PROCOM TECHNOLOGY INC, 424B4, 1996-12-18

PROCOM TECHNOLOGY INC
424B4, 1996-12-18
COMPUTER PERIPHERAL EQUIPMENT, NEC

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<PAGE> 1
This filing is made pursuant
to Rule 424(b)4 under
the Securities Act of
1933 in connection with
Registration No. 333-15109

3,025,000 SHARES

[PROCOM LOGO]

COMMON STOCK

Of the 3,025,000 shares of Common Stock offered hereby, 2,000,000 shares
are being sold by Procom Technology, Inc. (the "Company") and 1,025,000 shares
are being sold by the Selling Shareholders. The Company will not receive any
proceeds from the sale of the shares by the Selling Shareholders. See "Principal
and Selling Shareholders."

Prior to this offering, there has been no public market for the Common
Stock of the Company. See "Underwriting" for a discussion of factors considered
in determining the initial public offering price. The Company's Common Stock has
been approved for quotation on the Nasdaq National Market under the symbol
"PRCM."

THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
COMMENCING ON PAGE 5 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
SECURITIES AND EXCHANGE 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) Shareholders
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share......................... $9.00 $0.63 $8.37 $8.37
Total(3).......................... $27,225,000 $1,905,750 $16,740,000 $8,579,250
</TABLE>

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.

(2) Before deducting expenses payable by the Company, estimated at $780,000.

(3) Certain Selling Shareholders have granted to the Underwriters a 30-day
option to purchase up to 453,750 additional shares of Common Stock solely to
cover over-allotments, if any. If the Underwriters exercise this option in
full, the Price to Public will total $31,308,750, the Underwriting Discount
will total $2,191,612 and the Proceeds to Selling Shareholders will total
$12,377,138. See "Underwriting."

The shares of Common Stock are offered by the several Underwriters named
herein, subject to receipt and acceptance by them and to their right to reject
any order in whole or in part. It is expected that delivery of the certificates
representing such shares will be made against payment therefor at the office of
Montgomery Securities on or about December 23, 1996.

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

MONTGOMERY SECURITIES DAIN BOSWORTH
INCORPORATED

December 17, 1996

<PAGE> 2

PROCOM TECHNOLOGY

INTELLIGENT STORAGE FOR THE ENTERPRISE(TM)

[Photographs of various CD-ROM and computer storage peripherals, some of which
are displayed indicating connectivity to networks and access through the
Internet. The photographs bear the following captions: "Procom Technology's
family of file server disk drive upgrade solutions," "Procom Technology's family
of CD networking systems providing multi-protocol, mixed topology and 30x
performance," "Procom Technology's family of notebook disk drive upgrade
solutions," "Procom Technology's family of high capacity digital linear tape
backup devices" and "Procom Technology's family of LANForce Systems providing
high performance, fault tolerant data storage and retrieval solutions."
Background text reads as follows: "CD-ROM Servers - CD-ROM Arrays - CD Force
Servers - Hyper CD-30x Servers - LAN Force R2000 RAID RAX - Hardware Based Disk
Arrays - LDLT Tape Library - PCDR CD Recorders."]

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

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<PAGE> 3

PROSPECTUS SUMMARY

The following summary information is qualified in its entirety by the more
detailed information, including "Risk Factors" and Consolidated Financial
Statements and notes thereto, appearing elsewhere in this Prospectus.

THE COMPANY

Procom Technology, Inc. ("Procom" or the "Company") designs, manufactures
and markets enterprise-wide data storage and information access solutions that
are compatible with all major hardware platforms, operating systems and network
protocols. The Company has become a leading provider of CD-ROM servers and
arrays as a result of its extensive distribution channels as well as the
scalability, performance, ease of use and multi-protocol support of its
products. The Company provides end users with disk drive upgrades for servers,
desktop and notebook computers and also provides high performance, fault
tolerant RAID solutions (Redundant Array of Independent Disks) and tape backup
subsystems. The Company utilizes computer resellers, value-added resellers
("VARs") and distributors to sell its products to a wide variety of end users,
including Fortune 500 corporations, governmental agencies and financial and
educational institutions.

Recognizing the growing demand for fast and reliable access to large
volumes of information increasingly stored on CD-ROM media across
enterprise-wide networks, the Company introduced the first of its CD server and
array products in early 1994. These products enable a large number of network
users to simultaneously access computer data stored on multiple CD-ROMs. The
Company has recently introduced its CD FORCE server, which provides plug and
play compatibility with most popular operating systems and network topologies
and improves functionality by relieving the network operating system from the
burden of managing requests for access to information stored on CD-ROMs. The CD
FORCE server incorporates Procom's CD FORCE software, which manages network
connectivity and access to information contained on CD-ROMs. The Company has
continued to improve the capacity and performance of its product offerings,
which include the Company's recently introduced Hyper CD-30x server, which is
capable of providing access to up to 40 gigabytes of information (63 CDs) with
30x data transfer rates. The Company has experienced rapid growth in sales of
its CD servers and arrays to end users such as law and accounting firms,
educational and governmental entities and other companies and organizations that
require frequent access to large amounts of information stored on CD-ROMs.

The Company first developed its expertise in computer data storage products
by providing upgrade storage solutions for desktop computers. Since that time,
the Company has expanded its product offerings to provide upgrade and
replacement disk drive products for notebook computers and servers, which have
become more popular in recent years as client/server computing has proliferated.
The Company's disk drive upgrades allow users to utilize their existing hardware
for longer periods of time, thereby extending the life of their initial
investment. The Company's RAID products provide high performance, fault tolerant
storage of over one terabyte of data for large network information databases.

The key elements of the Company's strategy include the following: (i)
developing additional network storage products incorporating the Company's
proprietary storage management software; (ii) accessing end users in key
vertical markets by leveraging relationships with computer resellers, VARs and
distributors; (iii) expanding relationships with key component suppliers in
order to enable the Company to anticipate and respond to technological
developments; and (iv) delivering timely storage solutions compatible with all
major operating systems and network topologies.

The Company's CD servers and arrays can be configured for Unix, Novell
NetWare, IBM OS/2 Warp, Windows NT, Windows 95, Windows 3.1 and Macintosh OS,
while supporting different topologies such as Ethernet, FDDI, Fast Ethernet and
Token Ring. The Company's high-capacity storage subsystems will support varying
RAID levels to meet virtually any network or operating system storage
requirements. The Company's major customers include Vanstar Corporation, Entex
Information Services Inc., Inacom and Intelligent Electronics, and end users
include Microsoft, Ernst & Young, Federal Express, Prudential Insurance and Bank
One.

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<PAGE> 4

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by the Company............. 2,000,000 shares
Common Stock offered by the Selling
Shareholders.................................. 1,025,000 shares
Common Stock to be outstanding after the
offering...................................... 11,000,000 shares(1)
Use of proceeds................................. Repayment of outstanding debt
(approximately $3.7 million at October 25,
1996), approximately $300,000 to acquire
capital equipment to increase production
capacity and the remainder for general
corporate purposes, including working
capital.
Nasdaq National Market symbol................... PRCM
</TABLE>

SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
OCTOBER 25, 1996
--------------------------
ACTUAL AS ADJUSTED(3)
------- --------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash....................................................................... $ 58 $12,058
Working capital............................................................ 6,569 22,229
Total assets............................................................... 25,325 37,625
Line of credit............................................................. 3,660 --
Long-term obligations...................................................... -- --
Total shareholders' equity................................................. 7,151 23,111
</TABLE>

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

(1) Based on shares outstanding as of October 25, 1996. Excludes an aggregate of
271,800 shares of Common Stock issuable upon the exercise of stock options
outstanding as of October 25, 1996 at a weighted average exercise price of
$3.67 per share and an aggregate of 268,200 additional shares of Common
Stock reserved for future issuance under the Company's 1995 Stock Option
Plan.

(2) See Note 1 of Notes to Consolidated Financial Statements for a description
of the computation of net income (loss) per share.

(3) Adjusted to give effect to the sale of shares offered by the Company hereby
at the initial public offering price, after deducting the underwriting
discount and estimated offering expenses, and the application of the net
proceeds therefrom. See "Use of Proceeds" and "Underwriting."

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

The Company was organized as a California corporation in 1987. The
Company's executive offices are located at 2181 Dupont Drive, Irvine, California
92715, and its telephone number is (714) 852-1000.

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

Unless otherwise indicated, the information in this Prospectus (i) assumes
no exercise of the Underwriters' over-allotment option, (ii) reflects the effect
of a 10,000-for-1 stock split, which occurred on September 15, 1995, and a
3-for-1 stock split which occurred on November 13, 1996 and (iii) assumes no
retroactive change in the par value of the Common Stock. This Prospectus
contains forward-looking statements that involve risks and uncertainties. The
Company's actual results may differ significantly from the results discussed in
the forward-looking statements. Factors that might cause such a difference
include, but are not limited to, those discussed in "Risk Factors."

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<PAGE> 5

RISK FACTORS

In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating the Company and its
business before purchasing the shares of Common Stock offered hereby.

POTENTIAL FLUCTUATIONS IN FUTURE RESULTS OF OPERATIONS

The Company's results of operations have in the past varied significantly
and are likely in the future to vary significantly as a result of a number of
factors, including the mix of products sold, the volume and timing of orders
received during the period, the timing of new product introductions by the
Company and its competitors, product line maturation, the impact of price
competition on the Company's average selling prices, the availability and
pricing of components for the Company's products, changes in distribution
channel mix and product returns or price protection charges from customers. Many
of these factors are beyond the Company's control. Although the Company has
experienced growth in sales in recent periods, there can be no assurance that
the Company will experience growth in the future or be profitable on an
operating basis in any future period. In addition, due to the short product life
cycles that characterize the Company's markets, a significant percentage of the
Company's sales each quarter may result from new products or product
enhancements introduced in that quarter. Since the Company relies on new
products and product enhancements for a significant percentage of sales, failure
to continue to develop and introduce new products and product enhancements or
failure of these products or product enhancements to achieve market acceptance
could have a material adverse effect on the Company's business, financial
condition and results of operations. The Company also has historically
capitalized on short-term market opportunities for volume purchases of certain
components at favorable prices. For example, in the quarter ended July 26, 1996,
the Company capitalized on a one-time opportunity to sell a significant volume
of high capacity disk drive upgrade products purchased at below market prices in
the prior quarter, which resulted in a price advantage to the Company that
enhanced the Company's sales and results of operations for that quarter. There
can be no assurance that the Company will be able to capitalize on such
opportunities in the future. In addition, the Company's fiscal second quarter
sales have historically remained relatively flat due primarily to heavy reseller
participation in trade shows that detract from reseller selling efforts, end
user budget constraints that restrict end user purchases, and a higher than
average number of holidays during that quarter.

The volume and timing of orders received during a quarter are difficult to
forecast. Customers generally order on an as-needed basis and, accordingly, the
Company historically has operated with a relatively small backlog.
Notwithstanding the difficulty in forecasting future sales and the relatively
small level of backlog at any given time, the Company generally must plan
production, order components and undertake its development, sales and marketing
activities and other commitments months in advance. Accordingly, any shortfall
in sales in a given quarter may disproportionately affect the Company's results
of operations due to relatively fixed short-term expenses. Due to the foregoing
factors, the Company believes that period-to-period comparisons of its results
are not necessarily meaningful and should not be relied upon as indicators of
future performance. Further, it is likely that in some future quarter or
quarters the Company's net sales or results of operations will be below the
expectations of public market analysts and investors. In such event, the price
of the Common Stock could be materially adversely affected.

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<PAGE> 6

See "Risk Factors -- Component Shortages; Reliance on Sole or Limited Source
Suppliers" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

SUBSTANTIAL COMPETITION

The markets for the Company's products are intensely competitive. In each
of its primary product lines, the Company competes with a large number of disk
drive manufacturers, computer resellers, VARs and distributors. Some of the
Company's vendors also sell competing products to distributors, which then sell
these products to the Company's customers. Many of the Company's current and
potential competitors have significantly greater market presence, name
recognition and financial and technical resources than the Company, and many
have longstanding positions and established brand names in their respective
markets. In addition, certain of the Company's current and potential competitors
possess competitive cost advantages due to a number of factors, including lower
taxes and substantially lower costs of labor associated with international
operations. Finally, manufacturers of disk drives such as Seagate Technology,
Inc., IBM, Quantum Corporation and Western Digital Corporation, and
manufacturers of CD-ROM drives, such as Toshiba America Information Systems,
Inc. ("Toshiba"), NEC Corporation and Plextor Corporation, may in the future
become more direct competitors of the Company to the extent that such
manufacturers elect to expand into the disk drive upgrade market or the CD
server and array market.

The Company's primary competitors in the CD server and array market consist
of (i) CD array manufacturers such as Microtest Inc., Meridian Data, Inc. and
Micro Design, Inc., which also furnish CD-ROM management software with their CD
array products, (ii) a number of hardware aggregators, computer resellers and
VARs that sell CD server products directly to end users and (iii) various CD
server and array manufacturers.

The Company's primary competitors in the disk drive upgrade market are (i)
computer manufacturers that also market and sell storage upgrades, such as IBM,
Compaq Computer Corporation, ("Compaq") and Hewlett-Packard Company
("Hewlett-Packard"), (ii) companies that specialize in reselling replacement or
increased capacity storage disk drives, such as Storage Dimensions Inc. or
Ameriquest Technologies Inc. and (iii) various national distributors of third
party upgrade drives such as Ingram Micro Inc., Merisel Inc. and Tech Data
Corporation.

The Company's primary competitors in the RAID product market are (i)
computer manufacturers, such as IBM, Compaq and Hewlett-Packard, which generally
focus on providing storage upgrades for their products and (ii) companies that
sell storage solutions directly to end users, such as EMC Corporation and
Storage Technology Corporation. These direct sales competitors historically have
focused their efforts on sales of high capacity storage products in the
mainframe and minicomputer environments. In addition, the Company competes with
many smaller enterprises that provide and sell unique solutions to various
computer users.

