company's inception
in 1983. Prior to founding the Company, Mr. Long served with the United States
Navy in a technical position and was then employed by IBM in a technical
position.

DONALD R. CHADWICK has been the Chief Financial Officer of the Company
since February 1992. As Chief Financial Officer, his duties include supervision
of finance, accounting and controller functions within the Company. During 1990
and 1991, Mr. Chadwick served as the President of Regis, William Capital Corp.,
a privately owned investment banking firm. Between 1988 and 1989 he served as a
Senior Vice President in investment banking with Underwood, Neuhaus & Co.,
Incorporated. From 1974 to 1988 he was a Senior Vice President of Prescott, Ball
and Turben, Inc., a Cleveland, Ohio-based investment banking firm.

FRANK CANO became the Senior Vice President, Branch Office Operations for
the Company in July 1996, and is responsible for the general management of the
Company's branch office. From June 1992 to June 1996, Mr. Cano was the Branch
Manager of the Company's Dallas-Fort Worth office. From June 1986 to May 1992,
Mr. Cano was employed by the Company as a sales representative. Prior to that,
Mr. Cano served at the Company in a variety of administrative and technical
positions, including Service Account Manager, Sales Account Manager, Purchasing
Agent and Computer Technician.

THOMAS N. MCCULLEY has been the Vice President, Information Systems for the
Company since July 1996. From January 1992 to June 1996, Mr. McCulley served as
the Information Services Director for the Company. He has responsibility for
management and supervision of the Company's MIS. Prior to joining the Company,
Mr. McCulley was employed with Mediacomp, Inc., a subsidiary of S.L. Brown &
Associates, for seven years, where his duties included development and
supervision of the conversion of MIS from mainframe applications to PC-based
applications.

PAULETTE R. BLOUNT joined the Company as Director of Product Purchasing and
Distribution in September 1994 and became Vice President, Purchasing and
Distribution in July 1996. Her responsibilities include overall management of
purchasing, warehousing, inventory control and shipping and receiving of
inventory products. Prior to joining the Company, Ms. Blount was the Director of
Service Operations in the Houston office of The Future Now, Inc., a computer
sales and service company, since May 1993. Prior to that time, Ms. Blount was
employed as the Director of Service for Techron Corp., a ComputerLand franchise
in Houston, Texas.

36
<PAGE>
ANTHONY ADAME has been President of the Computer Products Division since
July 1996. From January 1996 to June 1996, Mr. Adame served as Vice President,
Computer Products, and from January 1991 to December 1995 as Vice President of
Sales. His current responsibilities include management of the Computer Products
Division. From 1986 until joining the Company, Mr. Adame was employed by Techron
Corp., where he was Vice President of Sales. Prior to that, he was the Sales
Manager at Computer Galleries, a Houston retail computer store, for two years.

SHABBIR K. ALI has been the President of the IT Services Division since
July 1996. From January 1996 to June 1996, Mr. Ali served as Vice President, IT
Services Division and between August 1993 and December 1995 as Vice President of
Service Operations. Between July 1990 and July 1993, Mr. Ali served as the
Company's Operations Manager. Mr. Ali's present responsibilities include the
overall management of the Company's IT Services Division. Prior to joining the
Company, Mr. Ali was the Director of Operations for United Business Machines,
Inc. in Houston between 1987 and 1990.

MICHAEL A. TORIGIAN has been the President of the Telecom Systems Division
since July 1996. Between July 1994 and June 1996, Mr. Torigian served as Vice
President, Telecom Systems Division. His current responsibilities include the
overall management of the Company's Telecom Systems Division. From July 1992 to
May 1994, Mr. Torigian served as Director of Sales for CTWP, Inc., an
Austin-based computer, copier and office equipment dealer. From March 1990
through April 1992, he was the President of Communications Solutions, Inc., a
telephone and computer solutions provider in Houston. From March 1988 to
February 1990, Mr. Torigian was a Senior Dealer Sales Representative for Zenith
Data Systems. Prior to that, Mr. Torigian was Director of Sales at CTWP, Inc.

WILLIAM R. HENNESSY has served as the President of Stratasoft, Inc., the
Company's wholly owned subsidiary that was formed in 1995 to develop and market
CTI Software, since joining the Company in January 1996. Mr. Hennessy's
responsibilities include the general management of Stratasoft, Inc. From July
1991 to January 1996, Mr. Hennessy was employed by Inter-Tel, Incorporated, a
telephone systems manufacturer and sales and service company, where he served as
the Director of MIS and the Director of Voice and Data Integration for the
central region. From October 1984 to July 1991, Mr. Hennessy served as the MIS
Director of TSI/Bell Atlantic, a Houston-based subsidiary of a regional Bell
telephone company that sold and serviced business telephone systems and which
was acquired by Inter-Tel, Incorporated in 1991.

G. CHRIS ANDERSEN has agreed to become a director of the Company upon
closing of this Offering. Mr. Andersen is a principal of Andersen, Weinroth &
Co., a merchant banking firm founded in 1996. From 1990 through 1995, he was
Vice Chairman of PaineWebber Incorporated. For 20 years prior to 1990, Mr.
Andersen held senior executive positons at various investment banking firms. Mr.
Andersen is also a director of Terex Corporation, a publicly traded company that
manufactures construction equipment and truck trailers; Sunshine Mining Company,
a publicly traded company engaged in mining; Headway Corporate Resources, Inc.,
a publicly traded company providing staffing services; and United Waste Systems,
Inc., a publicly traded company engaged in waste management.

RICHARD D. DARRELL has agreed to become a director of the Company upon the
closing of this Offering. Mr. Darrell has been President of American Technology
Acquisition Corporation, a company specializing in mergers, acquisitions and
divestitures of technology related companies, for the last four years. Prior to
that, Mr. Darrell served as President and Chief Executive Officer of Direct
Computer Corporation, a computer reseller and distribution company based in
Dallas, Texas. Mr. Darrell has also served as president of numerous other
computer reseller and distribution companies, including Dealers Choice Systems
Corporation, Interprint Corporation and Quality Connection Inc. Mr. Darrell
began his career in sales and management positions with such companies as Xerox
Printing Systems Division, Texas Instruments, Inc. and IBM.

JACK M. JOHNSON, JR. has agreed to become a director of the Company upon
the closing of this Offering. For over five years Mr. Johnson has been Managing
General Partner of Winterman & Company, a general partnership that owns
approximately 25,000 acres of real estate in Texas, which is used in farming,
ranching and oil and gas exploration activities. Mr. Johnson is also President
of Winco Agriproducts, an

37
<PAGE>
agricultural products company that primarily processes rice for seed and
commercial sale. Mr. Johnson was previously the Chairman of the Board of the
Lower Colorado River Authority, the sixth largest electrical utility in Texas,
with approximately 1,700 employees and an annual budget of over $400 million.
Mr. Johnson was also previously the Chairman of the Board of North Houston Bank,
a commercial bank with assets of approximately $75 million. Mr. Johnson
currently serves on the board of directors of Houston National Bank, a
commercial bank located in Houston, Texas with assets of approximately $100
million; Security State Bank, a commercial bank located in Anahuac, Texas with
assets of approximately $60 million; and Team, Inc., a publicly traded company
which provides environmental services for industrial operations.

DON D. SYKORA has agreed to become a director of the Company upon the
closing of this Offering. Mr. Sykora was formerly the President and Chief
Operating Officer of Houston Industries,Inc. and is currently attached to the
Office of the Chairman with responsibility for special projects. Houston
Industries is an international holding company with interests in electric and
gas utility companies, including Houston Lighting & Power Co., with over 8,000
employees and annual revenues of over $4 billion. Mr. Sykora currently serves on
the board of directors of Powell Industries, Inc., a publicly traded company
which manufactures electrical equipment and systems; Pool Energy Services Co., a
publicly traded company which provides oil and gas well servicing; American
Residential Services, Inc., a publicly traded company which provides services
for heating, ventilation and air conditioning, plumbing, electrical and indoor
air quality systems, and TransTexas Gas Corporation, a publicly traded producer
and marketer of natural gas.

James H. Long and Frank Cano are brothers-in-law. There are no other family
relationships among any of the directors or executive officers of the Company.

All executive officers of the Company are elected by the board of directors
of the Company (the "Board") and hold office until the earlier of their
resignation, removal or other termination. All of the executive officers listed
above have entered into employment agreements with the Company effective upon
the closing of this Offering pursuant to which they hold their current
positions. See "-- Employment Agreements."

The Company's Board is currently composed of two directors. Following the
closing of this Offering, the Company will expand the Board to six positions and
Messrs. Andersen, Darrell, Johnson and Sykora (the "independent directors")
will be elected to the newly-created positions. Directors of the Company hold
office until the next annual meeting of stockholders or until their successors
are duly elected and qualified.

Following this Offering and the election of the four independent directors,
the Board will have an Audit Committee and a Compensation Committee, each of
which will initially be comprised of independent directors. The Audit Committee
will review the results and scope of the audit and other services provided by
the Company's independent auditors. The Compensation Committee will determine
salaries, incentive compensation and other benefits payable to the Company's
executive officers following this Offering, and will administer the Company's
1996 Incentive Stock Plan and 1996 Non-Employee Director Stock Option Plan.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During 1996 and prior years, compensation levels were determined by the
Company's Board, each of the members of which were executive officers of the
Company. Following this Offering, the Company intends to create a Compensation
Committee, which will initially be composed of independent directors.

DIRECTORS' COMPENSATION

Employee directors of the Company do not receive any additional
compensation for their services as a director of the Company. The Company
intends to pay each independent director $1,000 for each Board meeting attended
and $500 for each committee meeting attended. The Company will also pay
reasonable out-of-pocket expenses incurred by independent directors to attend
Board and committee meetings. Independent directors also will be entitled to
receive options pursuant to the 1996 Non-Employee Director Stock Option Plan.
See "-- Incentive and Stock Option Plans."

38
<PAGE>
EXECUTIVE COMPENSATION

The following table sets forth information concerning compensation for
services in all capacities awarded to, earned by, or paid to, the Company's
Chief Executive Officer and the most highly compensated executive officer of the
Company whose aggregate cash compensation exceeded $100,000 (the "Named
Executive Officers") during the years ended December 31, 1996, 1995 and 1994.

SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
----------------------
ANNUAL COMPENSATION RESTRICTED STOCK
NAME AND PRINCIPAL -------------------------------------------- STOCK OPTIONS ALL OTHER
POSITION YEAR SALARY BONUS OTHER(1)(2) AWARDS (SHARES) COMPENSATION
- ---------------------------------------- ----- -------- -------- ----------- ---------- -------- ------------
<S> <C> <C> <C> <C>
James H. Long
Chairman of the Board,
President and Chief
Executive Officer..................... 1996 $116,000 $ 35,000
1995 40,800 100,000 -- -- -- --
1994 43,500 -- -- -- -- --
Anthony Adame
President, Computer Products
Division.............................. 1996 $ 95,902 $ 36,128 $ 1,000
1995 93,900 24,040 -- -- -- --
1994 83,717 -- -- -- -- --
</TABLE>
- ------------

(1) The Company has made personal loans to Mr. Long from time to time. See
"Certain Relationships and Related Transactions -- Loans to Chairman and
Affiliates."

(2) Amounts exclude the value of perquisites and personal benefits because the
aggregate amount thereof did not exceed the lesser of $50,000 or 10% of the
Named Executive Officer's total annual salary and bonus.

The Company believes that its success is attributed in part to its ability
to attract and keep quality management personnel. The Company intends to pursue
growth using an entrepreneurial management style, giving responsible management
broad latitude to manage the office's or division's business, including profit
and loss responsibility. Commencing January 1996, executive managers began to be
compensated in part based on the profitability of their respective operations.

EMPLOYMENT AGREEMENTS

Each of the executive officers of the Company has entered into an
employment agreement (collectively, the "Executive Employment Agreements")
with the Company, which are effective upon the closing of this Offering. Under
the terms of their respective agreements, Messrs. Long and Adame are entitled to
an annual base salary of $150,000 and $96,000, respectively, plus other bonuses,
the amounts and payment of which are within the discretion of the Compensation
Committee. The Executive Employment Agreements may be terminated by the Company
or by the executive officer's resignation at any time by giving proper notice.
The Agreements generally provide that the executive officer will not, for the
term of his employment and for a period of either twelve or eighteen months,
whichever the case may be, following the end of such executive officer's
employment with the Company, compete with the Company, disclose any confidential
information of the Company, solicit any of the Company's employees or customers
or otherwise interfere with the relations of the Company.

INCENTIVE AND STOCK OPTION PLANS

INCENTIVE PLAN. In September 1996, the Company's Board adopted and the
stockholders approved the Company's 1996 Incentive Stock Plan (the "Incentive
Plan"). Under the Incentive Plan, the Compensation Committee may grant
incentive awards of up to 417,500 shares of Common Stock, subject to certain
antidilution adjustments, to key employees of the Company and its subsidiaries.
The incentive awards

39
<PAGE>
available for grant under the Incentive Plan include (i) incentive stock options
(as provided in Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code")) and non-qualified stock options, (ii) shares of restricted
stock, (iii) shares of phantom stock, (iv) stock bonuses and (v) cash bonuses
(collectively, the "Incentive Awards"). The maximum number of shares of Common
Stock subject to Incentive Awards which can be granted to any one individual
during any calendar year is 100,000 shares. No Incentive Awards may be granted
after the tenth anniversary of the adoption of the Incentive Plan. Incentive
Awards generally vest or otherwise become payable on the occurrence of a change
in control. Incentive Awards are reduced or subject to early termination on the
occurrence of certain events, including termination of employment. No Incentive
Awards have been granted under the Incentive Plan. Upon closing of this
Offering, however, the Company anticipates granting to certain of its key
executives non-qualified options to purchase up to an aggregate of 100,000
shares of Common Stock, with an exercise price equal to the fair market value of
the Common Stock at the date of grant and which will vest over five years, and
restricted stock awards for 14,286 shares of Common Stock which will vest over
two years.

DIRECTOR PLAN. In September 1996, the Company's Board adopted and the
stockholders approved the Company's 1996 Non-Employee Director Stock Option Plan
(the "Director Plan"). The Director Plan provides for the grant of
non-qualified options to purchase up to 100,000 shares of Common Stock, subject
to certain antidilution adjustments. To the extent shares remain available under
the Director Plan, the Director Plan entitles each newly elected non-employee
director, other than certain directors elected as part of financing or
acquisition transactions, to receive a one-time option to purchase 5,000 shares
of Common Stock as of the date of his first election to the Company's Board.
Furthermore, to the extent shares remain available under the Director Plan, each
incumbent director is entitled to receive an option to purchase 2,000 shares on
each date he is reelected to serve as a member of the Company's Board
(commencing with those directors reelected at the Company's 1997 annual meeting
of stockholders). All options granted under the Director Plan will have an
exercise price equal to the fair market value of a share of Common Stock on the
date of grant and will expire ten years after the date of grant, subject to
early termination on the occurrence of certain events, including ceasing to be a
member of the Company's Board (other than by death).

ADMINISTRATION. The Incentive Plan and the Director Plan will be
administered by the Compensation Committee of the Board, which initially will be
composed of independent directors appointed by the Company's Board. Under the
Incentive Plan, the Compensation Committee determines which employees receive
grants of Incentive Awards, the type of Incentive Award granted and the number
of shares subject to each Incentive Award, and it also determines, subject to
the terms of the Incentive Plan, the prices, expiration dates, vesting schedules
and other material features of the Incentive Awards granted under the Incentive
Plan. The Compensation Committee has no discretion under the Director Plan as to
the selection of the non-employee directors to whom options are to be granted,
the number of shares subject to any option granted, the exercise price of any
option granted or the ten-year maximum term of any option granted thereunder.
The Compensation Committee has the authority to interpret and construe any
provision of the Incentive Plan and the Director Plan and to adopt such rules
and regulations for administering the Incentive Plan and the Director Plan as it
deems necessary.

401(K) PLAN

In 1992, the Company adopted a Section 401(k) Profit Sharing Plan and Trust
(the "Plan"). The Plan is intended to qualify for tax exemption under Section
401(k) of the Code and is subject to the Employee Retirement Income Security Act
of 1974. The Plan covers substantially all of the Company's employees who, as of
the enrollment eligibility dates under the Plan, have completed at least one
year of service with the Company and have elected to participate in the Plan.
Employees may contribute up to 15% of their annual compensation, which is
matched by the Company under a defined formula. In addition, the Company may
make discretionary contributions to the Plan, for the benefit of all
participants, at the election of the Board. All employee contributions are fully
vested at all times and contributions by the Company vest over a six-year period
based upon an employee's years of service. Benefits will normally be distributed
to an employee upon (i) the employee reaching age 59 1/2, (ii) the employee's
retirement from the Company,

40
<PAGE>
(iii) the employee's death or disability, (iv) the termination of the employee's
employment with the Company or (v) the termination of the Plan.

As a result of operational defects in the administration of the Plan since
1992, the Company has filed under the Internal Revenue Service Walk-In Closing
Agreement Program to negotiate a settlement regarding the qualified status of
the Plan in order to meet the requirements of Section 401(a) of the Code. During
1996, the Company accrued $50,000 for estimated settlement costs.

KEY MAN INSURANCE

James H. Long is a key employee of the Company and the loss of Mr. Long
could adversely affect the Company's business. The Company maintains, and is the
beneficiary of, a life insurance policy on the life of Mr. Long. The face amount
of such policy is $7,000,000. The continuance of such policy is at the
discretion of the Board and may or may not continue in the future.

41
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Board of the Company has adopted a policy requiring that any future
transactions between the Company and its officers, directors, principal
stockholders and their affiliates be on terms no less favorable to the Company
than could be obtained from unrelated third parties and that any such
transactions be approved by a majority of the disinterested members of the
Company's Board.

HOUSTON OFFICE LEASE

Since 1991, the Company has subleased its Houston, Texas headquarters
facility from Allstar Equities, Inc. ("Allstar Equities"), a Texas corporation
wholly-owned by James H. Long. Mr. Long is the Chief Executive Officer of the
Company and its largest stockholder.

Allstar Equities initially leased the Company's headquarters building in
1991 pursuant to a lease purchase agreement from Jakascki Corporation
("Jakascki"), a Texas corporation wholly-owned by the Selling Stockholder. The
initial lease purchase agreement between Allstar Equities and Jakascki expired
on December 31, 1993, and was continued on a day-to-day basis from that date
until August 1996, when a new lease purchase agreement was entered into (the
"New Lease"). During 1994, 1995 and 1996, payments by Allstar Equities to
Jakascki under the lease arrangement amounted to $150,000, $150,000 and
$251,500, respectively. The monthly rental of the building is $18,000 during
1997 and $18,500 during 1998 under the New Lease. Additionally, Allstar Equities
is required to pay certain operating costs, including insurance, real property
taxes and utilities. Under the New Lease, Allstar Equities has an option to
purchase the building for $1.6 million in 1997 and $1.7 million in 1998. In each
case, the purchase price is to be reduced by the unpaid principal outstanding on
an interest free promissory note dated as of January 1, 1995, payable by
Jakascki to Allstar Equities in the original principal amount of $150,000. The
Company and James H. Long each guaranteed the obligations of Allstar Equities
under the expired lease purchase agreement and have also guaranteed the
obligations of Allstar Equities under the New Lease. The New Lease expires on
December 31, 1998.

The initial sublease expired on December 31, 1993, and was continued on a
day-to-day tenancy basis from that time until August 1996, at which time a new
sublease was executed (the "New Sublease"). During 1994, 1995 and 1996,
rentals under the sublease arrangement amounted to $312,000, $372,000 and
$372,000, respectively. In August 1996, the New Sublease was executed in
connection with the execution of the New Lease under which Allstar Equities
leases the facility. Under the New Sublease, the Company will pay a monthly
rental of $31,500 per month in 1997 and $32,000 per month in 1998, and will also
pay certain operating costs including insurance and utilities, but not real
property taxes. The New Sublease expires on December 31, 1998.

In August 1996, the Company retained an independent real estate consulting
firm to conduct a survey of rental rates for facilities in Houston, Texas that
are in the vicinity of, and comparable to, its Houston headquarters facility.
Based upon this survey, and additional consultations with representatives of the
real estate consulting firm, the Company believes that the rental rate and other
terms of the Company's sublease from Allstar Equities are at least as favorable
as those that could be obtained in an arms-length transaction with an
unaffiliated third party.