The Company's success depends to a great extent on its ability to continue
to develop products that incorporate new and rapidly evolving technologies to
provide network users cost-effective data storage and information access
solutions. However, to the extent that disk drive storage or information access
products become more of a commodity, price competition among both computer
manufacturers and suppliers of disk drives and CD-ROM drives may result in the
availability of such storage and access at a low cost. These factors could
create increased competition for the Company's products, which could cause the
Company to experience reduced gross profit margins on its products and could
have a material adverse effect on the Company's business, financial condition
and results of operations. The Company believes that the principal competitive
factors in the Company's markets are product reliability, price/value
relationship, product features and performance, brand name recognition, trade
periodical reviews, time to market with new features and products, industry
relationships, ease of installation and use, the quality of distribution
channels, product quality, technical support and customer service. See
"Business -- Competition."

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RAPID TECHNOLOGICAL CHANGE; SHORT PRODUCT LIFE CYCLES

The market for the Company's products is characterized by frequent new
product introductions and rapid product obsolescence. These factors typically
result in short product life cycles, which have often ranged from six to twelve
months. For example, the data transfer rate of CD-ROM products has increased
rapidly, resulting in the introduction of four, eight, ten and twelve speed
CD-ROMs. Similar technological advances have been made with regard to disk drive
storage capabilities and other performance standards. Each new product cycle
presents new opportunities for current or prospective competitors of the Company
to gain market share. The Company must continually monitor industry trends in
selecting new technologies and features to incorporate into its products. If the
Company is unable to introduce new products successfully on a timely basis, the
Company's sales could be adversely affected. Any such failure also could impair
the Company's brand name and the Company's ability to command the attention and
loyalty of computer resellers, VARs and distributors in future periods.
Moreover, because short product life cycles are accompanied by long lead times
for many components of the Company's products, the Company may be unable to
reduce or increase production in response to unexpected demand.

The Company's ability to introduce new products in a timely manner is
heavily dependent on its ability to develop or purchase firmware and software
drivers for its CD-ROM and disk drive products. While the Company endeavors to
work with its component suppliers to plan for the timing of introduction of new
components and to develop the associated firmware and software, unforeseen
design issues or other factors that delay introduction of these products could
adversely affect the Company's ability to ship new products. In addition, third
party suppliers may not employ adequate testing and quality assurance
procedures, resulting in the receipt by the Company of defective components.
This could require the Company to find replacement components or wait for the
resolution of the problem, either of which could delay the Company's ability to
bring products to market and have a material adverse effect on the Company's
business, financial condition and results of operations. The Company's business
also will be adversely affected if new disk drives, CD-ROM drives or other
components that it selects from among those offered by its various vendors do
not perform favorably on a cost or performance basis compared to competing
products. In addition, products and technologies developed by competitors may
render the Company's products and technologies noncompetitive or obsolete.
Finally, advances in network and on-line technology and development of new,
higher-capacity storage media such as Digital Video Disc ("DVD") may result in a
reduction or replacement of CD-ROM as a data storage and information access
medium. If the Company is unable to adapt to these and other technological
advances by developing new products, the Company's financial performance would
be materially adversely affected. See "Business -- Research and Development."

The Company has historically experienced steep declines in sales, prices
and gross profit toward the end of the life cycles of most of its products, the
precise timing of which is difficult to predict. Historically, as the Company
has planned and implemented new products, it has experienced unexpected
reductions in sales and gross profit of older generation products as customers
have anticipated new products. These reductions have in the past given and could
continue to give rise to charges for obsolete or excess inventory, returns of
older generation products by computer resellers, VARs and distributors or
substantial price protection charges. See "-- Customer Concentration;
Distribution Strategy Risks; Inventory Protection." For example, in fiscal 1994,
the Company incurred losses when it discontinued sales of CD-ROM multimedia kits
to mass merchants and distributors. From time to time, the Company has
experienced and may in the future experience inventory obsolescence resulting
from the unexpected discontinuance of third party components, such as disk
drives, included in the Company's products. To the extent the Company is
unsuccessful in managing product transitions, it may have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."

DEPENDENCE ON CD SERVERS AND ARRAYS

Sales of CD servers and arrays, including individual CD-ROM drives,
recordable CD-ROMs, modules and other related components ("CD servers and
arrays"), accounted for approximately 32%, 49% and 45% of the Company's net
sales for fiscal 1995, fiscal 1996 and the first quarter of fiscal 1997,
respectively. The widespread use of CD-ROM as a data storage and information
access medium is relatively recent, and there can be no assurance that another
technology will not replace CD-ROM as a widely accepted data storage and

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<PAGE> 8

information access medium, or that there will be widespread acceptance or
continuing growth of CD servers and arrays in general, or of the Company's CD
servers and arrays in particular. In addition, if on-line services (such as
Westlaw and Lexis/Nexis) become more cost-effective and develop user friendly
methods of accessing information, they may have an adverse impact on the use of
CD-ROM as an information storage medium. Furthermore, the successful development
and marketing of DVD would enable end users to store significantly more data
than currently stored on a CD used with the Company's products. Accordingly,
even if the Company were able to adapt its products to incorporate DVD
technology, the number of servers and arrays required by end users may decline
compared to current levels. Finally, even if the CD server and array market
continues to grow, there can be no assurance that the Company will be able to
maintain its market share or its gross margins in that market.

The Company currently incorporates software with many of its CD servers and
arrays, which allows a network to manage effectively direct access to
information contained on CD-ROMs by network users. The Company ships CD servers
and arrays both with CD-ROM network data access management software from third
party vendors and with recently introduced, internally developed CD-ROM network
data access management software. The Company's internally developed software is
not presently available on all major hardware platforms, and of the Company's CD
servers and arrays shipped to date that contain CD-ROM network data access
management software, substantially all included third party software. In
addition, the Company historically has focused its efforts on hardware
development and does not have substantial experience in the development, testing
and marketing of CD-ROM network data access management software. Given the high
percentage of the Company's sales that are derived from CD servers and arrays,
the failure to secure from a third party effective CD-ROM network data access
management software, or the failure of the Company to continue the development
and marketing of its internally developed software, could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business -- Products and Technology."

COMPONENT SHORTAGES; RELIANCE ON SOLE OR LIMITED SOURCE SUPPLIERS

The Company depends on sole or limited source suppliers for certain key
components used in its products, particularly disk and CD-ROM drives. In recent
years, these components have been in short supply and frequently on allocation
by manufacturers, and the Company's size may place it at a competitive
disadvantage during such periods relative to larger competitors. Although the
Company maintains ongoing efforts to obtain adequate supplies of components,
there can be no assurances that the Company will obtain adequate supplies or
obtain such supplies at cost levels that would not adversely affect the
Company's gross margins. The Company has no guaranteed supply arrangements with
any of its sole or limited source suppliers and customarily purchases sole or
limited source components pursuant to purchase orders placed from time to time
in the ordinary course of business. Moreover, the Company's suppliers may, from
time to time, experience production shortfalls or interruptions that impair the
supply of components to the Company. Component shortages are likely to continue,
and there can be no assurance that such shortages will not adversely affect the
Company's business, financial condition and results of operations. Conversely,
in its attempt to counter actual or perceived component shortages, the Company
may overpurchase certain components, resulting in excess inventory and reducing
the Company's liquidity or, in the event of inventory obsolescence or a decline
in the market value of such inventory, causing inventory write-offs that could
materially adversely affect the Company's business, financial condition and
results of operations. See "-- Rapid Technological Change; Short Product Life
Cycles."

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Company uses in manufacturing its products will be rendered undesirable or
obsolete by the components of other suppliers. The Company would then be forced
to establish relationships with new suppliers, which could delay or preclude the
Company from bringing competitive products to market and have a material adverse
effect on the Company's business, financial condition and results of operations.

The Company also relies on a network of independent subcontractors to
supply certain custom components manufactured to the Company's specifications.
This network consists of a number of small firms with limited financial
resources. While the Company utilizes several firms to mitigate the risk of
business interruption, it is possible that several vendors could simultaneously
experience problems with production or financial stability, which could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Manufacturing."

CUSTOMER CONCENTRATION; DISTRIBUTION STRATEGY RISKS; INVENTORY PROTECTION

The Company sells its products primarily to a domestic and international
network of computer resellers, VARs and distributors, and the Company's success
depends on the continued viability and financial stability of its customer base.
During the last two fiscal years, the Company has increased its reliance on
sales to large hardware aggregators, computer resellers and VARs (including
large corporate consultants) while reducing its use of mass merchants. During
fiscal 1996 and the first quarter of fiscal 1997, combined net sales to Vanstar
Corporation, Intelligent Electronics, Inc. and Entex Information Services, Inc.
totalled approximately 26.0% and 25.4%, respectively, of net sales. In addition,
as of October 25, 1996, the Company held accounts receivable from Intelligent
Electronics, Vanstar and Entex totalling approximately $4.0 million. If the
Company were to experience difficulty in collecting these accounts receivable,
due to the failure of any of these customers or otherwise, it could have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, a loss of either or both of these customers
could materially and adversely affect the Company's net sales.

The Company must continually develop and maintain relationships with its
key computer resellers, VARs and distributors. Due to the rapid changes in the
computer industry and the methods by which end users purchase computer products,
there can be no assurance that the Company will be successful in developing and
maintaining an effective distribution system. The computer distribution and
computer retail industries historically have been characterized by rapid change,
including periods of widespread financial difficulties and consolidation and the
emergence of alternative distribution channels. The loss of, or reduction in
sales to, the Company's key customers could have a material adverse effect on
the Company's business, financial condition and results of operations. The
Company's computer resellers, VARs and distributors generally offer products of
several different companies, including products competitive with the Company's
products. Accordingly, there is a risk that these computer resellers, VARs and
distributors may give higher priority to products of other suppliers and may
reduce their efforts to sell the Company's products. Although since fiscal 1994
the Company has relied on computer resellers and VARs as its primary domestic
sales channels, the Company recently entered into an agreement with Tech Data
Corporation, a computer products distributor, to sell the Company's products
nationally. An increased use of distributors to sell the Company's products,
whether domestically or through increased international sales (which are
generally made through distributors), could adversely affect the Company's gross
margins as sales to distributors are typically made at slightly lower average
prices than sales to computer resellers and VARs.

The Company frequently grants limited rights to customers to return
products purchased from the Company, in some cases in exchange for new
purchases, and also provides price protection to its customers. The short
product life cycles of the Company's products and the difficulty in predicting
future sales increase the risk that new product introductions, price reductions
by the Company or its competitors or other factors affecting the markets for the
Company's products could result in significant product returns. In addition, new
product introductions by the Company's suppliers or its competitors, or other
market factors, may require the Company to reduce prices in a manner or at a
time that gives rise to significant price protection charges. The Company
estimates product returns and potential price protection charges based on
historical experience and accrues reserves therefor. However, these accruals may
prove to be insufficient, and unanticipated future returns and price protection
charges could have a material adverse effect on the Company's business,
financial condition and results of operations, particularly in light of the
rapid product obsolescence that often occurs

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during product transitions. See "-- Rapid Technological Change; Short Product
Life Cycles," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business -- Sales and Marketing."

INTELLECTUAL PROPERTY RIGHTS

The Company relies primarily on a combination of copyright and trade secret
protections and confidentiality agreements to establish and protect its
intellectual property rights. The Company has no patent protection for its
current product lines. There can be no assurance that the Company's measures to
protect its intellectual property rights will deter or prevent unauthorized use
of the Company's technology. In addition, the laws of certain foreign countries
may not protect the Company's intellectual property rights to the same extent as
the laws of the United States. The Company's inability to protect its
proprietary rights in the United States or internationally may have a material
adverse effect on the Company's business, financial condition and results of
operations.

Claims by third parties that the Company's current or future products,
procedures or processes infringe upon their intellectual property rights may
have a material adverse effect on the Company. The Company does not normally
perform any formal surveys or studies relating to whether its products or
processes infringe upon the intellectual property rights of others, and it would
be difficult to establish whether a given product or process infringes upon the
intellectual property rights of others. Intellectual property litigation is
complex and expensive, and the outcome of such litigation is difficult to
predict. Any future litigation, regardless of outcome, may result in substantial
expense to the Company and significant diversion of the efforts of the Company's
management and technical personnel. An adverse determination in any such
litigation may subject the Company to significant liabilities to third parties,
require disputed rights to be licensed from such parties, if licenses to such
rights could be obtained, or require the Company to cease using such technology.
There can be no assurance that if such licenses were obtainable, they would be
obtainable at costs reasonable to the Company. If forced to cease using such
technology, there can be no assurance that the Company would be able to develop
or obtain alternate technology. Accordingly, an adverse determination in a
judicial or administrative proceeding, changes in patent or copyright laws or
failure of the Company to obtain necessary licenses may prevent the Company from
manufacturing, using or selling certain of its products or processes, which may
have a material adverse effect on the Company's financial condition and results
of operations. In May 1995, Compaq made certain infringement and other claims
against the Company and obtained an injunction prohibiting the Company's use of
a small string of software code contained in certain of the Company's disk drive
products. Although the Company has rewritten the infringing code and settled the
lawsuit, the lawsuit required substantial management time, significant
expenditures for legal fees and costs and a one-time settlement payment and
ongoing royalty payments to Compaq for these products. See "Business --
Intellectual Property."

MANAGEMENT OF CHANGE

In recent years, the Company has expanded the overall size of its business
and scope of its operations, including research and development, marketing,
technical support and sales and distribution. The Company increased its number
of employees from 126 at the beginning of fiscal 1996 to 186 at the end of the
first quarter of fiscal 1997, and has also recently increased the breadth of its
CD server and array product line, enlarged the scope of its international
operations and increased its marketing and product development expenditures. The
expansion of the Company's business and product lines has required significant
investments in infrastructure and systems. Managing this change has presented
numerous challenges, including hiring and retaining key employees, integrating
or changing management information systems and coordinating suppliers. The
Company's future success will depend in large measure on its ability to
implement sufficient operating, manufacturing and financial procedures and
controls successfully, to improve coordination among different operating
functions, to strengthen management information and telecommunications systems
and to continue to hire qualified personnel in all areas. There can be no
assurance that the Company will manage these activities and implement these
additional systems and controls successfully, and any failure to do so could

10
<PAGE> 11

have a material adverse effect upon the Company's business, financial condition
and results of operations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

RISKS OF INTERNATIONAL SALES AND OPERATIONS

The Company's international sales accounted for approximately 14%, 11% and
9% of the Company's net sales for fiscal 1995, fiscal 1996 and the first quarter
of fiscal 1997, respectively. During fiscal 1996, the Company added independent
sales representatives in Canada, France and Germany, and it plans to add
additional foreign sales representatives in the future. The Company's
international sales and operations are subject to a number of risks generally
associated with international operations, including export regulations,
government imposed restrictions on the purchase of technological equipment,
import and export duties and restrictions, the logistical difficulties of
managing multinational operations, potentially adverse tax consequences and
lower gross margins associated with the increased proportion of international
sales made to distributors. While all of the Company's sales are denominated in
U.S. dollars, fluctuations in currency exchange rates could cause the Company's
products to become relatively more expensive to end users in a particular
country, leading to a reduction of sales in that country. The Company may also
experience competition specific to a given local market. In addition, the
Company's business may be adversely affected by seasonal sales declines in
Europe, which typically occur during the summer months. Because the Company has
operations in different countries, the Company's management must address the
difficulty of merging geographically disparate operations as well as differences
in regulatory environments, cultures and time zones. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business -- Sales and Marketing."

WARRANTY EXPOSURE

The Company's primary warranty efforts consist of accepting defective
products from customers and either repairing them or returning the defective
component to the original manufacturer for repair or replacement during the
applicable warranty period. The Company generally protects itself by extending
to its customers a warranty that corresponds to the warranty provided to the
Company by its suppliers. However, if a supplier were to fail to meet its
warranty obligations, the Company would be forced to assume responsibility for
warranties on all components manufactured by that supplier. Such an event could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business -- Sales and Marketing."

DEPENDENCE ON KEY PERSONNEL

The Company's success depends to a significant extent upon the continued
service of its executive officers and other key management and technical
personnel. In particular, the Company relies on the services of its four
founders, Messrs. Razmjoo, Alaghband, Aydin and Shahrestany (the "Founders").
The loss of any of these individuals or other management or technical personnel
may have a material adverse effect on the Company's operations, including the
ability to establish and strengthen strategic relationships, its ability to open
new offices successfully, its ability to adapt its products to changes in
technology and its ability to attract and retain technical personnel and other
employees, the competition for which is intense. The Company maintains
employment agreements with each of the Founders, but does not maintain
key-person life insurance policies on the lives of these individuals. See
"Business -- Employees" and "Management."

FUTURE CAPITAL REQUIREMENTS

The Company's business plan will require significant amounts of working
capital. While the Company has funded its growth historically through working
capital loans and internally generated funds, there can be no assurance that the
proceeds of this offering, together with available cash, bank lines of credit
and cash from operations, will be sufficient to satisfy the Company's
anticipated cash requirements. If additional funds are required, the Company's
operations may need to be significantly curtailed or the Company could be forced
to obtain financing on terms that cause the Company's business, financial
condition and results of operations to be adversely affected.

11
<PAGE> 12

The Company may expand its product lines through the acquisition of
complementary businesses, products and technologies. However, the Company has no
present plans, agreements or commitments to make any such acquisitions.
Acquisitions involve numerous risks, including difficulties in the assimilation
of operations and products, the ability to manage geographically remote units,
the diversion of management's attention from other business concerns, the risks
of entering markets in which the Company has little or no experience or
expertise and the potential loss of key employees of any acquired companies. In
addition, acquisitions may involve the expenditure of significant funds. The
Company's management has no prior experience in managing acquisitions. There can
be no assurance that any acquisition would result in long-term benefits to the
Company or that management would be able to manage effectively the acquired
business. See "Use of Proceeds," "Capitalization" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations."

CONCENTRATION OF SHARE OWNERSHIP AND CONTROL OF COMPANY

Upon completion of this offering, the Founders of the Company will
beneficially own approximately 66.1% of the Company's outstanding Common Stock
(62.0% if the Underwriters' over-allotment option is exercised in full).
Accordingly, the Founders will, acting together, have sufficient voting power to
control the outcome of all corporate matters submitted to the vote of
shareholders, including election of most or all directors, proxy contests,
mergers, tender offers, open-market purchase programs and other purchases of the
Company's Common Stock that could give shareholders of the Company the
opportunity to realize a premium over the then prevailing market price for their
shares of Common Stock. See "Principal and Selling Shareholders."

BROAD MANAGEMENT DISCRETION IN ALLOCATION OF PROCEEDS

The net proceeds to the Company from the sale of the shares of Common Stock
offered by the Company hereby, after deducting the underwriting discount and
estimated offering expenses, are estimated to be approximately $15,960,000. The
Company has not designated a specific use for a significant portion of such net
proceeds. The Company intends to use a portion of the net proceeds from this
Offering to repay all outstanding short-term debt under its line of credit
(approximately $3.7 million at October 25, 1996), approximately $300,000 to
acquire capital equipment to increase production capacity and the remainder for
general corporate purposes, including working capital. A portion of the net
proceeds also may be used for the acquisition of businesses, products and
technologies that are complementary to those of the Company. Accordingly, the
Company's management will retain broad discretion as to the allocation of the
proceeds of this Offering. The failure of management to apply such funds
effectively could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Use of Proceeds." The
Offering is being made at this time in order to create a public market for the
Company's Common Stock, to provide liquidity to the Company's existing
stockholders, to provide increased visibility and credibility for the Company in
a marketplace where many of the Company's competitors are publicly held and to
fund increased working capital requirements created by the Company's growth over
the last three fiscal years.

ANTI-TAKEOVER PROTECTIONS

The Company's Articles of Incorporation provide for authorized but unissued
Preferred Stock, the terms of which may be fixed by the Board of Directors, and
eliminate cumulative voting and provide for a classified

12
<PAGE> 13

Board of Directors once the Company is listed on the Nasdaq National Market and
has 800 shareholders of record on the record date for an annual meeting of
shareholders. The Company's Bylaws establish advance notice requirements for
shareholder proposals and director nominations, subject to certain exceptions.
These provisions could have the effect of delaying, deterring or preventing a
change in control of the Company. See "Description of Capital Stock -- Certain
Anti-Takeover Effects."

NO PRIOR MARKET; VOLATILITY OF STOCK PRICE

The initial public offering price was determined by negotiations among the
Company, the Selling Shareholders and the Representatives of the Underwriters.
Prior to this Offering, there has been no public market for the Common Stock,
and, although the Company has applied for listing of the Common Stock on the
Nasdaq National Market, there can be no assurance that an active public market
for the Common Stock will develop or be sustained after this Offering.

The Company believes that factors such as announcements of developments
related to the Company's business, fluctuations in the Company's operating
results, general conditions in the data storage and information access markets
served by the Company or in the worldwide economy, an outbreak of hostilities, a
shortfall in sales or net income compared to securities analysts' expectations,
announcements of technological innovations or new data storage and information
access products or enhancements by the Company or its competitors, developments
in patents or other intellectual property rights and developments in the
Company's relationships with its customers, suppliers, computer resellers, VARs
and distributors could cause the price of the Company's Common Stock to
fluctuate, perhaps substantially. In addition, in recent years the stock market
in general, and the market for shares of technology companies and of small
capitalization companies in particular, have experienced extreme price
fluctuations, which have often been unrelated or disproportionate to the
operating performance of the affected companies. There can be no assurance that
the market price of the Company's Common Stock will not experience such
fluctuations. See "Underwriting."

SHARES ELIGIBLE FOR FUTURE SALE

Sales of Common Stock in the public market after this Offering could
adversely affect the market price of the Common Stock. Unless purchased by an
affiliate of the Company, the 3,025,000 shares of Common Stock to be sold in
this Offering will be freely transferable without restriction. In addition to
the 3,025,000 shares offered hereby, as of the effective date of the
Registration Statement of which this Prospectus is a part (the "Effective
Date"), there will be 7,975,000 shares of common stock outstanding, all of which
are "restricted" shares (the "Restricted Shares") under the Securities Act of
1933, as amended (the "Securities Act"). Immediately following the Effective
Date, 33,000 Restricted Shares will be eligible for sale in reliance on Rule 144
of the Securities Act. Holders of 7,942,000 Restricted Shares have agreed that
they will not, without the consent of Montgomery Securities, sell or otherwise
dispose of any equity securities of the Company for a period of 180 days
following the Effective Date. Upon expiration of the lock-up agreements with
Montgomery Securities, these additional 7,942,000 Restricted Shares will be
eligible for resale subject to the limitations of Rule 144 promulgated under the
Securities Act. In general, under Rule 144 as currently in effect, a person who
has beneficially owned shares for at least two years is entitled to sell in
"broker's transactions" or to market makers, within any three-month period
commencing 90 days after the date of this Prospectus, a number of shares that
does not exceed 1% of the number of shares of Common Stock then outstanding
(approximately 110,000 shares immediately after this Offering) or, if greater, a
number based on average weekly trading volume of the Common Stock. Such sales
are also subject to certain notice requirements and to the availability of
current public information about the Company. The Securities and Exchange
Commission has proposed to reduce each of these Rule 144 holding periods by one
year. The Founders, who will hold 7,273,000 shares of Common Stock (6,819,250
shares if the Underwriters' over-allotment option is exercised in full) after
this Offering, are entitled to certain demand and "piggy back" registration
rights with respect to the registration of such shares for offer or sale to the
public. In addition, the Company intends to register with the Securities and
Exchange Commission a total of 540,000 shares of Common Stock reserved for
issuance under the 1995 Stock Option Plan as soon as practicable following the
date of this Prospectus, of which approximately 55,000 shares of Common Stock
subject to vested options will be eligible for resale upon the

13
<PAGE> 14

expiration of lock-up agreements 180 days following the Effective Date, unless
earlier released for resale by the Company. The Underwriting Agreement prohibits
the Company from releasing such shares for resale until 90 days following the
Effective Date. Any shares subject to lock-up agreements may be released at any
time without notice by Montgomery Securities. Sales of substantial amounts of
shares in the public market may adversely affect the market price of the
Company's Common Stock. See "Shares Eligible For Future Sale."

ABSENCE OF DIVIDENDS

The Company has never declared or paid dividends on its Common Stock and
does not anticipate declaring or paying any cash dividends in the foreseeable
future. See "Dividend Policy."

IMMEDIATE AND SUBSTANTIAL DILUTION

Purchasers of the Common Stock offered hereby will incur immediate and
substantial dilution of $6.90 in the net tangible book value per share of Common
Stock. Additional dilution will occur when existing optionholders exercise their
options. See "Dilution."

BENEFITS OF OFFERING TO FOUNDERS

The existing shareholders of the Company will receive certain benefits from
the sale of the Common Stock offered hereby. The Offering will establish a
public market for the Common Stock and provide increased liquidity to the
existing shareholders for the shares of Common Stock they will own after the
Offering, subject to certain limitations. See "Shares Eligible For Future Sale."
The Founders will sell 1,000,000 shares of Common Stock in the Offering and will
receive approximately $8.4 million in net proceeds, after deducting the
underwriting discount, reflecting a net gain of $8.37 per share over the
original cost of the shares and an aggregate net gain of approximately $8.4
million. Mr. Judd will sell 25,000 shares of Common Stock in the Offering and
will receive approximately $209,250 in net proceeds and have a net gain of
approximately $200,500 after deducting the underwriting discount. If the
Underwriters' over-allotment option is exercised in full, the Founders will
sell, in the aggregate, 1,453,750 shares of Common Stock and will receive
approximately $12.2 million in net proceeds, after deducting the underwriting
discount. See "Principal and Selling Shareholders." The Company intends to use a
portion of the net proceeds of the Offering to repay short-term debt under the
Company's line of credit (approximately $3.7 million at October 25, 1996), which
is guaranteed by the Founders. See "Use of Proceeds." Additionally, immediately
following the Offering, the Founders will have an average unrealized gain over
the original cost of the shares that will continue to be held by them of $8.92
per share, based upon the initial public offering price, or an aggregate
unrealized gain of approximately $64.9 million (approximately $60.8 million if
the Underwriters' over-allotment option is exercised in full). See "Dilution"
and "Principal and Selling Shareholders."

14
<PAGE> 15

USE OF PROCEEDS

The net proceeds to the Company from the sale of the shares of Common Stock
offered by the Company hereby, after deducting the underwriting discount and
estimated offering expenses, are estimated to be approximately $15,960,000. The
Company will not receive any portion of the proceeds from the sale of shares of
Common Stock by the Selling Shareholders.

The Company intends to use a portion of the net proceeds from this Offering
to repay all outstanding short-term debt under its line of credit (approximately
$3.7 million at October 25, 1996), approximately $300,000 to acquire capital
equipment to increase production capacity and the remainder for general
corporate purposes, including working capital. The short-term debt which will be
repaid bears interest at the lender's prime rate (8.25% at October 25, 1996)
plus 1.5%. The initial term of the line of credit expired on November 29, 1996,
but was automatically renewed and continues to automatically renew for
successive one year periods unless terminated by either party within a specified
period in advance of the automatic renewal date. A portion of the net proceeds
also may be used for the acquisition of businesses, products and technologies
that are complementary to those of the Company. The Company has no present
plans, agreements or commitments to make any acquisitions. While the Company may
enter into discussions with acquisition candidates in the future, no assurances
can be given that any such acquisitions will ultimately be consummated. Pending
such uses, the Company expects to invest the net proceeds in short-term,
interest-bearing, investment grade obligations. See "Capitalization."