CERTAIN SELLING STOCKHOLDER AGREEMENTS

In March 1994, Jack B. Corey, the Selling Stockholder, purchased a number
of shares of the Company's Common Stock equal to 20.0% of the then outstanding
shares of Common Stock for cash consideration of $1.5 million. After giving
effect to the Reincorporation, the number of shares held by Mr. Corey is
535,000. Contemporaneously with the share purchase, Mr. Corey entered into a
Stock Purchase Agreement with the Company under which Mr. Corey is entitled to:
(i) 90 days written notice of the Company's decision to make a public offering
of its Common Stock; (ii) require the Company to include up to all shares owned
by Mr. Corey in any offering, provided that the sale of such shares does not
exceed a number that would result in net proceeds to him of more than $1.5
million; (iii) have all costs associated with the preparation and filing of the
registration statement pursuant to the Act paid by Company; and (iv)

42
<PAGE>
share pro rata any underwriting commissions and costs associated with a proposed
public offering. Also executed in connection with the share purchase was an
Agreement Among Shareholders between Mr. Corey and James H. Long containing
certain buy-sell provisions and other shareholder matters which was superceded
by a Shareholders' Agreement executed in August 1996 containing similar
provisions. In connection with the execution of the current Shareholders
Agreement, the Company and Mr. Corey entered into an Insurance Agreement
pursuant to which the Company agreed to repurchase Mr. Corey's Common Stock in
the event of Mr. Long's death, and to maintain life insurance on Mr. Long
sufficient for that purpose. The repurchase price under the Insurance Agreement
escalates monthly at prices during 1997, ranging from approximately $2,152,200
to $2,416,200, for all 535,000 shares of Common Stock owned by Mr. Corey. The
Stock Purchase Agreement, the current Shareholders' Agreement and the Insurance
Agreement will be terminated upon the closing of this Offering.

COREY CONSULTING ARRANGEMENT

The Company entered into a consulting arrangement in March 1994, pursuant
to which the Selling Shareholder, Jack B. Corey, consults with the Company's
Chief Executive Officer on an as-needed basis concerning the Company's business
and affairs. The consulting arrangement was insisted upon by Mr. Corey as a
condition to his investment in the Company described under "-- Certain Selling
Stockholder Agreements." Consulting fees of $75,000 per year were payable under
the arrangement. In August 1996, the consulting arrangement was modified and
commemorated in a written Consulting Agreement between the Company and Mr.
Corey. Through March 31, 1997, the Company had paid aggregate consulting fees of
$219,000 to Mr. Corey. Only minimal services have been rendered by Mr. Corey
under his consulting arrangements with the Company. The Consulting Agreement
will be terminated upon the closing of this Offering.

LOANS TO CHAIRMAN AND AFFILIATES

The Company has paid for the costs of substantially all leasehold repairs
and improvements to its Houston office since the inception of its sublease with
Allstar Equities, which is wholly owned by James H. Long. See "-- Houston
Office Lease." The Company has also loaned funds to Allstar Equities for the
payment of federal income tax liability associated with Mr. Long's ownership of
Allstar Equities, an S corporation for federal income tax purposes. These costs
have been treated by the Company and Allstar Equities as interest free, demand
loans by the Company to Allstar Equities. During the three year period ended
December 31, 1996, the maximum aggregate amount outstanding under such loans was
$414,549. On July 1, 1996, the amounts remaining due from Allstar Equities were
consolidated into a promissory note payable to the Company in the original
principal amount of approximately $386,600, and bearing interest at 9.0% per
annum. Under the note, Allstar Equities must make equal monthly payments of
principal and interest until the full amount owed has been paid. On December 1,
1998, all unpaid principal and interest become due.

The Company has, from time to time, made personal loans and advances for a
variety of purposes to its Chief Executive Officer and principal stockholder,
Mr. Long. The maximum aggregate amount owed by Mr. Long during the three year
period ended December 31, 1996 was $209,773. Effective July 1, 1996, Mr. Long
executed a promissory note payable to the Company in the amount of $173,300,
which represents all amounts outstanding as of that date, bearing interest at
9.0% per annum. Under the terms of the note, Mr. Long has agreed to pay the
Company in five equal installments, each due on the first day of July of the
next five years, beginning July 1, 1997, with a maturity date of July 1, 2001.
At March 31, 1997, Mr. Long was otherwise indebted to the Company in the amount
of $7,206 for amounts advanced on his behalf.

CERTAIN RELATED BUSINESS TRANSACTIONS

The Company supplies Computer Products to and provides marketing support
for Mintech, Inc. ("Mintech"), a minority-owned business engaged in reselling
computer products to third parties. Mintech is wholly owned by Consuelo Adame,
wife of Anthony Adame, who is also an officer of Mintech. James H. Long
currently is a director of Mintech and Donald R. Chadwick currently is both an
officer and director of

43
<PAGE>
Mintech. Messrs. Long, Chadwick and Adame will resign from their positions at
Mintech prior to the closing of this Offering.

The Company believes its commercial relationship with Mintech is beneficial
in obtaining Computer Products sales that would otherwise be lost to competitors
but for its relationship with Mintech. From time to time, potential customers
advise the Company that they would prefer to procure Computer Products from a
minority-owned business. Most frequently, the Company believes, the customer's
preference is the result of contractual provisions between the customer and
governmental entities or related governmental regulations mandating that a
certain portion of the customer's purchases be directed to minority-owned
business. In such instances, the Company has referred customers to Mintech.
Mintech fills the orders of customers referred to it by the Company by purchase
from the Company at a slight discount which represents Mintech's gross margin on
the sale. Through March 31, 1997, the Company has sold an aggregate of
approximately $1.8 million of Computer Products to Mintech, which represented an
aggregate discount of approximately $9,900 below the aggregate sale price which
the Company would have charged had the sales been made directly by the Company
to Mintech's customers.

Mintech has limited financial capacity, and the Company provides financial
support in the form of carrying accounts payable until Mintech's customers pay
for products it has sold. In addition, the Company collects on Mintech's
accounts receivable as an assignee of those receivables. Collections on the
accounts receivable are applied to amounts owed to the Company and the
difference is remitted to Mintech. No cash payments had been made to Mintech
through December 31, 1996; however, the Company was indebted to Mintech for the
cumulative difference between amounts collected from Mintech's customers and the
amount of Mintech's purchases from the Company. The net amount due to Mintech at
March 31, 1997 was approximately $6,600. No accounts receivable from Mintech
have been written off as uncollectible, and payments of accounts receivable due
from Mintech and Mintech's customers are typically received within time periods
generally consistent with average collection times for other customers.

The Company expects that it will continue to refer potential customers
wishing to do business with a minority-owned business to Mintech, and that the
Company will continue to act as Mintech's supplier with respect to such
referrals. The Company intends to establish written contractual arrangements
with Mintech under which Mintech will sell Computer Products to its customers at
the same price the Company sells those products to Mintech, with Mintech
receiving a rebate of approximately 5.0% of the Company's gross profit on the
transaction when collected. A lock box collection system is also intended to be
established as part of an accounts receivable financing arrangement with Mintech
to ensure the collection by the Company of amounts due it from Mintech upon
receipt of payments from Mintech's end-user customers.

ACQUISITION OF STRATASOFT PRODUCTS

In late 1995, the Company entered the business of creating, manufacturing
and marketing the Company's customized CTI software by forming a new wholly
owned subsidiary, Stratasoft, Inc., and acquiring the rights to two software
products from William R. Hennessy and ILC and Aspen. Mr. Hennessy is presently
an executive officer of Stratasoft, but was not employed by the Company in any
capacity at the time of such acquisition.

Stratasoft entered into an employment agreement with Mr. Hennessy as
consideration for the purchase of the software pursuant to which Mr. Hennessy
receives a monthly salary of approximately $6,800. In addition, Mr. Hennessy is
paid a bonus equal to 10% of Stratasoft's gross profits for the first eighteen
months of his employment and an additional bonus equal to 10% of Stratasoft's
net profit multiplied by its net margin during the tenure of his employment. Mr.
Hennessy's agreement contains restrictive covenants regarding confidential
information which generally prohibit disclosure of certain information and, for
a period of 12 months after termination of his employment with the Company,
certain competition with Stratasoft. Additionally, Mr. Hennessy's agreement with
Stratasoft provides that, as long as he is not in violation of any of the
restrictive covenants just described, upon termination of his employment Mr.
Hennessy will receive a termination bonus equal to 10% of Stratasoft's net
profits for the twelve

44
<PAGE>
consecutive months immediately preceding the termination. Employment under the
agreement is terminable at will by either party upon 10 days notice.

At the same time the employment agreement was entered into, Mr. Hennessy
and Stratasoft entered into an agreement under which Mr. Hennessy had the right
to purchase all rights to the software for nominal consideration if his
employment was terminated, by either himself or Stratasoft, at any time prior to
January 31, 1997. However, such rights were subject to Stratasoft's overriding
option to retain the software by making monthly payments of $7,500 following any
termination and ending on January 31, 1997. This agreement was terminated in
August 1996 by the parties for consideration of $5,000 paid by Stratasoft to Mr.
Hennessy.

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of March 31, 1997, and as adjusted to
reflect the sale of the shares of Common Stock offered hereby, by (i) each
person or entity known to the Company to own beneficially 5% or more of the
outstanding shares of Common Stock, (ii) each of the Company's directors, (iii)
each of the Named Executive Officers and (iv) all officers and directors as a
group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
PRIOR TO NUMBER OF AFTER
OFFERING(1)(2)(3) SHARES OFFERING(1)(2)(3)
--------------------- BEING ---------------------
NAME AND ADDRESS NUMBER % OFFERED NUMBER %
- ------------------------------------- ----------- ------ ---------- ----------- ------
<S> <C> <C> <C> <C> <C>
James H. Long
6401 Southwest Freeway
Houston, Texas 77074............... 2,118,600 79.2% -- 2,118,600 50.7%
Anthony Adame
6401 Southwest Freeway
Houston, Texas 77074............... 21,400 * -- 21,400 *
Jack B. Corey
Post Office Box 525
Pinehurst, Texas 77362-0525........ 535,000 20.0% 267,500 267,500 6.4
All executive officers and directors
as a group (9 persons)............. 2,140,000 80.0% -- 2,140,000 51.3%
</TABLE>
- ------------

* Represents less than one percent of shares of Common Stock.

(1) Except as set forth in the footnotes to this table and subject to applicable
community property law, the persons named in the table have sole voting and
investment power with respect to all shares.

(2) Applicable percentage of ownership is based on 2,675,000 shares of Common
Stock outstanding on March 31, 1997 and 4,175,000 shares of Common Stock
outstanding after the completion of this Offering.

(3) Mr. Long has granted to Mr. Corey an option to acquire 118,000 shares of
Common Stock held by Mr. Long at the initial public offering price, such
option being conditioned upon the completion of this Offering (the "Corey
Option"). The Corey Option may not be exercised until the expiration of 180
days after the closing of this Offering, and terminates on the date that is
five years after the closing of this Offering. If exercised in full, Mr.
Corey will hold approximately 9.2% of the Common Stock outstanding after the
completion of this Offering.

45
<PAGE>
DESCRIPTION OF CAPITAL STOCK

The following summary of certain provisions with respect to the Company's
capital stock does not purport to be complete and is subject to, and qualified
in its entirety by reference to, the Company's Certificate of Incorporation
("Certificate") and Bylaws that have been filed as exhibits to the
Registration Statement of which this Prospectus forms a part and by provisions
of applicable law.

The Company's authorized capital stock consists of 50,000,000 shares of
Common Stock, $.01 par value per share, of which 2,675,000 shares were issued
and outstanding before this Offering and held of record by three stockholders
and 5,000,000 shares of preferred stock, $.01 par value per share ("Preferred
Stock"), none of which have been issued.

COMMON STOCK

Holders of shares of Common Stock are entitled to one vote for each share
held of record on matters to be voted on by the stockholders of the Company.
Holders of shares of Common Stock will be entitled to receive dividends, subject
to the senior rights of preferred stockholders, if any, when, as and if declared
by the Board and to share ratably in the assets of the Company legally available
for distribution to its stockholders, in the event of the liquidation,
dissolution or winding-up of the Company. Holders of Common Stock have no
preemptive, subscription, redemption or conversion rights. All of the shares of
Common Stock to be sold in this Offering will be duly authorized, validly
issued, fully paid and nonassessable.

PREFERRED STOCK

The Board of the Company, without any action by the stockholders of the
Company, is authorized to issue up to 5,000,000 shares of Preferred Stock in one
or more series and to determine the voting rights (including the right to vote
as a series on particular matters), preferences as to dividends and in
liquidation and the conversion and other rights of each such series. There are
no shares of Preferred Stock outstanding.

CERTAIN ANTI-TAKEOVER PROVISIONS

The Certificate and Bylaws contain a number of provisions that could make
more difficult the acquisition of the Company by means of a tender or exchange
offer, a proxy contest or otherwise. The provisions are summarized below.

REMOVAL OF DIRECTORS. The Certificate provides that directors of the
Company may only be removed for cause and only by the affirmative vote of the
holders of two-thirds or more of the voting power of all of the then outstanding
shares of capital stock entitled to vote generally in the election of directors
(the "Voting Stock"), voting together as a single class. For purposes of
director removal, cause means conviction of a felony involving moral turpitude,
proof beyond a reasonable doubt that a director has committed grossly negligent
or willful misconduct resulting in a material detriment to the Company or
commission of a material breach of fiduciary duty to the Company resulting in a
material detriment to the Company.

ADVANCE NOTICE PROVISIONS FOR CERTAIN STOCKHOLDER ACTIONS. The Bylaws
establish an advance notice procedure with regard to the nomination, other than
by or at the direction of the Board or a committee thereof, of candidates for
election as directors and with regard to certain matters to be brought before an
annual meeting of stockholders of the Company. The advance notice procedures
generally require that a stockholder give prior written notice, in proper form,
to the Secretary of the Company, the requirements as to the form and timing of
such notices specified in the Bylaws. If it is determined that such advance
notice procedures were not complied with, a Board nomination could be precluded
or certain business may not be conducted at the meeting.

Although the Bylaws do not give the Board the power to approve or
disapprove stockholder nominations for the election of directors or of any other
business desired by stockholders to be conducted at an annual or any other
meeting, the Bylaws (i) may have the effect of precluding a nomination for the
election of directors or precluding the conduct of business at a particular
annual meeting if the proper procedures are not followed, or (ii) may discourage
or deter a third party from conducting a solicitation of

46
<PAGE>
proxies to elect its own slate of directors or otherwise attempting to obtain
control of the Company, even if the conduct of such solicitation or such attempt
might be beneficial to the Company.

PREFERRED STOCK. The Certificate authorizes the Board to establish and
issue one or more series of Preferred Stock without any action by the
stockholders of the Company. Although the Board has no intention at the present
time of doing so, it could issue a series of Preferred Stock that could,
depending on the terms of such series, provide for a liquidation preference over
the Common Stock or impede the completion of a merger, tender offer or other
takeover attempt. The Board, in so acting, could issue Preferred Stock having
terms that discourage an acquisition attempt through which an acquiror may be
otherwise able to change the composition of the Board, including a tender or
exchange offer or other transaction that some, or a majority, of the Company's
stockholders might believe to be in their best interest.

NO STOCKHOLDER ACTION BY WRITTEN CONSENT; SPECIAL MEETINGS. The
Certificate provides that stockholder action can be taken only at an annual or
special meeting of stockholders and prohibits stockholder action by written
consent in lieu of a meeting. The Certificate and the Bylaws provide that
special meetings of stockholders can be called only by the Chairman of the
Board, the Chief Executive Officer, the President, the Board by the written
order of a majority of directors or upon a written request of stockholders
owning two-thirds or more of the entire capital stock of the Company issued and
outstanding and entitled to vote, stating the purpose of such meeting and
delivered to the Chairman of the Board, Chief Executive Officer, the President
or the Secretary. Accordingly, holders of a significant percentage of the
outstanding capital stock of the Company may not be able to request a special
meeting of stockholders.

AMENDMENT OF CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND
BYLAWS. Under the General Corporation Law of the State of Delaware (the
"DGCL"), the stockholders have the right to adopt, amend or repeal the Bylaws
and with the approval of the Board, the Certificate of Incorporation. The
Company's Certificate provides that the affirmative vote of at least two-thirds
of the voting power of the then outstanding shares of Voting Stock, voting
together as a single class and in addition to any other vote required by the
Certificate or Bylaws, is required to amend provisions of the Certificate or
Bylaws relating to: (i) the prohibition of stockholder action without a meeting;
(ii) the restriction of stockholders calling a special meeting; (iii) the
number, election and term of the Company's directors; or (iv) the removal of
directors. The vote of a majority of the voting power of the then outstanding
shares of Voting Stock is required to amend all other provisions of the
Certificate. The Certificate further provides that the Bylaws may otherwise be
amended by the Board or by the affirmative vote of at least a majority of the
voting power of the then outstanding shares of Voting Stock, voting together as
a single class. These supermajority voting requirements will have the effect of
making more difficult any amendment by the stockholders of the Bylaws or the
provisions of the Certificate described above.

ANTI-TAKEOVER LEGISLATION. As a Delaware corporation, the Company is
subject to Section 203 of the DGCL. In general, Section 203 prohibits a
corporation from engaging in a "business combination" (as defined therein)
with an "interested stockholder" (defined generally as a person owning 15% or
more of a corporation's outstanding voting stock) for three years following the
time such person became an interested stockholder unless (i) before such person
became an interested stockholder, the board of directors of the corporation
approved the transaction in which the interested stockholder became an
interested stockholder or approved the business combination; (ii) upon
consummation of the transaction that resulted in the stockholder becoming an
interested stockholder, the interested stockholder owns at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced (excluding stock held by directors who are also officers of the
corporation and by employee stock plans that do not provide employees with the
rights to determine confidentially whether shares held subject to the plan will
be tendered in a tender or exchange offer); or (iii) following the transaction
in which such person became an interested stockholder, the business combination
is approved by the board of directors of the corporation and authorized at a
meeting of the stockholders by the affirmative vote of the holders of two-thirds
of the outstanding voting stock of the corporation not owned by the interested
stockholder. Under Section 203, the restrictions described above also do not
apply to certain business combinations proposed by an interested stockholder
following the announcement or notification of one of certain extraordinary
transactions involving the corporation and a person who had not been an
interested stockholder during the previous three

47
<PAGE>
years or who became an interested stockholder with the approval of a majority of
the corporation's directors, if such extraordinary transaction is approved or
not opposed by a majority of the directors who were directors prior to any
person becoming an interested stockholder during the previous three years or
were recommended for election or elected to succeed such directors by a majority
of such directors.

CERTAIN REGISTRATION RIGHTS

The Company and the Selling Stockholder are parties to certain agreements
granting the Selling Stockholder registration rights with respect to the shares
of the Company's Common Stock owned by him. The Company has also agreed to grant
certain demand and incidental or "piggyback" registration rights to the
Representatives with respect to the resale of Common Stock issuable upon
exercise of the Representatives' Warrants. See "Certain Relationships and
Related Transactions -- Certain Selling Stockholder Agreements" and
"Underwriting."

CERTAIN STATUTORY AND CHARTER PROVISIONS REGARDING LIABILITY OF DIRECTORS

As permitted by the DGCL, the Company's Certificate includes a provision
that eliminates the personal liability of its directors to the Company and its
stockholders for monetary damages for breach of fiduciary duty as a director,
except liability for (i) breaches of the duty of loyalty to the Company or its
stockholders, (ii) acts or omissions in bad faith or involving intentional
misconduct or knowing violations of law, (iii) violations of Section 174 of the
DGCL (including the payment of unlawful dividends or unlawful stock purchases or
redemptions) or (iv) transactions in which a director receives an improper
personal benefit. The Certificate also contains provisions requiring the
indemnification of the Company's directors and officers to the fullest extent
permitted by the DGCL, including circumstances in which indemnification is
otherwise discretionary. The Company also has the power to maintain insurance,
on terms and conditions the Board deems acceptable, on behalf of officers and
directors against any expense, liability or loss arising out of such person's
status as an officer or director. The Company believes that these provisions and
agreements are necessary to attract and retain qualified persons as directors
and officers.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Co.

48
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this Offering, the Company will have outstanding
4,175,000 shares of Common Stock. Of these shares, the 1,767,500 shares sold in
this Offering will be freely transferable without restriction or registration
under the Securities Act by persons other than "affiliates" of the Company, as
that term is defined in Rule 144 under the Securities Act. The remaining
2,407,500 shares of Common Stock outstanding are "restricted securities" (the
"Restricted Shares") within the meaning of Rule 144 under the Securities Act
and may not be sold in the absence of registration under the Securities Act
unless an exemption from registration is available, including an exemption
afforded by Rule 144.

The Company, its current stockholders, directors and executive officers
have entered into lock-up agreements with the Representatives, providing that,
subject to certain exceptions, they will not, directly or indirectly, offer,
sell, contract to sell, grant any option to sell or otherwise dispose of any
shares of Common Stock, or other securities substantially similar, or securities
convertible into or exercisable or exchangeable for, or any rights to purchase
or acquire, Common Stock or other securities substantially similar (except for
the grant of options or of restricted stock awards pursuant to the Incentive
Plan or the Director Plan), for a period of 180 days after the date of this
Prospectus without the prior written consent of the Representatives. See
"Underwriting." Following the expiration of the lock-up period, all of the
Restricted Shares will be eligible for resale in the public market pursuant to
Rule 144, subject to certain limitations described below.