DIVIDEND POLICY

The Company has never declared or paid dividends on its Common Stock. The
Company's line of credit prohibits the payment of cash dividends on the Common
Stock without prior lender approval. The Company currently intends to retain any
future earnings for use in its business and does not anticipate paying any cash
dividends on its Common Stock in the foreseeable future.

15
<PAGE> 16

CAPITALIZATION

The following table sets forth the capitalization of the Company as of
October 25, 1996 and as adjusted for the sale of the shares of Common Stock
offered by the Company hereby and the application by the Company of the
estimated net proceeds therefrom (after deducting the underwriting discount and
estimated offering expenses).

<TABLE>
<CAPTION>
OCTOBER 25, 1996
----------------------
ACTUAL AS ADJUSTED
------ -----------
(IN THOUSANDS)
<S> <C> <C>
Line of credit......................................................... $3,660 $ --
====== =======
Shareholders' equity:
Preferred stock, no par value; 10,000,000 shares authorized;
none issued and outstanding, actual and as adjusted............... -- --
Common stock, no par value; 65,000,000 shares authorized, 9,000,000
shares issued and outstanding actual; 11,000,000 shares issued and
outstanding, as adjusted(1)....................................... 3 15,963
Retained earnings.................................................... 7,148 7,148
------ -------
Total shareholders' equity........................................ 7,151 23,111
------ -------
Total capitalization......................................... $7,151 $23,111
====== =======
</TABLE>

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

(1) Excludes 271,800 shares of Common Stock issuable upon exercise of options
outstanding as of October 25, 1996 at a weighted average exercise price of
$3.67 and an aggregate of 268,200 additional shares reserved for future
issuance as of such date under the Company's 1995 Stock Option Plan. See
"Management -- Employee Benefit Plans."

16
<PAGE> 17

DILUTION

As of October 25, 1996, the Company had a net tangible book value of
$7,151,000, or $0.79 per share of Common Stock. Net tangible book value per
share is determined by dividing the net tangible book value of the Company
(total tangible assets less total liabilities) by the number of shares of Common
Stock outstanding as of October 25, 1996. After giving effect to the sale by the
Company of the shares of Common Stock offered by the Company hereby (after
deducting the underwriting discount and estimated offering expenses), the
Company's net tangible book value as of October 25, 1996 would have been
$23,111,000 or $2.10 per share of Common Stock. This represents an immediate
increase in net tangible book value of $1.31 per share to existing shareholders
and an immediate dilution of $6.90 per share to new investors purchasing shares
in the Offering. The following table illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Initial public offering price per share......................... $9.00
Net tangible book value per share before the Offering......... $0.79
Increase per share attributable to new investors.............. 1.31
-----
Pro forma net tangible book value per share after the Offering.. 2.10
-----
Dilution per share to new investors........................... $6.90
=====
</TABLE>

The following table sets forth on a pro forma basis, as of October 25,
1996, the relative investments of all existing shareholders and new investors
purchasing shares of Common Stock from the Company in the Offering.

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders(1)....... 9,000,000 81.8% $ 3,000 --% $ --
New investors.................. 2,000,000 18.2 18,000,000 100.0 9.00
---------- ----- ----------- -----
Total........................ 11,000,000 100.0% $18,003,000 100.0%
========== ===== =========== =====
</TABLE>

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

(1) Sales by the Selling Shareholders in the Offering will reduce the number of
shares held by existing shareholders to 7,975,000 shares, or 72.5% of the
total shares of Common Stock outstanding (7,521,250 shares, or 68.4% of the
total shares of Common Stock if the Underwriters' over-allotment option is
exercised in full), and will increase the number of shares held by new
investors to 3,025,000 shares, or 27.5% of the total shares of Common Stock
outstanding (3,478,750 shares, or 31.6% of the total shares of Common Stock
if the Underwriters' over-allotment option is exercised in full) after the
Offering.

The foregoing table excludes an aggregate of 271,800 shares of Common Stock
issuable upon the exercise of stock options outstanding as of October 25, 1996
at a weighted average exercise price of $3.67 per share and an aggregate of
268,200 additional shares of Common Stock reserved for future issuance as of
such date under the Company's 1995 Stock Option Plan. To the extent that any
options of the Company are exercised, there will be further dilution to new
investors. See "Management -- Employee Benefit Plans" and "Principal and Selling
Shareholders."

17
<PAGE> 18

SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data of the Company set forth below
should be read in conjunction with the Consolidated Financial Statements of the
Company, including the notes thereto, and Management's Discussion and Analysis
of Financial Condition and Results of Operations included elsewhere herein. The
Company utilizes a fiscal year ending on the Friday nearest July 31. The
selected consolidated financial data as of July 28, 1995 and July 26, 1996 and
for the three years in the period ended July 26, 1996 are derived from the
consolidated financial statements of the Company audited by Arthur Andersen LLP,
independent public accountants, whose report appears elsewhere in the
Prospectus. The selected consolidated financial data as of July 31, 1992, July
30, 1993 and July 29, 1994 and for the two years ended July 30, 1993 are derived
from the audited consolidated financial statements of the Company not included
herein. The selected consolidated financial data presented below as of October
25, 1996 and for the quarters ended October 27, 1995 and October 25, 1996 are
unaudited but have been prepared on the same basis as the audited financial
statements and, in the opinion of management, contain all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the results of operations for such periods. Historical results
are not necessarily indicative of results to be expected in the future.

<TABLE>
<CAPTION>
YEARS ENDED QUARTERS ENDED
---------------------------------------------------- -------------------------
JULY 31, JULY 30, JULY 29, JULY 28, JULY 26, OCTOBER 27, OCTOBER 25,
1992 1993 1994 1995 1996 1995 1996
-------- -------- -------- -------- -------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Net sales.............................. $42,898 $41,726 $34,502 $44,660 $73,456 $15,275 $24,915
Cost of sales.......................... 34,029 32,273 27,187 32,858 51,489 11,133 16,490
------- ------- ------- ------- ------- ------- -------
Gross profit......................... 8,869 9,453 7,315 11,802 21,967 4,142 8,425
Selling, general and administrative
expenses............................. 7,045 7,293 6,902 9,362 15,401 2,875 4,367
Research and development expenses...... 886 1,014 983 1,108 1,635 292 688
Loss on closure of German subsidiary... -- -- 409 -- -- -- --
------- ------- ------- ------- ------- ------- -------
Operating income (loss).............. 938 1,145 (979) 1,332 4,931 975 3,370
Interest expense....................... (91) (195) (151) (195) (282) (60) (60)
Other income (expense), net............ 13 (44) -- -- -- -- --
------- ------- ------- ------- ------- ------- -------
Income (loss) before income taxes.... 861 906 (1,130) 1,137 4,649 915 3,310
Provision (benefit) for income taxes... 285 297 (357) 414 1,800 356 1,295
------- ------- ------- ------- ------- ------- -------
Net income (loss).................... $ 576 $ 609 $ (773) $ 723 $ 2,849 559 2,015
======= ======= ======= ======= ======= ======= =======
Net income (loss) per share(1)......... $ 0.06 $ 0.07 $ (0.08) $ 0.08 $ 0.31 $ 0.06 $ 0.22
======= ======= ======= ======= ======= ======= =======
Weighted average number of shares(1)... 9,172 9,172 9,172 9,172 9,172 9,172 9,172
======= ======= ======= ======= ======= ======= =======
</TABLE>

<TABLE>
<CAPTION>
JULY 31, JULY 30, JULY 29, JULY 28, JULY 26, OCTOBER 25,
1992 1993 1994 1995 1996 1996
-------- -------- -------- -------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash......................................... $ 24 $ 57 $ 211 $ 212 $ 793 $ 58
Working capital.............................. 1,285 1,911 1,274 1,868 4,632 6,569
Total assets................................. 8,230 9,072 7,638 11,011 21,112 25,325
Line of credit............................... 1,909 2,868 1,679 1,484 4,185 3,660
Long-term obligations........................ 87 58 39 34 -- --
Total shareholders' equity................... 1,729 2,338 1,564 2,287 5,136 7,151
</TABLE>

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

(1) See Note 1 of Notes to Consolidated Financial Statements for a description
of the computation of net income (loss) per share.

18
<PAGE> 19

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors."

OVERVIEW

The Company was formed in 1987. Its first product was a 5 1/4 inch floppy
disk drive for the IBM PS/2 personal computer. At the time, IBM was shipping the
PS/2 with only a 3 1/2 inch floppy disk drive, although the software and data of
most computer users were still stored on 5 1/4 inch formats. The Company
subsequently began producing aftermarket disk drive upgrade products for
computer products sold by other manufacturers, and such upgrade products
continue to be an important area of focus of the Company's business. In 1991,
the Company developed and began selling CD-ROM multimedia kits, consisting of a
CD-ROM drive, a sound card, software drivers and various CD-ROM software titles.
The Company initially achieved rapid growth in the sales of multimedia kits to
mass merchants and national distributors. However, in fiscal 1994, the Company
began to experience significant losses on sales of its multimedia kits due to
high return rates, high product support costs and rapid price erosion that
resulted both in decreased margins on initial sales and in losses on unsold
inventory and returned products. Accordingly, in early fiscal 1994, the Company
began to phase out sales of multimedia kits, and in fiscal 1995 it discontinued
sales of these kits. Sales of multimedia kits declined from 31% of net sales in
fiscal 1994 to 4% of net sales in fiscal 1995. Additionally, the Company
incurred a one-time charge to operations of $409,000 in fiscal 1994 related to
the closure of its German sales office. These factors contributed to the
Company's net loss for fiscal 1994.

In fiscal 1994, the Company introduced its CD server and array product line
while continuing to provide a broad line of disk drive upgrade products. In
addition, during fiscal 1994, the Company began utilizing computer resellers and
VARs as its primary sales channel instead of mass merchants and national
distributors and commenced shipment of its first RAID arrays and fault tolerant,
high performance storage servers. During fiscal 1995, the Company experienced
rapid growth in sales of its CD servers and arrays. Sales of hard disk drive
upgrade products, CD servers and arrays, and RAID and tape backup subsystem
products represented 63%, 4% and 2% of net sales in fiscal 1994, and 59%, 32%
and 5% of net sales in fiscal 1995, respectively. During fiscal 1996, sales of
CD servers and arrays increased more rapidly than sales of the Company's other
product lines. As a result, in fiscal 1996, sales of CD servers and arrays
represented 49% of net sales, while sales of hard disk drive upgrade products
and RAID and tape backup subsystem products represented 47% and 4% of net sales,
respectively. See "Business -- Products and Technology."

The Company generally records sales upon product shipment. The Company
presently maintains agreements with many of its computer resellers, VARs and
distributors that allow limited returns (including stock balancing) and price
protection privileges. The Company has in the past experienced high return
rates. During fiscal 1996, customer returns and price protection charges
represented approximately 12% of gross sales. The Company maintains reserves for
anticipated returns (including stock balancing) and price protection privileges.
These reserves are adjusted at each financial reporting date to state fairly the
anticipated returns (including stock balancing) and price protection claims
relating to each reporting period. Generally, the reserves will increase as
sales and corresponding returns increase. In addition, under a product
evaluation program established by the Company, computer resellers, VARs,
distributors and end users generally are able to purchase products on a trial
basis and return the products within a specified period if they are not
satisfied. Evaluation units are not recorded as sales until the customer has
paid for such units.

All of the Company's sales are denominated in U.S. dollars, and
accordingly, the Company does not believe that fluctuations in foreign exchange
rates have had or will have a material adverse effect on the Company's results
of operations or financial condition, except to the extent that such
fluctuations could cause the Company's products to become relatively more
expensive to end users in a particular country, leading to a reduction of sales
in that country.

19
<PAGE> 20

Historically, the Company's gross margins have experienced significant
volatility. The Company's gross margins vary significantly by product line, and,
therefore, the Company's overall gross margin varies with the mix of products
sold by the Company. For example, low capacity disk drive subsystems generally
result in lower gross margins than CD servers and arrays. As sales of CD servers
and arrays have become a larger percentage of the Company's total sales, the
Company has experienced a corresponding increase in its overall gross margins.
From fiscal 1994 to fiscal 1996, sales of CD servers and arrays grew from
approximately 4% to 49% of net sales, contributing to an improvement in the
Company's gross margin from approximately 21.2% to 29.9%. The Company's markets
are also characterized by intense competition and declining average unit selling
prices as products mature over the course of the relatively short life cycle of
individual products, which have often ranged from six to twelve months. In
addition, the Company's gross margins may be adversely affected by availability
and price increases associated with key products and components from the
Company's suppliers, some of which have been in short supply, and inventory
obsolescence resulting from older generation products or the unexpected
discontinuance of third party components. Finally, the Company's margins vary
with the mix of its distribution channels and with general economic conditions.
For any of the foregoing reasons, the Company's overall margin could decline in
the future from the levels experienced in recent quarters. See "Risk
Factors -- Potential Fluctuations in Future Results of Operations,"
"-- Component Shortages; Reliance on Sole or Limited Source Suppliers" and
"-- Rapid Technological Change; Short Product Life Cycles."

RESULTS OF OPERATIONS

The following table sets forth the Company's statement of operations data
as a percentage of net sales for the periods indicated.