Rule 144, as in effect beginning April 29, 1997, provides that an affiliate
of the Company or a person (or persons whose sales are aggregated) who has
beneficially owned Restricted Shares for at least one year is entitled to sell,
commencing 90 days after the date of this Prospectus, within any three-month
period, a number of shares that does not exceed the greater of one percent of
the then outstanding shares of Common Stock (41,750 shares immediately after
this Offering) or the average weekly trading volume in the Common Stock during
the four calendar weeks preceding such sale. Sales under Rule 144 also are
subject to certain manner-of-sale provisions, notice requirements and the
availability of current public information about the Company. However, a person
who is not an affiliate of the Company at any time during the three months
preceding a sale, and who has beneficially owned Restricted Shares for at least
two years, is entitled to sell such shares under Rule 144, as in effect
beginning April 29, 1997, without regard to the limitations described above.

The Company plans to register, under the Securities Act, the 517,500 shares
of Common Stock available for issuance pursuant to the 1996 Incentive Stock Plan
and the 1996 Non-Employee Director Stock Option Plan on registration statements
on Form S-8. The Company intends to file such Form S-8 registration statements
with the Securities and Exchange Commission before any option first becomes
exercisable. Common Stock acquired pursuant to such plans can be sold in the
open market by holders who are not affiliates of the Company, but will be
subject to volume and other limitations of Rule 144 by holders who are
affiliates of the Company. Furthermore, shares of restricted stock and
non-qualified options issued pursuant to the Incentive Plan will be subject to
vesting requirements and will not be tradeable until vested. See
"Management -- Incentive and Stock Option Plans."

Since there has been no public market for shares of the Common Stock prior
to this Offering, the Company is unable to predict the effect that sales made
pursuant to Rule 144, or otherwise, may have on the prevailing market price at
such times for shares of the Common Stock. Nevertheless, sales of a substantial
amount of the Common Stock in the public market, or the perception that such
sales could occur, could adversely affect market prices. See "Risk
Factors -- Potential Effect of Shares Eligible for Future Sale on Price of
Common Stock."

49
<PAGE>
UNDERWRITING

The Underwriters named below, acting through their representatives, Sutro &
Co. Incorporated and Cruttenden Roth Incorporated (the "Representatives"),
have severally agreed, subject to the terms and conditions of the Underwriting
Agreement with the Company, to purchase from the Company the number of shares of
Common Stock set forth opposite their respective names. The Underwriters are
committed to purchase and pay for all such shares if any are purchased.

NUMBER
NAME OF SHARES
- ---------------------------------------- ---------
Sutro & Co. Incorporated................ 643,750
Cruttenden Roth Incorporated............ 643,750
Credit Lyonnais Securities (USA)
Inc. ................................... 30,000
Crowell, Weedon & Co. .................. 30,000
Dain Bosworth Incorporated.............. 30,000
Legg Mason Wood Walker, Incorporated.... 30,000
McDonald & Company Securities, Inc. .... 30,000
Needham & Company, Inc. ................ 30,000
Piper Jaffray Inc. ..................... 30,000
Principal Financial Securities, Inc. ... 30,000
Rauscher Pierce Refsnes, Inc. .......... 30,000
Raymond James & Associates, Inc. ....... 30,000
The Robinson-Humphrey Company, Inc. .... 30,000
Stifel, Nicolaus & Company,
Incorporated............................ 30,000
Tucker Anthony Incorporated............. 30,000
Wedbush Morgan Securities Inc. ......... 30,000
Hoak Breedlove Wesneski & Co. .......... 15,000
Parker/Hunter Incorporated.............. 15,000
Southwest Securities, Inc. ............. 15,000
Starr Securities, Inc. ................. 15,000
---------
Total.............................. 1,767,500
=========

The Representatives have advised the Company that the Underwriters propose
initially to offer the shares of Common Stock to the public on the terms set
forth on the cover page of this Prospectus. The Underwriters may allow selected
dealers a concession of not more than $.26 per share, and the Underwriters may
allow, and such dealers may reallow, a concession of not more than $.11 per
share to certain other dealers. After the initial public offering, the price and
concessions and reallowances to dealers may be changed by the Representatives.
The Common Stock is offered subject to receipt and acceptance by the
Underwriters and to certain other conditions, including the right to reject
orders in whole or part.

The Company has granted the Underwriters an option exercisable for 45 days
after the date of the Underwriting Agreement to purchase up to a maximum of
265,125 additional shares of Common Stock to cover over-allotments, if any. If
the Underwriters exercise such option, the Underwriters have severally agreed,
subject to certain conditions, to purchase such additional shares in
approximately the same proportion as set forth in the foregoing table.

The Underwriting Agreement provides that the Company will indemnify the
several Underwriters against certain liabilities, including civil liabilities
under the Securities Act, or will contribute to payments the Underwriters may be
required to make in respect thereof.

The Company, its directors, officers and certain stockholders have agreed
not to offer, sell or otherwise dispose of any shares of Common Stock or any
securities convertible into or exchangeable for shares of Common Stock of the
Company for a period of 180 days after the date of this Prospectus without the
prior written consent of the Representatives except for: (i) the sale of the
shares hereunder; (ii) the issuance by

50
<PAGE>
the Company of Common Stock pursuant to the exercise of options under the
Company's stock plans disclosed in the Prospectus; (iii) the granting by the
Company of stock options after the date of this Prospectus under the 1996
Incentive Plan or the 1996 Directors Plan; or (iv) as a bona fide gift to a
third party or as a distribution to the partners or stockholders of a Company
stockholder, provided that the recipient(s) thereof agree in writing to be bound
by the terms of the lock-up agreement to which such stockholder is bound.

The Underwriters may engage in stabilizing bids, cover syndicate short
positions or impose penalty bids. A stabilizing bid is a bid for, or the
purchase of the Common Stock on behalf of, the Underwriters for the purpose of
fixing or maintaining the price of the Common Stock. If the Underwriters create
a short position in the Common Stock in connection with this Offering (i.e., if
they sell more shares of Common Stock than are set forth on the cover page of
this Prospectus), the Representatives may reduce that short position by
purchasing Common Stock in the open market. The Representatives also may elect
to reduce any short position by exercising all or part of the over-allotment
option described herein.

The Representatives also may impose a penalty bid on certain Underwriters
and selling group members. This means that if the Representatives purchase
shares of Common Stock in the open market to reduce the Underwriters' short
position or to stabilize the price of the Common Stock, they may reclaim the
amount of the selling concession from the Underwriters and selling group members
who sold those shares as part of this Offering. In general, purchases of a
security for the purpose of stabilization or to reduce a syndicate short
position could cause the price of the security to be higher than it might
otherwise be in the absence of such purchases. The imposition of a penalty bid
may have an effect on the price of a security to the extent that it were to
discourage resales of the security by purchasers in this Offering.

Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of, or any effect that the
transactions described above may have on, the price of the Common Stock. In
addition, neither the Company nor any of the Underwriters makes any
representation that the Representatives will engage in such transactions or,
once commenced, will not be discontinued without notice.

The Company has agreed to sell to the Representatives for $.01 per warrant,
the Representatives' Warrants to purchase from the Company up to 176,750 shares
of Common Stock at an exercise price per share equal to the greater of 120% of
the initial public offering price per share or $9.60 per share. The
Representatives' Warrants will be exercisable for a period beginning one year
from the date of this Prospectus until five years from the date of this
Prospectus. The Representatives' Warrants may not be sold, transferred,
assigned, pledged or hypothecated by the Representatives except to officers and
partners of the Representatives, the Underwriters or officers and partners of
the Underwriters. In addition, the Company has granted certain demand and
piggyback registration rights to the holders of the Representatives' Warrants,
which enable them to register resales of the Common Stock underlying the
Representatives' Warrants under the Securities Act. The Representatives'
Warrants are being issued as a bonus to the Representatives for their services
in connection with this Offering. Using a Black-Scholes pricing model, the
Company, in consultation with the Representatives, has valued the
Representatives' Warrants at $193,068.

The Company and the Selling Stockholder have agreed to pay, on a pro rata
basis, the Representatives a non-accountable expense allowance in an amount
equal to 1.5% of the gross proceeds of this Offering to cover some of the
underwriting costs and due diligence expenses related to this Offering.

Prior to this Offering, there has been no public market for the Common
Stock. Accordingly, the initial public offering price for the Common Stock was
determined by negotiations between the Company and the Representatives. Among
the factors considered in such negotiations were the history of, and the
prospects for, the Company and the industry in which it competes, an assessment
of the Company's management, its past and present operations, its past and
present earnings and the trend of such earnings, the prospects for future
earnings, the present state of the Company's development, the general conditions
of the securities market at the time of the Offering, and the market prices of
publicly traded common stocks of comparable

51
<PAGE>
companies in recent periods. The Representatives have informed the Company that
the Underwriters do not intend to confirm sales to any accounts over which they
exercise discretionary authority.

The Company and the Selling Stockholder have agreed to indemnify the
Underwriters and certain related persons against certain liabilities relating to
this Offering contemplated by this Prospectus, including liabilities under the
Securities Act, or to contribute to payments which the Underwriters may be
required to make in respect thereof.

The Common Stock has been approved for listing on the Nasdaq National
Market under the symbol "ALLS."

LEGAL MATTERS

Certain legal matters in connection with the Common Stock offered hereby
are being passed upon for the Company by Porter & Hedges, L.L.P. Certain legal
matters relating to this Offering will be passed upon for the Underwriters by
Gardere & Wynne, L.L.P.

EXPERTS

The consolidated financial statements at December 31, 1995 and 1996 and for
each of the three years in the period ended December 31, 1996, included in this
Prospectus have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report appearing herein, and have been so included in reliance
upon such reports given upon the authority of that firm as experts in accounting
and auditing.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 under the Securities Act
(the "Registration Statement"), with respect to the shares of Common Stock
offered hereby. This Prospectus, which forms a part of the Registration
Statement, does not contain all the information set forth in the Registration
Statement and the exhibits filed therewith. For further information with respect
to the Company and the shares of Common Stock offered hereby, reference is made
to the Registration Statement and to such exhibits filed therewith. Statements
contained herein as to the content of any contract or other document are not
necessarily complete and, in each instance reference is made to a copy of such
contract or other document filed as an exhibit to the Registration Statement and
each such statement shall be deemed qualified in its entirety by such reference.

The Registration Statement and the exhibits thereto may be inspected
without charge at the principal office of the Commission at the Public Reference
Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the regional offices of the Commission located at
Seven World Trade Center, 13th Floor, New York, New York 10048 and Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such documents may be obtained from the Public Reference Section of
the Commission, at prescribed rates, or on the Internet at HTTP://WWW.SEC.GOV.