<TABLE>
<CAPTION>
YEARS ENDED QUARTERS ENDED
-------------------------------- --------------------------
JULY 29, JULY 28, JULY 26, OCTOBER 27, OCTOBER 25,
1994 1995 1996 1995 1996
-------- -------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales..................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales................................. 78.8 73.6 70.1 72.9 66.2
----- ----- ----- ----- -----
Gross profit................................ 21.2 26.4 29.9 27.1 33.8
Selling, general and administrative
expenses.................................... 20.0 20.9 21.0 18.8 17.5
Research and development expenses............. 2.8 2.5 2.2 1.9 2.8
Loss on closure of German subsidiary.......... 1.2 -- -- -- --
----- ----- ----- ----- -----
Operating income (loss)..................... (2.8) 3.0 6.7 6.4 13.5
Interest expense.............................. 0.4 0.4 0.4 0.4 0.2
----- ----- ----- ----- -----
Income (loss) before income taxes........... (3.2) 2.6 6.3 6.0 13.3
Provision (benefit) for income taxes.......... (1.0) 1.0 2.4 2.3 5.2
----- ----- ----- ----- -----
Net income (loss)........................... (2.2)% 1.6% 3.9% 3.7% 8.1%
===== ===== ===== ===== =====
</TABLE>

QUARTER ENDED OCTOBER 25, 1996 COMPARED TO QUARTER ENDED OCTOBER 27, 1995

Net Sales

Net sales increased 63.1% from $15,275,000 for the quarter ended October
27, 1995 to $24,915,000 for the quarter ended October 25, 1996. This increase
was primarily due to increases in sales of CD servers and arrays and sales of
disk drive upgrade subsystems for desktop and notebook computers and, to a
lesser extent, increases in net sales of RAID high capacity storage devices. For
the quarter ended October 25, 1996, sales of CD servers and arrays, disk drive
upgrade products and RAID storage systems comprised approximately 45%, 48% and
7% of net sales, respectively. International sales increased approximately 27.5%
from $1.7 million, or approximately 11% of net sales, in the quarter ended
October 27, 1995 to $2.2 million, or approximately 9% of net sales, in the
quarter ended October 25, 1996. Sales were affected by an increase in the
allowance for sales returns during the first quarter of each of fiscal 1997 and
1996 of approximately $92,000 and $72,000, respectively, due primarily to
increasing sales volumes and slightly higher overall return rates. For the
quarter

20
<PAGE> 21

ending January 24, 1997, the Company does not anticipate significant growth in
net sales, if any, over the quarter ended October 25, 1996. The Company's fiscal
second quarter sales have historically remained relatively flat due primarily to
heavy reseller participation in trade shows that detract from reseller selling
efforts, end user budget constraints that restrict end user purchases and a
higher than average number of holidays during the fiscal second quarter.

Gross Profit

The Company's gross profit increased from 27.1% of net sales, or
$4,142,000, for the quarter ended October 27, 1995 to 33.8% of net sales, or
$8,425,000, for the quarter ended October 25, 1996. These increases were
primarily the result of higher margins on sales of recently introduced CD
servers and arrays and, to a lesser extent, higher margins on sales of disk
drive upgrade products for notebook computers and RAID storage products.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased 52.0% from
$2,875,000 for the quarter ended October 27, 1995 to $4,367,000 for the quarter
ended October 25, 1996. These expenses represented 18.8% and 17.5% of net sales
in the quarters ended October 27, 1995 and October 25, 1996, respectively. The
dollar increase in selling, general and administrative expenses for the first
quarter of fiscal 1997 was primarily a result of increased marketing and
promotional costs and increased personnel and related costs necessary to support
the Company's growth in net sales. The decrease in selling, general and
administrative expenses as a percentage of net sales for the first quarter of
fiscal 1997 was due primarily to a decrease in management bonuses from $571,000
for the first quarter of fiscal 1996 to $125,000 for the first quarter of fiscal
1997. Bad debt expense for the first quarter of fiscal 1997 was approximately
$124,000, or .50% of net sales, compared to approximately $67,000, or .44% of
net sales, for the first quarter of fiscal 1996. The Company anticipates that
the dollar amount of its selling, general and administrative expenses will
increase as the Company continues to expand its efforts to penetrate certain
sales channels and regions and continues to strengthen management information
and telecommunications systems.

Research and Development

Research and development expenses increased 135.6% from $292,000 for the
quarter ended October 27, 1995 to $688,000 for the quarter ended October 25,
1996. These expenses represented 1.9% and 2.8% of net sales for the quarters
ended October 25, 1995 and October 27, 1996, respectively. These increases were
primarily due to continued increases in additional hardware developers and
software programmers and increased related support costs to develop additional
products and enhance existing product features. The Company anticipates that the
dollar amount of its research and development expenses will increase, and also
may increase as a percentage of net sales, with the addition of dedicated
engineering resources to develop new product categories, to ensure that the
Company's products are compatible with a wide range of hardware platforms and
network topologies and to further develop MESA, the Company's proprietary
client/server management storage architecture. In addition, the Company intends
to continue to update software drivers to ensure that the Company's CD servers
and arrays function with a variety of hardware platforms and network operating
systems. To date, all of the Company's software development costs have been
expensed as incurred, as the impact of capitalizing software costs under
Financial Accounting Standard No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed" would have been immaterial to
the Company's financial statements.

Income Taxes

The Company's effective tax rates for the quarters ended October 27, 1995
and October 25, 1996 were 38.9% and 39.1% of net income, respectively, which
approximate the federal and state statutory rates with modest reductions for
benefits resulting from the Company's use of its foreign sales corporation
("FSC") and a research and development credit.

21
<PAGE> 22

COMPARISON OF YEARS ENDED JULY 29, 1994, JULY 28, 1995 AND JULY 26, 1996

Net Sales

The following table sets forth the net sales and percentages of net sales
represented by each of the Company's product lines.

<TABLE>
<CAPTION>
YEARS ENDED
--------------------------------
JULY 29, JULY 28, JULY 26,
1994 1995 1996
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
NET SALES DATA:
CD servers and arrays......................................... $ 1,568 $14,426 $36,079
Disk drive upgrade products................................... 21,726 26,000 34,789
RAID and tape backup subsystem products....................... 686 2,421 2,588
Multimedia kits............................................... 10,522 1,813 --
------ ------ ------
Total............................................... $34,502 $44,660 $73,456
====== ====== ======
</TABLE>

<TABLE>
<CAPTION>
YEARS ENDED
--------------------------------
JULY 29, JULY 28, JULY 26,
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
PERCENTAGE OF NET SALES DATA:
CD servers and arrays......................................... 4% 32% 49%
Disk drive upgrade products................................... 63 59 47
RAID and tape backup system products.......................... 2 5 4
Multimedia kits............................................... 31 4 --
------ ------ ------
Total............................................... 100% 100% 100%
====== ====== ======
</TABLE>

Net sales increased 29.4% from $34.5 million in fiscal 1994 to $44.7
million in fiscal 1995 and increased an additional 64.5% to $73.5 million in
fiscal 1996. Net sales increased from fiscal 1994 to fiscal 1995 primarily as a
result of increased sales of the Company's CD servers and arrays and, to a
lesser extent, increased sales of its disk drive upgrade products and RAID
products, which were partially offset by decreased sales of its CD-ROM
multimedia kits that were discontinued in fiscal 1995. Net sales increased from
fiscal 1995 to fiscal 1996 primarily as a result of increased sales of CD
servers and arrays (including sales of higher performance CD servers) and, to a
lesser extent, increased sales of hard disk drive upgrade products. For fiscal
1996, sales were reduced by approximately $130,000 as the Company increased its
allowance for anticipated sales returns. For fiscal 1995 and 1994, the
allowances for anticipated sales returns were reduced by $52,000 and $50,000,
respectively, as the Company phased out sales of its multimedia kits which had
high return rates.

International sales, primarily to European customers and secondarily to
Middle Eastern, Latin American and Pacific Rim customers, were $6.5 million,
$6.2 million and $8.4 million, and accounted for approximately 19%, 14% and 11%
of net sales for fiscal 1994, 1995 and 1996, respectively. International sales
remained essentially constant for fiscal 1995 compared to fiscal 1994 as
increased sales of hard disk drive upgrade products were offset by decreased
sales of CD-ROM multimedia kits. International sales increased by 35.6% from
fiscal 1995 to fiscal 1996 primarily as a result of increased sales of CD-ROM
servers and arrays. See "Risk Factors -- Risks of International Sales and
Operations."

Gross Profit

The Company's gross profit totalled $7.3 million, $11.8 million and $22.0
million during fiscal 1994, 1995 and 1996, respectively. The Company's gross
margin increased from 21.2% in fiscal 1994 to 26.4% in fiscal 1995, due
primarily to a shift in product mix toward higher margin CD servers and arrays
and a decrease in the losses associated with the discontinuance of sales of the
Company's CD-ROM multi-media kits. During fiscal 1996, gross margin further
increased to approximately 29.9% due primarily to a continuing shift in product
mix toward higher margin CD servers and arrays as well as an increase in gross
margins for the Company's

22
<PAGE> 23

CD servers and arrays, and to a lesser extent from an increase in gross margins
on the Company's hard disk drive upgrade and RAID products.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased 35.6% from $6.9
million in fiscal 1994 to $9.4 million in fiscal 1995 and further increased
64.5% to $15.4 million in fiscal 1996. These expenses represented 20.0%, 20.9%
and 21.0% of net sales in fiscal 1994, 1995 and 1996, respectively. The increase
from fiscal 1994 to fiscal 1995 was due primarily to an increase in various
marketing and advertising programs to promote sales of the Company's CD servers
and arrays and RAID subsystems in vertical niche markets, as well as increases
in staffing to support the Company's growth. The increase from fiscal 1995 to
fiscal 1996 was due primarily to increased marketing expenses associated with
advertising, direct mail and channel telemarketing, as well as increases in
sales commissions and general and administrative staffing necessary to support
the Company's growth. For fiscal 1994 and 1995, bad debt expense was $241,000
and $322,000, or approximately .70% and .72% of net sales, respectively,
compared to $473,000, or approximately .64% of net sales, for fiscal 1996.
Selling, general and administrative expenses for fiscal 1995 and 1996 included
$0.9 million and $2.9 million, respectively, for bonuses for executive officers.

Research and Development Expenses

Research and development expenses, consisting primarily of personnel
expenses, increased 12.7% from $1.0 million in fiscal 1994 to $1.1 million in
fiscal 1995 and further increased 47.6% to $1.6 million in fiscal 1996. These
expenses represented 2.8%, 2.5% and 2.2% of net sales in fiscal 1994, 1995 and
1996, respectively. The slight dollar increase from fiscal 1994 to fiscal 1995
resulted primarily from the Company's enhanced efforts to develop its CD server
and array product lines and RAID subsystems. This increase was largely offset by
the Company's discontinuation of its development efforts for its CD-ROM
multimedia kit business. The dollar increase from fiscal 1995 to fiscal 1996 was
due primarily to the Company's expanded efforts to develop new CD servers and
RAID products and to develop CD FORCE, a CD-ROM network server incorporating
Procom's proprietary software data access management system.

Loss on Closure of German Subsidiary

The Company incurred a one-time charge to operations of $409,000 related to
the closure of its German sales office during fiscal 1994. The Company formed
its German subsidiary in fiscal 1993 to support its increasing European sales
and marketing efforts primarily related to sales of CD-ROM multimedia kits.
However, the Company closed its German office in April 1994 due to the
subsidiary's lack of profitability resulting from higher average general and
administrative costs, slower realization of sales than anticipated and a lower
gross margin product mix. During fiscal 1995, the Company completed the
liquidation of the subsidiary's assets.

Interest Expense

The Company maintains a working capital line of credit to support its
accounts receivable and inventory levels. Interest expense increased from
$151,000 in fiscal 1994 to $195,000 in fiscal 1995 as the Company's sales, and
resulting accounts receivable and inventory levels, increased. Interest expense
further increased to $282,000 for fiscal 1996 as the Company utilized its
available credit lines to support further increases in accounts receivables and
inventory levels.

Income Taxes

The Company's effective tax rates were (31.6)%, 36.4% and 38.7% for fiscal
1994, 1995 and 1996, respectively. In fiscal 1994, the Company utilized net
operating losses to reduce its state income tax rate below the statutory level.
For fiscal 1995 and 1996, the Company's effective tax rate approximated federal
and state statutory rates, with moderate reductions due to the Company's use of
its FSC. For fiscal 1994 and 1995, the Company received benefits from a research
and development credit, while the fiscal 1996 benefit was

23
<PAGE> 24

significantly reduced due to legislation which temporarily denied the credit.
See Note 4 of Notes to Consolidated Financial Statements.

The Company adopted Statement of Financial Accounting Standard No. 109,
"Accounting for Income Taxes," on July 28, 1994. The cumulative effect of the
adoption as of July 28, 1994 was immaterial and, as a result, the Company did
not restate any prior financial statements.

QUARTERLY INFORMATION

The following tables set forth certain unaudited financial information in
dollars and as a percentage of net sales for the eight quarters of fiscal 1995
and 1996 and the first quarter of fiscal 1997. The Company believes that all
necessary adjustments, consisting only of normal recurring accruals, have been
included in the amounts stated below to present fairly the selected quarterly
information when read in conjunction with the Consolidated Financial Statements
and the notes thereto included elsewhere herein. The operating results for any
quarter are not necessarily indicative of results for any subsequent period or
for the entire fiscal year.

The Company operates under thirteen week quarters that end on the Friday
closest to the calendar quarter end. As a result, a fiscal quarter may not end
on the same day as the calendar quarter end.