<PAGE>
ALLSTAR SYSTEMS, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

PAGE
----

Independent Auditors' Report............ F-2

Consolidated Balance Sheets at December
31, 1995 and 1996 and at March 31,
1997 (Unaudited)...................... F-3

Consolidated Statements of Operations
for the Years Ended December 31, 1994,
1995
and 1996 and for the Three Months
Ended March 31, 1996 and 1997
(Unaudited)........................... F-4

Consolidated Statements of Stockholders'
Equity for the Years Ended December
31, 1994,
1995 and 1996 and for the Three Months
Ended March 31, 1997 (Unaudited)...... F-5

Consolidated Statements of Cash Flows
for the Years Ended December 31, 1994,
1995
and 1996 and for the Three Months
Ended March 31, 1996 and 1997
(Unaudited)........................... F-6

Notes to Consolidated Financial
Statements............................ F-7

F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT

To the Stockholders of Allstar Systems, Inc.:

We have audited the accompanying consolidated balance sheets of Allstar
Systems, Inc. and subsidiary ("Allstar") at December 31, 1995 and 1996, and
the related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of Allstar's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. 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, such consolidated financial statements present fairly, in
all material respects, the financial position of Allstar at December 31, 1995
and 1996, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1996 in conformity with generally
accepted accounting principles.

Deloitte & Touche LLP

Houston, Texas
March 26, 1997

F-2
<PAGE>
ALLSTAR SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1996
AND MARCH 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

DECEMBER 31,
-------------------- MARCH 31,
1995 1996 1997
--------- --------- -----------
(UNAUDITED)

ASSETS
Current assets:
Cash and cash equivalents:
Restricted cash.................. $ 581 $ 94 $ 1,149
Cash............................. 448 135 570
--------- --------- -----------
Total cash and cash
equivalents................ 1,029 229 1,719
Accounts receivable - trade, net... 15,822 16,517 17,193
Accounts receivable - affiliates... 679 140 259
Inventory.......................... 5,407 4,862 5,134
Deferred taxes..................... 258 350 350
Deferred offering costs............ -- 412 412
Other current assets............... 79 174 188
--------- --------- -----------
Total current assets.......... 23,274 22,684 25,255
Property and equipment, net............. 986 1,644 1,628
Other assets - affiliates............... 6 392 418
--------- --------- -----------
Total................................... $ 24,266 $ 24,720 $27,301
========= ========= ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Notes payable...................... $ 9,912 $ 9,975 10,411
Accounts payable................... 7,649 7,157 9,053
Accrued expenses................... 3,357 2,759 2,688
Income taxes payable............... 283 206 342
Deferred service revenue........... 341 296 227
--------- --------- -----------
Total current liabilities..... 21,542 20,393 22,721
--------- --------- -----------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value,
5,000,000 shares authorized, no
shares issued.................... -- -- --
Common stock:
No par value, 1,000,000 shares
authorized, 328,125 shares
issued and outstanding........ 2 -- --
$.01 par value, 50,000,000 shares
authorized, 2,675,000 shares
issued and outstanding........ -- 27 27
Additional paid-in capital......... 1,504 1,479 1,479
Retained earnings.................. 1,218 2,821 3,074
--------- --------- -----------
Total stockholders' equity.... 2,724 4,327 4,580
--------- --------- -----------
Total................................... $ 24,266 $ 24,720 $27,301
========= ========= ===========

See notes to consolidated financial statements.

F-3
<PAGE>
ALLSTAR SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
AND THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------- ------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Total revenue........................... $ 64,076 $ 91,085 $ 120,359 $ 25,948 $ 26,593
Cost of sales and services.............. 55,541 79,857 104,302 22,727 22,762
----------- ----------- ----------- ----------- -----------
Gross profit............................ 8,535 11,228 16,057 3,221 3,831
Selling, general and administrative
expenses.............................. 7,448 9,149 12,284 2,674 3,135
----------- ----------- ----------- ----------- -----------
Operating income........................ 1,087 2,079 3,773 547 696
Interest expense and other.............. 764 1,218 1,183 297 289
----------- ----------- ----------- ----------- -----------
Income before provision for income
taxes................................. 323 861 2,590 250 407
Provision for income taxes.............. 140 342 987 111 154
----------- ----------- ----------- ----------- -----------
Net income.............................. $ 183 $ 519 $ 1,603 $ 139 $ 253
=========== =========== =========== =========== ===========
Net income per share.................... $ 0.07 $ 0.19 $ 0.60 $ 0.05 $ 0.09
=========== =========== =========== =========== ===========
Weighted average shares outstanding..... 2,554,808 2,675,000 2,675,000 2,675,000 2,675,000
=========== =========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.

F-4
<PAGE>
ALLSTAR SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
AND THE THREE MONTHS ENDED MARCH 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
$.01 PAR VALUE NO PAR VALUE
COMMON STOCK COMMON STOCK ADDITIONAL
-------------------- ------------------ PAID-IN RETAINED
SHARE AMOUNT SHARE AMOUNT CAPITAL EARNINGS TOTAL
------------ ------ ---------- ------ ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1994.............. 262,500 $ 2 $1,504 $ 516 $ 2,022
Net income......................... -- -- -- 183 183
Issuance of stock subscribed....... 65,625 -- -- -- --
------------ ------ ---------- ------ ---------- --------- ---------
Balance at December 31, 1994............ 328,125 2 1,504 699 2,205
Net income......................... -- -- -- 519 519
------------ ------ ---------- ------ ---------- --------- ---------
Balance at December 31, 1995............ 328,125 2 1,504 1,218 2,724
Issuance of common stock
upon conversion
(see Note 1)..................... 2,675,000 $ 27 (328,125) (2) (25) -- --
Net income......................... -- -- -- -- -- 1,603 1,603
------------ ------ ---------- ------ ---------- --------- ---------
Balance at December 31, 1996............ 2,675,000 $ 27 -- $ 0 $1,479 $ 2,821 $ 4,327
------------ ------ ---------- ------ ---------- --------- ---------
Net income (unaudited)............. -- -- -- -- -- 253 253
------------ ------ ---------- ------ ---------- --------- ---------
Balance at March 31, 1997 (unaudited)... 2,675,000 $ 27 -- $ 0 $1,479 $ 3,074 $ 4,580
============ ====== ========== ====== ========== ========= =========
</TABLE>
See notes to consolidated financial statements.

F-5
<PAGE>
ALLSTAR SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
AND THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income............................ $ 183 $ 519 $ 1,603 $ 139 $ 253
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Gain on disposal of assets......... -- (1) (11) -- --
Depreciation and amortization...... 211 309 305 59 125
Deferred taxes..................... 230 (146) (92) --
Changes in assets and liabilities that
provided (used) cash:
Accounts receivable - trade, net... (2,018) (4,437) (695) 6,779 (676)
Accounts receivable - affiliates... (241) (80) 153 528 (119)
Inventory.......................... (1,681) (21) 545 (1,602) (272)
Other assets....................... (55) 4 (507) (396) (40)
Accounts payable................... (311) 1,977 (492) (3,411) 1,896
Accrued expenses................... 290 1,673 (598) 414 (71)
Income taxes payable............... (341) 53 (77) 48 136
Deferred service revenue........... (207) 27 (45) 6 (69)
--------- --------- --------- --------- ---------
Net cash provided by (used in)
operating activities....... (3,940) (123) 89 2,564 1,163
--------- --------- --------- --------- ---------
Cash flows from investing activities:
Capital expenditures.................. (447) (518) (965) -- (109)
Proceeds from sale of fixed assets.... -- 60 13 -- --
--------- --------- --------- --------- ---------
Net cash used in investing
activities................. (447) (458) (952) -- (109)

Cash flows from financing activities:
Net increase (decrease) in notes
payable............................ 2,075 940 63 (1,649) 436
Proceeds from sale of common stock.... 1,500 -- -- -- --
Payment of long-term debt............. (43) -- -- -- --
--------- --------- --------- --------- ---------
Net cash provided by (used in)
financing activities....... 3,532 940 63 (1,649) 436
--------- --------- --------- --------- ---------
Net increase (decrease) in cash and cash
equivalents........................... (855) 359 (800) 915 1,490
Cash and cash equivalents at beginning
of period............................. 1,525 670 1,029 1,029 229
--------- --------- --------- --------- ---------
Cash and cash equivalents at end of
period................................ $ 670 1,029 $ 229 $ 1,944 $ 1,719
========= ========= ========= ========= =========
Supplemental disclosures of cash flow
information:
Cash paid for interest................ $ 667 $ 1,189 $ 1,140 $ 140 $ 403
========= ========= ========= ========= =========
Cash paid for income taxes............ $ 221 $ 432 $ 1,138 $ 50 $ --
========= ========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.

F-6

<PAGE>
ALLSTAR SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Allstar Systems, Inc. and subsidiary ("Allstar") is engaged in the sale
and service of computer and telecommunications hardware and software products.
During 1995 Allstar formed and incorporated Stratasoft, Inc., a wholly owned
subsidiary, to create and market software related to the integration of computer
and telephone technologies. All operations of the business are primarily
conducted from offices located in Houston and Dallas, Texas.

A substantial portion of Allstar's sales and services are authorized under
arrangements with product manufacturers and Allstar's operations are dependent
upon maintaining its approved status with such manufacturers. As a result of
these arrangements and arrangements with its customers, gross profit could be
limited by the availability of products or allowance for volume discounts.
Furthermore, net income before income taxes could be affected by changes in
interest rates which underlie the credit arrangements which are used for working
capital (see Note 5). For the year ended December 31, 1996, Allstar had sales to
one customer representing approximately 11.2% of total revenue.

The consolidated financial statements presented herein at March 31, 1997
and for the three-month periods ended March 31, 1996 and 1997 are unaudited;
however, all adjustments which are, in the opinion of management, necessary for
a fair presentation of the financial position, results of operations and cash
flows for the periods covered have been made and are of a normal, recurring
nature. Accounting measurements at interim dates inherently involve greater
reliance on estimates than at year end. The results of the interim periods are
not necessarily indicative of results for the full year.

Allstar's significant accounting policies are as follows:

PRINCIPLES OF CONSOLIDATION -- The accompanying consolidated financial
statements include the accounts of Allstar Systems, Inc. and its wholly owned
subsidiary. All significant intercompany balances and transactions have been
eliminated.

INVENTORY -- Inventory consists primarily of personal computers and
components and is valued at the lower of cost or market with cost determined on
the first-in first-out method. Management provides a reserve for inventory which
may be slow-moving or obsolete.

PROPERTY AND EQUIPMENT -- Property and equipment are recorded at cost.
Expenditures for repairs and maintenance are charged to expense when incurred,
while expenditures for betterments are capitalized. Disposals are removed at
cost less accumulated depreciation with the resulting gain or loss reflected in
operations in the year of disposal.

Property and equipment are depreciated over their estimated useful lives
ranging from five to ten years using the straight-line method. Depreciation
expense totaled $210, $307, and $303 for 1994, 1995 and 1996, respectively.

IMPAIRMENT OF LONG-LIVED ASSETS -- Effective January 1, 1996 Allstar
adopted Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of," ("SFAS No. 121") which requires that long-lived assets be reviewed by an
entity for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. The adoption of SFAS No.
121 in 1996 did not result in a charge to earnings in the accompanying
consolidated financial statements.

FEDERAL INCOME TAXES -- Deferred taxes are provided at enacted rates for
the temporary differences between the financial reporting bases and the tax
bases of assets and liabilities.

F-7
<PAGE>
ALLSTAR SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

EARNINGS PER SHARE -- Net earnings per share of common stock are based on
the weighted average number of shares of common stock and common stock
equivalents, if any, outstanding during each period. In October 1996, the
Company completed a reincorporation in order to change its state of domicile to
Delaware, to authorize 50,000,000 shares of $.01 par value common stock and to
authorize 5,000,000 shares of $.01 par value preferred stock. The
reincorporation had the effect of an 8.15-for-1 split of Allstar's common stock.
All applicable share and per share data in the consolidated financial statements
and related notes give effect to this reincorporation and resulting stock
conversion.

REVENUE RECOGNITION -- Revenue from the sale of computer products is
recognized when the product is shipped. Service income is recognized ratably
over the service contract life. Revenues resulting from installations of
equipment for which duration is in excess of three months are recognized using
the percentage-of-completion method. The percentage of revenue recognized on
each contract is based on the most recent cost estimate available. Revisions of
estimates are reflected in the period in which the facts necessitating the
revision become known; when a contract indicates a loss, a provision is made for
the total anticipated loss. At December 31, 1994, 1995 and 1996, Allstar had no
such contracts in process.

RESEARCH AND DEVELOPMENT COSTS -- Expenditures relating to the development
of new products and processes, including significant improvements and
refinements to existing products, are expensed as incurred. The amounts charged
to expense were $13 and $96 in 1995 and 1996, respectively. No such costs were
incurred during 1994.

FAIR VALUE OF FINANCIAL INSTRUMENTS -- Allstar's financial instruments
consist of cash and cash equivalents, accounts receivable, accounts payable and
notes payable for which the carrying values approximate fair values given the
short-term maturity of the instruments. It is not practicable to estimate the
fair values of related-party receivables due to the nature of the instruments.

CASH AND CASH EQUIVALENTS -- Cash and cash equivalents include any highly
liquid debt instruments with a maturity of three months or less when purchased.
See Note 5 for discussion of restricted cash.

USE OF ESTIMATES -- The preparation of the financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amount of revenues and expenses during
the reporting period. Actual results could differ from these estimates.

ACCOUNTING PRONOUNCEMENTS -- In October 1995, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123") which
determines compensation cost using the fair value method of accounting. Allstar
has elected to continue to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," which determines compensation cost
using the intrinsic value based method of accounting. At December 31, 1996
Allstar had no stock options or similar equity instruments outstanding (see Note
9); accordingly, SFAS No. 123 had no effect on Allstar's consolidated financial
statements or Notes thereto.

In February 1997, the FASB issued Statement of Financial Accounting
Standard No. 128, "Earnings Per Share" ("SFAS No. 128"). SFAS No. 128
requires dual presentation of basic and diluted earnings per share for entities
with complex capital structures. At December 31, 1996 Allstar had no stock
options or similar equity instruments outstanding (see Note 9); accordingly,
SFAS No. 128 will have no effect on Allstar's consolidated financial statements
included herein upon its adoption at December 31, 1997.

RECLASSIFICATIONS -- The accompanying consolidated financial statements for
the years presented have been reclassified to give retroactive effect to certain
changes in presentation.

F-8
<PAGE>
ALLSTAR SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. ACCOUNTS RECEIVABLE

Accounts receivable consisted of the following at December 31, 1995 and
1996:

1995 1996
--------- ---------
Trade................................... $ 16,286 $ 16,736
Allowances for doubtful accounts........ (464) (219)
--------- ---------
Total............................ $ 15,822 $ 16,517
========= =========

3. DEFERRED OFFERING COSTS

Deferred offering costs represent amounts incurred by Allstar through
December 31, 1996 in preparation of filing an offering document. If Allstar
determines not to go forward with the offering, these amounts will be charged to
expense at that time.

4. PROPERTY AND EQUIPMENT

Property and equipment consisted of the following at December 31, 1995 and
1996:

1995 1996
--------- ---------
Equipment............................... $ 224 $ 282
Computer equipment...................... 893 1,964
Furniture and fixtures.................. 410 294
Leasehold improvements.................. 47 47
Vehicles................................ 129 105
--------- ---------
1,703 2,692
Accumulated depreciation and
amortization.......................... (717) (1,048)
--------- ---------
Total.............................. $ 986 $ 1,644
========= =========

5. CREDIT ARRANGEMENTS

Allstar has two revolving lines of credit with a commercial finance
company. This agreement, which continues in full force and effect for successive
13 month periods until terminated by 60 day written notice from either the
lender or Allstar, is collateralized by substantially all of Allstar's assets
and a personal guarantee of the principal stockholder of Allstar. The agreement
contains restrictive covenants which, among other things, require specific
ratios of revenue to working capital, total liabilities to tangible net worth
and net profit after tax to revenue. The terms of the agreement also prohibit
the payment of dividends, the purchase of Allstar common stock and other similar
expenditures, including advances to related parties. During 1996, Allstar was
not in compliance with certain of these covenants; however, the finance company
waived such noncompliance through December 31, 1996 and executed amendments to
the agreement to liberalize certain financial covenants. At December 31, 1996,
Allstar was in compliance with these less restrictive financial covenants. In
April 1996 the aggregate maximum combined lines of credit were increased from
$15.0 million to $20.0 million and in September 1996 were temporarily increased
to $30.0 million for the period from September 1996 through February 1997, to
$28.0 million during March 1997 and to $25.0 million in April 1997, thereafter
returning to the stated credit line of $20.0 million. The maximum combined
credit limit is subject to borrowing base limitations which are generally
computed as a percentage of various classes of eligible accounts receivable and
qualifying inventory (as defined). Allstar pays an annual facility fee of
approximately 0.25% of the total credit line.

Under the first revolving line of credit (the "Accounts Line"),
outstanding principal and interest are due upon termination of the agreement.
Transactions on the Accounts Line are reflected as Notes Payable in

F-9
<PAGE>
ALLSTAR SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the consolidated financial statements. The Accounts Line accrues interest at the
prime rate plus 2% (10.25% at December 31, 1996). The agreement requires that
all payments received from customers on pledged accounts receivable be applied
to the outstanding balance on the Accounts Line. Accordingly, accounts
receivable payments received in the amount of $581 and $94 at December 31, 1995
and 1996, respectively, but not yet applied to the line of credit, are shown as
restricted cash in the accompanying balance sheets. The weighted average
interest rate on the Accounts Line for 1994, 1995 and 1996 was 9.78%, 12.84% and
10.25%, respectively.

The second revolving line of credit (the "Inventory Line") is used by
Allstar to floor plan inventory purchases. At December 31, 1995 and 1996,
aggregate borrowings on the Inventory Line were $5,298 and $6,134, respectively.
Interest accrues at the prime rate plus 6% (14.25% at December 31, 1996) for all
outstanding balances over 30 days.

In addition, Allstar maintains a $3.0 million credit line with another
financing company to be used to floor plan inventory purchases. At December 31,
1995 and 1996, aggregate borrowings on this line were $3,128 and $993,
respectively. Interest accrues at the prime rate, which for purposes of this
agreement will not fall below 6.5%, plus 6% (14.25% at December 31, 1996) for
all outstanding balances over 30 days. This agreement contains restrictive
covenants which, among other things, require a specific ratio of total
liabilities to tangible net worth and a minimum tangible net worth (as defined).
The terms of this agreement also prohibit the payment of dividends, the purchase
of Allstar common stock and other similar expenditures, including advances to
related parties. During 1996, Allstar was not in compliance with certain of
these covenants; however, the finance company waived such noncompliance through
December 31, 1996. At December 31, 1996, Allstar was in compliance with the
restrictive financial covenants provided in the agreement.

Amounts borrowed under the Inventory Line and the $3.0 million line of
credit (collectively the "Floor Plan Agreements") are included in accounts
payable in the consolidated financial statements. Under the Floor Plan
Agreements the financing companies pay Allstar's suppliers directly and maintain
a purchase money security interest in the related inventory. Allstar incurred
interest expense under the Floor Plan Agreements of $19, $35 and $59 in 1994,
1995 and 1996, respectively. The Floor Plan Agreements require payment of
interest on a monthly basis and principal on demand.

The combined borrowing base under all credit arrangements was $18,841 at
December 31, 1996.

6. INCOME TAXES

The provision for income taxes for the years ended December 31, 1994, 1995
and 1996 consisted of the following:

1994 1995 1996
--------- --------- ---------
Current provision (benefit):
Federal............................ $ (105) $ 446 $ 962
State.............................. 15 42 117
--------- --------- ---------
Total current provision (benefit)....... (90) 488 1,079
Deferred provision (benefit)............ 230 (146) (92)
--------- --------- ---------
Total.............................. $ 140 $ 342 $ 987
========= ========= =========

F-10
<PAGE>
ALLSTAR SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The total provision for income taxes varied from the U.S. federal statutory
rate due to the following:

1994 1995 1996
--------- --------- ---------
Federal income tax at statutory rate.... $ 113 $ 301 $ 907
Nondeductible expenses.................. 17 48 17
State income taxes...................... 10 28 77
Other................................... -- (35) (14)
--------- --------- ---------
Total.............................. $ 140 $ 342 $ 987
========= ========= =========

Deferred tax assets computed at the statutory rate related to temporary
differences at December 31, 1995 and 1996 were as follows:

1995 1996
--------- ---------
Deferred tax assets:
Accounts receivable................ $ 71 $ 142
Deferred service revenue........... 75 69
Inventory.......................... 112 139
--------- ---------
Total deferred tax assets.......... $ 258 $ 350
========= =========

7. ACCRUED EXPENSES

Accrued liabilities consisted of the following as of December 31, 1995 and
1996:

1995 1996
--------- ---------
Sales tax payable....................... $ 2,607 $ 1,309
Accrued employee benefits, payroll and
other related costs................... 456 996
Accrued interest........................ -- 209
Other................................... 294 245
--------- ---------
Total.............................. $ 3,357 $ 2,759
--------- ---------

In August 1996, Allstar entered into an agreement with the state
comptroller's office to pay 1995 delinquent sales taxes of $1.4 million plus
interest. All penalties were waived by the state. The $1.4 million plus interest
was included in accrued expenses at December 31, 1995. The delinquent taxes were
paid in 1996.