<TABLE>
<CAPTION>
QUARTERS ENDED
-----------------------------------------------------------------------------------------------------------------
OCTOBER 28, JANUARY 27, APRIL 28, JULY 28, OCTOBER 27, JANUARY 26, APRIL 26, JULY 26, OCTOBER 25,
1994 1995 1995 1995 1995 1996 1996 1996 1996
----------- ----------- --------- -------- ----------- ----------- --------- -------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales..... $ 9,048 $10,040 $12,121 $13,451 $15,275 $15,801 $17,775 $24,605 $24,915
Cost of
sales....... 6,701 7,213 9,100 9,844 11,133 10,948 12,263 17,145 16,490
----------- ----------- --------- -------- ----------- ----------- --------- -------- -----------
Gross
profit.... 2,347 2,827 3,021 3,607 4,142 4,853 5,512 7,460 8,425
----------- ----------- --------- -------- ----------- ----------- --------- -------- -----------
Selling,
general and
administrative... 1,851 2,255 2,350 2,906 2,875 3,333 3,829 5,364 4,367
Research and
development... 210 226 325 347 292 386 459 498 688
----------- ----------- --------- -------- ----------- ----------- --------- -------- -----------
Operating
income.... 286 346 346 354 975 1,134 1,224 1,598 3,370
Interest
expense..... 40 58 56 41 60 61 51 110 60
----------- ----------- --------- -------- ----------- ----------- --------- -------- -----------
Income
before
income
taxes..... 246 288 290 313 915 1,073 1,173 1,488 3,310
Provision for
income
taxes....... 91 105 104 114 356 418 457 569 1,295
----------- ----------- --------- -------- ----------- ----------- --------- -------- -----------
Net
income.... $ 155 $ 183 $ 186 $ 199 $ 559 $ 655 $ 716 $ 919 $ 2,015
========== ========== ======== ======= ========== ========== ======== ======= ==========
Net income per
share....... $ 0.02 $ 0.02 $ 0.02 $ 0.02 $ 0.06 $ 0.07 $ 0.08 $ 0.10 $ 0.22
========== ========== ======== ======= ========== ========== ======== ======= ==========
Weighted
average
number of
shares(1)... 9,172 9,172 9,172 9,172 9,172 9,172 9,172 9,172 9,172
========== ========== ======== ======= ========== ========== ======== ======= ==========
</TABLE>

- ------------------
(1) See Note 1 of Notes to Consolidated Financial Statements for a description
of the computation of net income (loss) per share.

24
<PAGE> 25

The following table sets forth certain unaudited quarterly financial
information of the Company for the eight quarters of fiscal 1995 and 1996 and
the first quarter of fiscal 1997 expressed as a percentage of net sales.

The Company's net sales have increased every quarter for the eight quarters
of fiscal 1995 and 1996 and the first quarter of fiscal 1997. The increased
sales have resulted primarily from increased shipments of CD servers and arrays
and higher capacity disk drive upgrade products. In addition to seasonal factors
that generally contribute to a relatively flat second fiscal quarter, the
Company believes that its net sales for the second quarter of fiscal 1996 were
adversely impacted by inclement weather and the federal government shutdown,
which restricted federal purchasing due to budgetary uncertainty and the absence
of federal purchasing decision-makers. The 38.4% increase in net sales for the
fourth quarter of fiscal 1996 over the third quarter of fiscal 1996 was due
primarily to a significant increase in sales of high capacity storage upgrade
products as the Company capitalized on unique market opportunities and, to a
lesser extent, increased sales of CD servers and arrays.

Gross margin ranged from 24.9% for the third quarter of fiscal 1995 to
33.8% for the first quarter of fiscal 1997. Fluctuations in gross margin
resulted from variations in revenue mix from sales of higher margin CD servers
and arrays and RAID products, and sales of lower margin medium capacity disk
drive storage products. Certain other factors which contribute to decreases in
the Company's gross margins include the lower margins generated by sales of
products near the end of their life cycles and increased international sales,
which generally involve slightly lower average unit sales prices as a result of
the increased use of distributors rather than computer resellers or VARs.

Selling, general and administrative expenses ranged from 17.5% of net sales
in the first quarter of fiscal 1997 to 22.5% of net sales in the second quarter
of fiscal 1995. While selling, general and administrative expenses have
generally increased, fluctuations in these expenses as a percentage of net sales
have resulted primarily from varying levels of net sales, management bonuses and
seasonal variations in marketing, advertising and trade show expenditures.

Research and development expenses ranged from 1.9% of net sales in the
first quarter of fiscal 1996 to 2.8% of net sales in the first quarter of fiscal
1997. Research and development expense levels fluctuated quarterly depending
primarily on the size of the Company's engineering staff, as well as the number
and nature of projects under development during any given quarter.

25
<PAGE> 26

significant percentage of the Company's sales each quarter may result from new
products or product enhancements introduced in that quarter. Since the Company
relies on new products and product enhancements for a significant percentage of
sales, failure to continue to develop and introduce new products and product
enhancements or failure of these products or product enhancements to achieve
market acceptance could have a material adverse effect on the Company's
business, financial condition and results of operations. Historically, as the
Company has planned and implemented new products, it has experienced unexpected
reductions in sales and gross profit of older generation products as customers
have anticipated new products. These reductions have in the past given and could
continue to give rise to charges for obsolete or excess inventory, returns of
older generation products by computer resellers, VARs and distributors or
substantial price protection charges. See "Risk Factors -- Rapid Technological
Change; Short Product Life Cycles" and "-- Customer Concentration; Distribution
Strategy Risks; Inventory Protection." For example, in fiscal 1994, the Company
incurred losses when it discontinued sales of CD-ROM multimedia kits to mass
merchants and distributors. From time to time, the Company has experienced and
may in the future experience inventory obsolescence resulting from the
unexpected discontinuance of third party components, such as disk drives,
included in the Company's products. To the extent the Company is unsuccessful in
managing product transitions, it may have a material adverse effect on the
Company's business, financial condition and results of operations.

The Company also has historically capitalized on short-term market
opportunities for volume purchases of certain components at favorable prices.
For example, in the quarter ended July 26, 1996, the Company capitalized on a
one-time opportunity to sell a significant volume of high capacity disk drive
upgrade products purchased at below market prices in the prior quarter, which
resulted in a price advantage to the Company that enhanced the Company's sales
and results of operations for that quarter. There can be no assurance that the
Company will be able to capitalize on such opportunities in the future. In
addition, the Company's fiscal second quarter sales have historically remained
relatively flat due primarily to heavy reseller participation in trade shows
that detract from reseller selling efforts, end user budget constraints that
restrict end user purchases, and a higher than average number of holidays during
that quarter.

LIQUIDITY AND CAPITAL RESOURCES

The Company was founded with minimal capital and has never raised
additional equity funds. For the past three fiscal years, the Company has
satisfied its operating cash requirements principally through net income,
supplemented by periodic borrowings of funds under its working capital line of
credit and increases in accounts payable and accrued expenses. Net cash provided
by operating activities was $1.4 million and $0.4 million in fiscal 1994 and
fiscal 1995, respectively, and net cash used in operating activities was $1.7
million, $1.1 million and $0.1 million in fiscal 1996 and the first quarter of
each of fiscal 1996 and 1997, respectively. In fiscal 1994, net cash provided by
operating activities was provided primarily by a decrease in accounts receivable
and an increase in accounts payable, partially offset by the Company's net loss
for the year. In fiscal 1995, net cash provided by operating activities resulted
primarily from an increase in accounts payable and accrued expenses, together
with the Company's net income, offset in large part by increases in inventories
and accounts receivable. In fiscal 1996 and the first quarter of each of fiscal
1996 and 1997, net cash used in operating activities resulted primarily from
increases in accounts receivable due to increased sales during each of the
periods and increases in inventories due to both increased sales and the higher
value added components of the Company's products. These increased uses of
capital were offset in part by the Company's net income and increases in
accounts payable and accrued expenses. In fiscal 1994, 1995 and 1996, and in the
first quarter of each of fiscal 1996 and 1997, the Company's investing
activities consisted primarily of purchases of property and equipment. Property
and equipment expenditures totaled $71,000, $179,000, $431,000, $124,000 and
$141,000 for such periods, respectively.

During fiscal 1994 and 1995, the Company used $1.2 million and $0.2
million, respectively, to repay net borrowings under its line of credit, and,
during fiscal 1996, the Company borrowed $2.7 million, net of repayments, to
finance operations and purchase $431,000 of property and equipment. In the first
quarter of fiscal 1996, the Company borrowed $1.0 million net of repayments to
finance operations, and in the first quarter of fiscal 1997, the Company used
$0.5 million to repay net borrowings under its line of credit. As the Company's
net sales have increased, the Company's working capital requirements also have
increased, and consequently, the Company has experienced a trend of increasing
borrowings under and payments on its line

26
<PAGE> 27

of credit. In fiscal 1994, 1995 and 1996, and in the first quarter of each of
fiscal 1996 and 1997, the Company's borrowings under its line of credit were
$34.9 million, $43.8 million, $64.8 million, $14.5 million and $22.6 million,
respectively, and its payments on its line of credit were $36.1 million, $44.0
million, $62.1 million, $13.5 million and $23.1 million, respectively.

In November 1994, the Company instituted a revolving line of credit with
Finova Capital ("Finova"). The facility was amended in November 1995 to provide
the Company with up to $6.0 million in working capital loans, based upon the
Company's accounts receivable and inventory levels. The line of credit accrues
certain commitment fees, unused facility fees and interest on outstanding
amounts at the lender's prime rate (8.25% at October 25, 1996) plus 1.5%. Finova
also makes available to the Company various flooring commitments pursuant to
which the Company may finance the purchase of up to $13.0 million in inventory
(less any amounts outstanding in working capital loans) from certain of the
Company's vendors who have credit arrangements with Finova. As of October 25,
1996, there was approximately $3.7 million outstanding under the credit
facility, and $7.5 million outstanding under the flooring arrangements. The
agreement governing the credit facility requires the Company to maintain certain
financial covenants (including the maintenance of working capital of at least
$500,000), minimum levels of tangible net worth and minimum levels of liquidity.
As of October 25, 1996, the Company was in material compliance with the
covenants of the Finova line of credit. The line is secured by substantially all
of the assets of the Company and is guaranteed by the Founders. The initial term
of the line of credit expires on November 29, 1996, but automatically renews for
successive one year periods unless terminated by either party within a specified
period in advance of the automatic renewal date. See Note 5 of Notes to
Consolidated Financial Statements.

As of October 25, 1996, the Company had cash balances of $0.1 million and
$2.3 million of availability under its line of credit. The Company believes that
the cash proceeds from this offering, together with existing cash balances and
available credit under its existing line of credit, will be sufficient to meet
anticipated cash requirements for at least the next twelve months. As of October
25, 1996, the Company had no material commitments for capital expenditures.
However, the Company intends to spend approximately $300,000 to acquire capital
equipment to increase production capacity, to build out new production space and
to retain consultants to evaluate and make recommendations regarding the
efficiency of the Company's manufacturing operations. While the Company has no
present plans, agreements or commitments to make any acquisitions, the Company
may acquire businesses, products and technologies that are complementary to
those of the Company. In the event the Company's plans require more capital than
is presently anticipated, the Company's remaining cash balances may be consumed
and additional sources of liquidity such as debt or equity financings may be
required to meet working capital needs. There can be no assurance that
additional capital beyond the amounts currently forecasted by the Company will
not be required nor that any such required additional capital will be available
on reasonable terms, if at all, at such time or times as required by the
Company.

RECENT ACCOUNTING PRONOUNCEMENTS

During March 1995, the Financial Accounting Standards Board issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," which requires the Company to review for
impairment of long-lived assets, certain identifiable intangibles and goodwill
related to those assets whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. In certain
situations, an impairment loss should be recognized under the statement. The
Company's adoption of the statement will be effective for fiscal 1997. The
Company has studied the implications of the statement, and based on its initial
evaluation, does not expect it to have a material impact on the Company's
financial condition and results of operations.

During October 1995, the Financial Accounting Standards Board issued
Statement No. 123 ("SFAS No. 123"), "Accounting for Stock-Based Compensation,"
which establishes a fair value based method of accounting for stock-based
compensation plans under the statement. The Company is currently following the
requirements of APB Opinion No. 25, "Accounting for Stock Issued to Employees."
The Company plans to adopt SFAS No. 123 during fiscal 1997 utilizing the
disclosure alternative under the statement.

27
<PAGE> 28

BUSINESS

This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors."

Procom designs, manufactures and markets enterprise-wide data storage and
information access solutions that are compatible with all major hardware
platforms, network protocols and operating systems. The Company believes it is
currently a leader in the market for CD-ROM servers and arrays due to its
extensive distribution channels as well as the scalability, performance, ease of
use and multi-protocol support of its products. The Company provides end users
with disk drive upgrades for servers, desktop and notebook computers and also
provides high performance, fault tolerant RAID solutions and tape backup
subsystems. The Company utilizes computer resellers, VARs and distributors to
sell its products to a wide variety of end users, including Fortune 500
corporations, governmental agencies and financial and educational institutions.

BACKGROUND

In recent years, there has been a significant migration to client/server
and network computing. Today's networks are much larger and more complex than
early networks, often consisting of multiple servers (application servers, file
servers, database servers and communications servers) and hundreds or even
thousands of desktop clients manufactured by a number of different vendors.
These servers and clients may utilize a number of different operating systems,
including Unix, Novell NetWare, IBM OS/2 Warp, Windows NT, Windows 95, Windows
3.1 and Macintosh OS. The distributed nature of these networks, together with
the increased use of computers throughout organizations to create and store
files, has resulted in an increase in the amount and dispersion of critical data
across the clients and servers on these networks.

As the size of networks and the amount of information used and stored on
those networks have increased, access to such data has become increasingly
important to end users. Users increasingly rely on the information resident on
networks and PCs, such as customer databases, inventory records, sales tracking
reports and research reference materials, for the effective accomplishment of
daily business activities. As a result, end users must have real-time access to
secure and reliable network data, regardless of the location of such data, and
the supporting operating system. These factors have made it complicated to
access information stored on networks.