8. FRANCHISE FEES

Allstar entered into an agreement in May 1989 whereby it became a franchise
of Inacom Corp. ("Inacom"). Annual fees, amounting to 0.05% of certain gross
sales, were expensed in the period incurred. Allstar obtained a waiver effective
January 1, 1995 which eliminated the payment of franchise fees.

Allstar entered into an agreement in August 1996 in which Allstar is
required to purchase at least 80% of its computer products from Inacom if such
are available within a reasonable period of time at reasonably competitive
prices. The agreement expires on December 31, 2001 and automatically renews for
successive one-year periods. A cancellation fee of $571 will be payable by
Allstar in the event of non-renewal or early termination of the agreement by
either party; however, Allstar does not anticipate termination to occur by
either party prior to the initial termination date. Allstar is accruing this
cancellation fee over the initial agreement period by an approximate $9 monthly
charge to earnings. For the year ended December 31, 1996, Allstar charged to
expense $44 related to this agreement.

F-11
<PAGE>
ALLSTAR SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

9. COMMITMENTS AND CONTINGENCIES

OPERATING LEASES -- Allstar subleases office space from Allstar Equities,
Inc. ("Equities"), a company wholly owned by the principal stockholder of
Allstar. In 1996, Allstar renewed its office sublease with monthly rental
payments of $31.5 in 1997 and $32 in 1998, plus certain operating expenses
through December 1998. Rental expense under this agreement amounted to
approximately $312, $372 and $372 during 1994, 1995 and 1996, respectively.

Additionally, minimum annual rentals at December 31, 1996 on other
operating leases amount to approximately $101 for 1997, $23 in 1998, $16 in 1999
and $8 in 2000. Amounts paid during 1994, 1995 and 1996 under such agreements
totaled approximately $116, $137 and $252, respectively.

BENEFIT PLANS -- Allstar maintains a group medical and hospitalization
insurance program under which Allstar pays employees' covered health care costs.
Any claims exceeding $10 per employee or a cumulative maximum of approximately
$112 per year are insured by an outside insurance company. Allstar's claim and
premium expense for this self-insurance program totaled approximately $74, $67
and $193 during 1994, 1995 and 1996, respectively.

Allstar maintains a 401(k) savings plan. All full-time employees who have
completed one year of service with Allstar are eligible to participate in the
plan. Allstar also has the option of making additional contributions based on
net profitability. Declaration of such contributions is at the discretion of
Allstar's Board of Directors. Allstar made no additional contributions to the
plan for the years ended December, 1994 and 1995. In 1996 Allstar contributed
$136 to the plan.

Allstar has filed under the Internal Revenue Service Walk-in Closing
Agreement Program (the "Program") to negotiate a settlement regarding the
qualified status of the 401(k) savings plan in order to meet the requirements of
Section 401(a) of the Internal Revenue Code. Under the Program, any sanction
amount negotiated is based upon the total tax liability which could be assessed
if the plan were to be disqualified. At December 31, 1996 the Company has
accrued $50 for the estimated settlement cost.

In September 1996 Allstar adopted the 1996 Incentive Stock Plan (the
"Incentive Plan") and the 1996 Non-Employee Director Stock Option Plan (the
"Director Plan"). Under the Incentive Plan, Allstar's Compensation Committee
may grant up to 417,500 shares of common stock, which have been reserved for
issuance, to certain key employees of Allstar. The Incentive Plan provides for
the granting of incentive awards in the form of stock options, restricted stock,
phantom stock, stock bonuses and cash bonuses in accordance with the provisions
of the plan. Additionally, no shares may be granted after the tenth anniversary
of the Incentive Plan's adoption. Allstar has reserved for issuance, under the
Director Plan, 100,000 shares of common stock, subject to certain antidilution
adjustments. The Director Plan provides for a one-time option by newly elected
directors to purchase up to 5,000 common shares, after which each director is
entitled to receive an option to purchase up to 2,000 common shares upon each
date of re-election to Allstar's Board of Directors. Options granted under the
Director Plan have an exercise price equal to the fair market value on the date
of grant and generally expire ten years after the grant date. No incentive
awards or stock options have been granted under these plans at December 31,
1996.

On July 13, 1996, a former customer brought suit against the Company in the
152nd Judicial District Court of Harris County, Texas. The plaintiff alleges
that the Company failed to provide and complete promised installation and
configuration of certain computer equipment within the time promised by the
Company. Based on these allegations, the plaintiff is suing for breach of
contract and other statutory violations and is seeking actual monetary damages
of approximately $3 million and treble damages under the Texas Deceptive Trade
Practices Act. The Company is unable to estimate the range of possible recovery
by the plaintiff because the suit is still in the early stages of discovery.
However, the Company is vigorously defending the action.

F-12
<PAGE>
ALLSTAR SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Allstar is party to other litigation and claims which management believes
are normal in the course of its operations; while the results of such litigation
and claims cannot be predicted with certainty, Allstar believes the final
outcome of such matters will not have a materially adverse effect on its results
of operations or financial position.

10. RELATED-PARTY TRANSACTIONS

Effective December 31, 1993, Allstar entered into a stock sale agreement
whereby 65,625 shares of Allstar no par value common stock (535,000 shares of
$.01 par value common stock after effect of reincorporation and
conversion -- see Note 1) were sold for $1.5 million. The proceeds from the
stock subscription agreement were recorded as Accounts receivable -- affiliates
and Additional paid-in capital at December 31, 1993. In May 1994 the
subscription price was received and the shares of common stock were issued. The
principal stockholder of Allstar and this minority stockholder have entered into
an agreement under which the minority stockholder has the option to require the
principal stockholder to repurchase these shares at an established price
dependent upon the number of months held. In addition, the principal stockholder
may offer to have Allstar purchase these shares; however, any such offer will
not obligate Allstar to purchase such shares.

Allstar has from time to time made payments on behalf of Equities and the
Company's principal stockholders for taxes, property and equipment. Effective
July 1, 1996, Allstar and its principal stockholder entered into a promissory
note to repay certain advances, which were approximately $173 at July 1, 1996,
in equal annual installments of principal and interest, from August 1997 through
2001. This note bears interest at 9% per year. Also effective July 1, 1996,
Allstar and Equities entered into a promissory note whereby Equities would repay
the balance of amounts advanced, which were approximately $387 at July 1, 1996,
in monthly installments of $6.5, including interest, from July 1996 through
November 1998 with a final payment of $275 due on December 1, 1998. This note
bears interest at 9% per year. The principal amounts as of December 31, 1996 are
classified as Accounts receivable -- affiliates and Other assets -- affiliates
based on the repayment terms of the promissory notes. At December 31, 1995 and
1996, Allstar receivables from these affiliates amounted to approximately $405
and $501, respectively.

During each of 1995 and 1996, Allstar paid $75 in consulting fees to a
minority stockholder.

* * * * * *

F-13

<PAGE>
GLOSSARY

COMPANY NAMES*

3Com.............................. 3Com Corporation
AVT............................... Applied Voice Technology
Active Voice...................... Active Voice Corporation
Aspen............................. Aspen System Technologies, Inc.
Compaq............................ Compaq Computer Corporation
DEC............................... DEC Digital Equipment Corporation
DFS............................... Deutsche Financial Services Corporation
Epson............................. Epson America, Inc.
Hewlett-Packard................... Hewlett-Packard Company
IBM............................... International Business Machines Corporation
IBMCC............................. IBM Credit Corporation
ILC............................... International Lan and Communications, Inc.
Inacom............................ Inacom Corp.
Ingram............................ Ingram Micro, Inc.
Inter-Tel......................... Inter-Tel, Incorporated
Macrotel.......................... Macrotel International Corporation
Microsoft......................... Microsoft Corporation
Mitel............................. Mitel, Inc.
NEC............................... NEC America, Inc.
Novell............................ Novell, Inc.
Taske............................. Taske Technology, Inc.
Uniden............................ Uniden America Corporation

- ------------

* All company names and trade names are the legal property of their respective
owners.

G-1
<PAGE>
TECHNICAL TERMS

Aggregator........................ A company that purchases directly from
manufacturers in large quantities, maintains
inventory, breaks bulk and resells to dis-
tributors, resellers and value-added
resellers
Configuration..................... The customization of equipment to a
customer's specifications which may include
the loading of software, adding of memory or
combining different manufacturers' equipment
in such a way that it will be compatible as
an integrated system
CTI............................... Computer and telephone integration
IVR............................... Interactive voice response
LAN............................... Local-area network
MIS............................... Management information systems
Open architecture networks........ Networks based on industry standard
technical specifications that enable the
system to operate with hardware and software
from different manufacturers meeting those
standards
PBX............................... Private branch exchange
PC................................ Personal computer
Price protection.................. A voluntary policy by a manufacturer that
when a decrease in the price of its product
is instituted, the manufacturer will rebate
the Company for the difference between the
new price and the price paid by the Company
for product in its inventory
Roll-out.......................... Single sale involving a large volume of
similar products to be delivered on a pre-
specified timetable
SQL............................... Structured query language
VAR (Value-added reseller)........ A company that purchases equipment or
software from a manufacturer, aggregator or
distributor, provides value added services
to their clients including network
management, configuration systems
integration and training and subsequently
resells the enhanced product
WAN............................... Wide-area network

G-2
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO PURCHASE, ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES
OR AN OFFER TO, OR A SOLICITATION OF ANY PERSON IN ANY JURISDICTION WHERE SUCH
AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF.

------------------------

TABLE OF CONTENTS

PAGE
----
Prospectus Summary................... 3
Risk Factors......................... 6
Use of Proceeds...................... 12
Dividend Policy...................... 12
Capitalization....................... 13
Dilution............................. 14
Selected Financial Data.............. 15
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 16
Business............................. 26
Management........................... 36
Certain Relationships and Related
Transactions....................... 42
Principal and Selling Stockholders... 45
Description of Capital Stock......... 46
Shares Eligible for Future Sale...... 49
Underwriting......................... 50
Legal Matters........................ 52
Experts.............................. 52
Additional Information............... 52
Index to Consolidated Financial
Statements......................... F-1
Glossary............................. G-1

------------------------

UNTIL AUGUST 1, 1997, (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.

1,767,500 SHARES
LOGO -- ALLSTAR
SYSTEMS, INC.

COMMON STOCK
------------------------
PROSPECTUS
------------------------

SUTRO & CO. INCORPORATED
CRUTTENDEN ROTH
INCORPORATED

JULY 7, 1997