The increase in the size of networks has been accompanied by concurrent
increases in the size and complexity of computer data and files. Application
software developers continue to introduce software packages that increasingly
incorporate features which require large amounts of storage, such as graphics,
video and sound. For example, a minute of uncompressed full motion video and
sound could require approximately 1,100 megabytes of storage. Similarly, the
size and complexity of images stored and manipulated using document imaging
systems have intensified network storage requirements. Further, the increasing
popularity of the Internet as a means of communication and a medium by which to
access and distribute information has contributed to the demand for increased
storage, as users download a wide variety of complex data from the Internet.

Organizations evaluating alternatives for additional storage capacity must
consider a number of factors, including total cost of ownership, capacity,
access time, security, reliability and the ability to integrate such additional
storage into an existing network. The cost of ownership includes not only the
initial cost of a storage system but also the expenses associated with the
ongoing administration of the network. Administrative costs associated with
network data storage have increased as networks have grown more complex and
systems administrators have been required to monitor storage systems that
support multiple operating systems and multiple applications across numerous
clients.

In response to increased demand for cost-effective storage of different
types of information, a variety of storage media have been developed, including
hard disk, magnetic tape and CD-ROM. Hard disk storage is a popular means of
storing and accessing large amounts of information that is continually changing.
Hard disk storage provides rapid access time but is a relatively expensive
storage medium and is easily erased. Magnetic

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<PAGE> 29

tape is the least expensive storage medium, but has the slowest access times.
Magnetic tape is therefore ideal for backing up large amounts of information
that is only expected to be accessed infrequently.

CD-ROM technology emerged in the early 1980s as a cost-effective method by
which to store and distribute large amounts of information. A single CD can
store approximately 650 megabytes of information, the same amount which could be
contained on over 100,000 pages of paper. In addition, CD-ROMs offer data
reliability and security, as they cannot be altered or erased, are not
susceptible to data loss when computer systems fail and have a life expectancy
of 50 to 100 years. Since CD-ROMs cannot be erased or written over, however,
they are not suitable for storage situations in which information must be
continually updated and altered. However, for organizations that require
periodic distribution of written material, such as law reference books, parts
lists, catalogues or manuals, CD-ROMs are much more cost-effective and practical
than paper-based documents. The proliferation of network computing and the rapid
increase in CD-ROMs as a means of information distribution and storage have
fueled demand for CD-ROM systems that provide network wide access.

RAID storage systems have developed in response to demand for increased
data storage, performance, security, reliability, fault tolerance and
availability, as well as for constant access. RAID is a method for allocating
data across several hard disk drives and allowing a server microprocessor to
access those drives simultaneously, thus increasing system storage and
input/output performance. In addition, lost data on any drive can be recreated
using special RAID algorithms, thus ensuring the immediate availability of RAID
protected data even in the event of a disk drive failure.

The increase in the importance and volume of stored, complex data has
increased demand for secure and reliable methods of storage that allow for
efficient and cost-effective protection and management of such data. These
factors have also increased demand for total storage solutions that can quickly
and efficiently provide access to large volumes of data resident on a variety of
clients and servers running different operating environments, as well as data
generated by a wide range of applications. In addition, users are increasingly
demanding solutions comprised of not only hardware for cost-effective storage of
and access to large amounts of secure and reliable information, but also
software that manages information flow and reduces the high costs of network
storage administration.

PROCOM SOLUTION

The Company provides a wide range of products designed to address the data
storage and information access requirements of client/server computing
environments. The Company's CD servers and arrays, disk drive upgrades and RAID
and tape backup subsystems are easy to install and use and have a relatively low
overall cost of ownership. Procom's CD servers and arrays address the expanding
use of CD-ROM as a distribution medium by providing clients with simultaneous
access to up to 63 CD-ROMs at 30x speed. The Company's disk drive upgrades allow
users to utilize their existing hardware for longer periods of time, thereby
extending the life of their initial investment. The Company's RAID and tape
backup subsystems provide high performance, fault tolerant storage of over a
terabyte of data for large network information databases.

The Company's recently introduced CD FORCE CD-ROM network server
incorporates an embedded operating system that centralizes data access
management services, thereby reducing administrative costs. This embedded
operating system is based on the Company's managed enterprise storage
architecture ("MESA"). MESA's operating system software is designed to provide
non-intrusive plug and play compatibility with most popular network operating
systems, allowing products incorporating the MESA architecture to be installed
by simply connecting one cable to the network. The central processing unit
contained in each MESA-equipped server is designed to allow the server to manage
and process data without burdening the network server. See "-- Products and
Technology -- Products Under Development."

The core elements of the Company's solution include:

Broad Product Line. The Company supplies a wide range of products with a
variety of prices, storage capacities, access times, storage media,
hardware/software combinations and levels of redundancy. The Company's products
are designed to meet a broad spectrum of end user data storage and information
access

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<PAGE> 30

needs and range from disk drive storage upgrade products to the Company's
recently introduced Hyper CD-30x module, a CD-ROM and hard disk combination,
which the Company believes has the fastest CD-ROM access time and data transfer
rates available. The Company's broad range of products allows its computer
reseller and VAR customers to utilize Procom as a single source to satisfy the
storage requirements of a wide range of end users, thereby reducing the need for
multiple vendors.

Modular and Scalable Design. The Company's products are designed to address
the evolving data storage and information access requirements of enterprise-wide
computing environments. Procom's products are modular and can be linked together
to accommodate a customer's expanding data storage and information access
requirements.

Ease of Installation and Use. The Company's data storage and information
access solutions have been designed for ease of installation, configuration and
use in a variety of client/server networks. Many of the Company's CD servers and
arrays can be added to computer networks by simply attaching them as nodes to
existing network cabling. The Company's recently introduced CD FORCE server
contains a graphical user interface that facilitates end user access to
information contained on CD-ROMs.

Reduced Cost of Ownership. Procom incorporates a number of features into
its products that reduce the costs associated with both the installation of its
products and the down-time of networks and storage systems. The Company's
products include numerous fault tolerant features, such as redundant and
hot-swappable power supplies and fans and hot-swappable disk and CD-ROM drives
that allow users to repair a damaged drive without interrupting the operation of
the network. The Company's CD-ROM and RAID products include features that reduce
administrative costs for network administrators by providing remote management
and notification of actual or potential system or component failures, and its
RAID products also provide automatic reconstruction of data and easy adjustment
of RAID levels. In addition, the operating system software incorporated into the
Company's MESA architecture is designed to further reduce administrative costs
by centralizing network data storage management.

Multi-platform, Multi-protocol Support. Procom's products are compatible
with a wide range of client networks and operating systems, including Unix,
Novell NetWare, IBM OS/2 Warp, Windows NT, Windows 95, Windows 3.1 and Macintosh
OS. In addition, the Company's products support multiple network topologies such
as Ethernet, FDDI, Fast Ethernet and Token Ring. This compatibility allows
customers to implement the Company's storage solutions in a broad range of
enterprise-wide computing environments.

BUSINESS STRATEGY

The Company's objective is to provide products that fulfill customers'
evolving needs for data storage and information access products across all major
computers and operating systems. The key elements of the Company's strategy to
achieve this objective are as follows:

Develop Additional Network Storage Products. The Company is focused on
developing server products that will enable networks to provide and manage
additional storage capacity more efficiently. These products will share many of
the design characteristics of the Company's current CD FORCE network server,
integrating a high performance central processing unit, network interface card
and Procom's proprietary embedded operating system software, and will be
designed to allow users on the network to store and access information more
quickly. The Company plans to develop additional storage management software and
to introduce additional servers that will utilize a variety of storage media,
including hard disks (with RAID functionality) and magnetic tape, which can be
attached directly to and will be compatible with a wide variety of network
environments.

Enhance Reseller Relationships. The Company focuses its marketing efforts
on developing an awareness of the Company's data storage and information access
solutions with various computer resellers, VARs and distributors of its
products. These relationships provide the Company with indirect access to and
improved visibility among large corporations and other institutional end users.
The computer resellers, VARs and distributors also function as a sales force for
the Company, allowing the Company to reach a large number of end users without
incurring the significant expenditures associated with a direct sales force, and
provide

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<PAGE> 31

ongoing service for the Company's storage systems. The Company intends to sell a
broader range of its products and services to these existing customers.

Target Vertical Markets. The Company promotes higher levels of sales of its
CD servers and arrays through its channel partners by targeting a portion of its
marketing efforts to specific end users that require enterprise-wide access to
information published on CD-ROM, such as law and accounting firms, educational
organizations, medical service providers and governmental agencies. The Company
employs a similar strategy with regard to the sale of its high capacity RAID
solutions by targeting its marketing efforts to end users with large information
storage and access requirements, such as companies that have recently migrated
from mainframe computer systems to personal computer networks, video-on-demand
providers and companies developing electronic imaging applications. The Company
intends to continue to target these vertical markets in the future.

Expand Strategic Relationships. The Company seeks to expand its
relationships with the primary suppliers of components of its products,
including drive manufacturers such as Seagate Technology, Inc. and Toshiba and
network software operating system developers such as Novell, Inc. and Microsoft
Corporation. These relationships provide the Company with early access to
information regarding future product releases and technological developments
that allow the Company to anticipate and respond to market opportunities. The
Company also collaborates with manufacturers regarding the design of many
components that the Company ultimately incorporates into its data storage and
information access products. In addition, the Company maintains relationships
with content providers, such as legal publishers and video suppliers. These
relationships provide the Company with opportunities to receive free publicity
and promotion within niche end user markets when content providers utilize
Procom data storage and information access systems in conjunction with the
display of their own products at trade shows and other marketing events.
Finally, the Company also maintains informal relationships with certain end
users of its products that enable the Company to learn of and respond to
changing end user needs. The Company intends to expand its relationships with
suppliers and manufacturers, content providers and end users in the future.

Deliver Timely Solutions. The Company believes that its focus on
cost-effective data storage and information access allows it to remain a
technology leader. The Company has focused on responding quickly to and
capitalizing on demands for specialized data storage and information access
products. The Company anticipates that additional market opportunities will
arise as demand for data storage and information access products continues to
increase, and the Company intends to maintain an organizational structure that
will allow it to quickly respond to these opportunities if they develop.

PRODUCTS AND TECHNOLOGY

The Company's principal product lines are CD servers and arrays, disk drive
upgrade products and RAID and tape backup subsystems. These product lines
accounted for approximately 32%, 59% and 5%, respectively, of the Company's net
sales in fiscal 1995, approximately 49%, 47% and 4%, respectively, of the
Company's net sales in fiscal 1996, and approximately 45%, 48% and 7%,
respectively, of the Company's net sales in the first quarter of fiscal 1997.
Many of the Company's products are offered in a variety of storage capacities
and performance levels and, as a result, are sold at varying prices. See "Risk
Factors -- Dependence on CD Servers and Arrays."

CD Servers and Arrays

The Company's CD servers and arrays provide an efficient method by which to
store and share large amounts of information across a network. The Company's CD
servers and arrays are available in a variety of plug and play configurations,
from four to 63 CD drives, and can be configured with either 4x or 8x CD-ROM
drives. In addition, the Company has recently introduced its Hyper CD-30x
module, a CD-ROM and hard disk combination, which allows 30x data transfer
speeds and is based on proprietary technology obtained by the Company pursuant
to a marketing and integration arrangement with a third party. Several CD arrays
also are available as servers, configured at the Company's factory with
specified hardware and software. The Company provides each CD server and array
with optional software drivers for Unix, Novell NetWare,

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IBM OS/2 Warp, Windows NT, Windows 95, Windows 3.1, and Macintosh OS. Many of
the Company's CD servers and arrays contain the Company's built-in "Smart SCSI
CD" board, which maps up to seven CD drives to a single SCSI ID, thereby
allowing additional CD servers and arrays to be added to a network. The
Company's recently released CD FORCE Server incorporates the Company's MESA
architecture and is designed to (i) provide plug and play compatibility with
most popular network operating systems, (ii) function without burdening the
network server and (iii) provide cross/multi-platform compatibility. The
Company's internally developed CD-ROM network data access management software is
not presently available on all major hardware platforms, and of the Company's CD
servers and arrays shipped to date that contain network data management
software, substantially all included third-party software. See "Risk
Factors -- Dependence on CD Servers and Arrays." In addition, by working with CD
manufacturers and component suppliers, the Company has developed special
enclosures to provide security for the CDs and prevent their loss, theft or
damage.

Certain information with respect to the Company's primary CD servers and
arrays is set forth below:

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
APPROXIMATE
PRODUCT LINE KEY FEATURES RETAIL PRICE
- ---------------------------------------------------------------------------------------------
CDT Array - Allows up to 13GB of information to be distributed $2,100-$13,600
over a network via 7, 14 or 21 CD-ROMs.
- Requires no hardware installation.
- Ethernet or Token Ring network connectivity.
- ---------------------------------------------------------------------------------------------
CDT Server - Allows up to 13GB of information to be distributed $8,300-$26,500
over a network via 14 or 21 CD-ROMs.
- Requires no hardware installation.
- In addition to Ethernet and Token Ring connectivity,
CDT Servers support most popular network connectivity.
- Includes CD-ROM management software for most popular
network platforms.
- Includes embedded Pentium-based server to improve
overall performance.
- ---------------------------------------------------------------------------------------------
CDRAX - Allows up to 40GB of information on CD-ROM to be up to $76,400
distributed over a network.
- Provides simultaneous access to up to 63 CD-ROMs.
- Requires no hardware installation.
- In addition to Ethernet and Token Ring connectivity,
CDRAX supports other popular network connectivity.
- Contains hot swappable CD-ROM drives and redundant
power supplies and fans.
- Includes CD-ROM management software for most popular
network platforms.
- Includes embedded Pentium-based server to improve
overall performance.
- ---------------------------------------------------------------------------------------------
</TABLE>

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The Company has recently introduced the following products:

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
APPROXIMATE RETAIL
PRODUCT LINE KEY FEATURES PRICE
- ---------------------------------------------------------------------------------------------
Hyper CD-30x Module - Provides access time as low as 10.5 ms and $5,300-$86,500
data transfer rate of 4,500KB/sec.
- Includes intelligent SCSI adapter designed
to migrate CD-ROM images onto the embedded
FAST-SCSI hard drive, providing 30x
performance.
- Supports most operating systems.
- Allows up to 41GB of information to be
distributed over a network via 12, 18 and 63
CD-ROMs.
- ---------------------------------------------------------------------------------------------
CD FORCE 14, 21 and 63 - Enables cross-platform CD-ROM access by $10,300-$83,300
embedding Procom's proprietary storage
management software within its CD Servers.
- Provides direct connect features to
heterogeneous networking environments.
- Operates independently of the network
operating system.
- Includes scalable architecture and
multi-protocol access.
- Allows up to 41GB of information to be
distributed over a network via 12, 18 and 63
CD-ROMs.
- Provides advanced security and metering
options.
- Includes embedded Pentium-based server to
improve overall performance.
- Supports Ethernet, Fast Ethernet, FDDI and
Token Ring connectivity.
- Available in 4x, 8x and 30x configurations.
- ---------------------------------------------------------------------------------------------
</TABLE>

The Company also produces CD-ROM publishing and recording packages as part
of its strategy to capitalize on the use of CD-ROM as a popular information
storage medium for a number of industries. Procom's internal and external
CD-Recorders are designed to meet the archiving needs of desktop computer users.

Disk Drive Upgrades

The Company remains committed to supplying products that enhance the
performance and capacity of notebook and desktop computers, as well as network
servers. The addition of a single high-capacity hard disk drive subsystem to a
network server adds several gigabytes of storage capacity and improves overall
speed and performance. A complete installation kit is included with each hard
disk drive for easy integration. Several hard disk drives can be combined to
enable data to be spanned, striped or mirrored in a variety of configurations.
Due to the increase in the popularity of notebook computers, sales of the
Company's ATOM notebook upgrade drive kits constituted 14% of net sales in
fiscal 1996 and 19% of net sales in the first quarter of fiscal 1997.

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Certain information with respect to the Company's hard disk drive storage
upgrade products is set forth below:

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
APPROXIMATE
PRODUCT LINE KEY FEATURES RETAIL PRICE
- -----------------------------------------------------------------------------------------------
ATOM - Includes internal 2.5 inch IDE hard drives. $350-$1,100
- Ranges in capacity from 500MB to 2.1GB.
- Equipped with all necessary components required for
installation.
- Compatible with most popular notebook computers.
- -----------------------------------------------------------------------------------------------
SI - High-performance internal FAST SCSI hard drives. $250-$3,650
- Ranges in capacity from 540MB to 9GB.
- Equipped with all necessary components required for
installation.
- Compatible with most popular desktop computers, workstations
and servers.
- -----------------------------------------------------------------------------------------------
MD - High-performance external FAST SCSI hard drives. $400-$5,900
- Ranges in capacity from 540MB to 18GB.
- Equipped with all necessary components required for
installation.
- Compatible with most popular workstations and servers.
- -----------------------------------------------------------------------------------------------
PR-IDE - Includes Internal 3.5 inch IDE hard drives with software. $250-$550
- Ranges in capacity from 500MB to 2.5GB.
- Equipped with all necessary components required for
installation.
- Compatible with most popular desktop computers and
workstations.
- -----------------------------------------------------------------------------------------------
</TABLE>

The Company also offers CD-ROM drives for stand-alone desktop applications
and a variety of other storage peripheral products.

RAID and Tape Backup Subsystems

The Company's RAID products present a solution to the storage and
input/output ("I/O") speed, capacity and reliability challenges presented by
network computing. RAID is a method of distributing data in stripes across
several hard disk drives, allowing the microprocessor to access those drives
simultaneously, thus increasing storage system I/O performance. RAID solutions
generally reduce bottlenecks that occur in non-RAID environments when multiple
users access data simultaneously. In addition, RAID configurations can provide a
high degree of fault tolerance because they continuously calculate and store a
unique parity, using logic to accompany each data stripe. If any drive fails,
the remaining drives in the system may use the parity value to reconstruct the
data on the failed drive, thus ensuring the immediate availability of RAID
protected data even in the event of a disk drive failure.

RAID is available in several levels that differ in the ways they allocate
data for storage and achieve fault tolerance. End users of RAID products select
the appropriate RAID level depending on overall cost and performance for their
particular requirements. Often, the user's actual application will dictate the
appropriate level of data access, fault tolerance and redundancy desired. For
example, applications such as on-line processing of financial transactions
require instantaneous access to multiple disks, while multimedia or video-
on-demand applications generally require single-user access, but at a
significantly higher data transfer rate. The Company offers RAID products for
all commonly used RAID levels for most hardware platforms and network
environments. In addition, the Company also designs and sells tape backup
storage solutions for a variety of computing environments to provide an
additional level of protection for mission-critical data.

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<PAGE> 35

Certain information with respect to the Company's high capacity fault
tolerant RAID and tape storage systems is set forth below:

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
APPROXIMATE
PRODUCT KEY FEATURES RETAIL PRICE
- ----------------------------------------------------------------------------------------------
LANForce - Provides storage capacities up to 56GB. $8,900-$33,800
- Includes redundant components to reduce system
failures.
- Operating system independent.
- Hardware-based RAID solution frees host computer
from RAID management tasks.
- Supports varying levels of RAID.
- Offers optional cache memory to increase I/O
performance.
- ----------------------------------------------------------------------------------------------
RAID RAX - Provides all LANForce features. $34,400-$144,200
- Provides storage capacity from 50GB to over 1
terabyte.
- Available in rack-mounted configuration that
allows flexibility for expansion as storage needs
increase.
- Accommodates both 3.5 inch and 5.25 inch drive
shuttles concurrently.
- Accepts multiple host inputs.
- ----------------------------------------------------------------------------------------------
DLT Tape Drive - Digital linear tape backup up to 280GB. $4,000-$13,500
- Provides cost-effective method of unattended
backup.
- Compatible with most major backup software.
- ----------------------------------------------------------------------------------------------
</TABLE>

Products Under Development

The Company's product development priorities are aimed at meeting the
growing market demand for complete storage solutions that are capable of
addressing the evolving needs and challenges associated with distributed network
computing. Current product development efforts focus on developing and
integrating the Company's own proprietary software as a value-added component of
the Company's complete storage solutions. The Company is continuing to enhance
MESA, to address the growing complexity of network data storage management that
has resulted from increases in heterogeneous network computing environments and
the amount and complexity of data. The MESA client/server storage management
architecture incorporates an embedded operating system designed to centralize
data storage management services, and thereby reduce administrative costs
associated with data storage management. MESA's operating system software
furnishes it with non-intrusive plug and play compatibility with most popular
network operating systems, allowing products incorporating the MESA architecture
to be installed by simply connecting one cable to the network. The
multi-platform support provided by MESA will enable client workstations to use
their own operating systems and still benefit from the functionality of MESA
without any additional software. The central processing unit contained in each
MESA-equipped server is designed to allow the server to manage and process data
without burdening the network server. MESA is being designed to provide a
cost-effective storage management solution that supports heterogenous
client/server computing environments, is scalable to support networks and allows
clients using multiple operating systems to access simultaneously a single
storage system. MESA-equipped products enable systems administrators to manage
CD-ROM storage systems and are being designed to manage other storage systems
either locally or remotely and provide administrators with the ability to
monitor and restrict access by end users within the network. The Company's
recently released CD FORCE server incorporates the Company's MESA architecture
and is designed to centralize data management storage services for information
contained on CD-ROM. See "-- CD Servers and Arrays." No assurances can be given,
however, that the Company will be successful in any of its product development
efforts or that, even if

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<PAGE> 36

successfully developed, the Company's products will achieve timely market
acceptance. See "Risk Factors -- Rapid Technological Change; Short Product Life
Cycles" and "-- Research and Development."

CUSTOMERS AND APPLICATIONS

The Company sells its products principally to computer resellers, VARs and
distributors, which in turn sell to end users of the Company's products. During
fiscal 1996 and the first quarter of fiscal 1997, combined sales to Vanstar
Corporation, Intelligent Electronics Inc. and Entex Information Services Inc.
totalled approximately 26.0% and 25.4%, respectively, of net sales. The loss of
any of these customers could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Risk
Factors -- Customer Concentration; Distribution Strategy Risks; Inventory
Protection."

End users of the Company's products include Fortune 500 corporations,
government agencies and financial and educational institutions. The following
table lists certain end users of the Company's products.

<TABLE>
<S> <C> <C>
INDUSTRIAL GOVERNMENT LEGAL AND ACCOUNTING
United Airlines Executive Office of the President Cravath Swaine & Moore
Exxon US Navy Weil Gotshal & Manges
Mitsubishi Los Angeles City Attorney Ernst & Young LLP
Lockheed Los Angeles County Recorder Price Waterhouse LLP
Gilette U.S. Public Defender Clark Hill PLC
Hoechst Celanese Veterans Administration

EDUCATION TELECOMMUNICATIONS TECHNOLOGY
George Washington University AT&T EDS
Boston University MCI IBM
UCLA Pacific Bell Microsoft
UC Davis Law School US West Wang
Southwestern Bell Sybase
ENTERTAINMENT
20th Century Fox FINANCIAL SERVICES
Buena Vista Home Video Bank One
California State Lottery Prudential
McGraw Hill American Express
Walt Disney
</TABLE>

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<PAGE> 37

SALES AND MARKETING

The Company's strategy is to deploy a comprehensive sales, marketing and
support infrastructure to meet the data storage and information access
requirements of users of complex client/server networks, both in the U.S. and
internationally. The Company uses multiple distribution channels to reach end
user customers. In the United States, the Company has agreements with and sells
its products through domestic computer aggregators such as Intelligent
Electronics Inc. and Inacom Corporation, as well as smaller independent VARs and
computer resellers. The Company also sells its products to computer resellers
that function as corporate computer consultants to large corporations,
educational institutions and governmental agencies, and maintains sales
agreements with many of these consultants. These corporate computer consultants
include AmeriData, Inc., Electronic Data Systems Corporation, Entex Information
Services, Vanstar Corporation and others. Often these entities, and many of the
Company's other customers, consult with end users of the Company's products in
business and government, and then incorporate the Company's products into larger
overall enterprise solutions. The Company recently reached an agreement with
Tech Data Corporation, a computer products distributor, to sell the Company's
products nationally. Outside the United States, the Company's products are sold
through approximately 40 major distributors in a number of countries throughout
the world. See "Risk Factors -- Customer Concentration; Distribution Strategy
Risks; Inventory Protection."

The Company has agreements with many of its computer resellers, VARs and
distributors relating to purchases of the Company's products. These agreements
do not provide the Company with any guaranteed levels of purchases. The Company
frequently grants limited rights to customers to return products purchased from
the Company, in some cases in exchange for new purchases, and also provides
price protection to its customers. The short product life cycles of the
Company's products and the difficulty in predicting future sales increase the
risk that new product introductions, price reductions by the Company or its
competitors or other factors affecting the personal computer and upgrade storage
industries could result in significant product returns. In addition, new product
introductions by the Company's suppliers or its competitors or other market
factors may require the Company to reduce prices in a manner or at a time that
gives rise to significant price protection charges. The Company estimates
returns and potential price protection charges based on historical experience
and accrues reserves therefor. However, these accruals may prove insufficient,
and future returns and price protection charges may have a material adverse
effect on the Company's business, financial condition and results of operations,
particularly in light of the rapid product obsolescence that often occurs during
product transitions. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

Historically, the Company enjoyed a relatively short sales cycle due to the
low cost of its disk drive upgrade products. The typical sales cycle, from the
time an end user contacted a reseller to the shipment by the Company of the
desired product, often took less than one week. However, as the Company's
product mix has shifted to increasingly complex and higher priced data storage
and information access solutions, the Company's sales cycle has lengthened
significantly. Because Procom's CD servers and arrays and RAID storage and
access systems often represent a significant expenditure for end users, these
users frequently require the approval of several individuals within their
organization before placing purchase orders. In addition, the complexity of the
Company's storage and RAID storage access solutions often require the Company to
demonstrate its products for end users, further lengthening the sales cycle. In
response to increasing demand from end users, the Company has instituted an
evaluation program that provides for a specified period in which end users may
install and evaluate the Company's products. Evaluation units are not booked as
revenue until the Company has received payment for such units. During fiscal
1996, approximately half of all evaluation units were purchased at the end of
their trial period.

The Company maintains a sales and sales support staff that at October 25,
1996 consisted of 48 people, substantially all of whom were located at the
Company's principal offices in Irvine, California. The Company's sales are made
to computer resellers, VARs and distributors through telemarketing efforts by
sales representatives. The Company has recently hired its first U.S. field sales
representative and is considering the implementation of a field sales force in
various cities throughout the U.S. In addition, the Company has recently added
independent sales representatives in Canada, France and Germany. The field sales
representatives provide, among other things, regional technical support for
customers, perform product demonstrations and, where desirable, accompany
computer resellers and VARs on sales calls with end users. The Company

37
<PAGE> 38

intends to expand the number of its international sales representatives. The
Company also intends to add additional international distributors in targeted
countries and is developing joint marketing relationships with certain
distributors. For fiscal 1995, 1996 and the first quarter of fiscal 1997,
international sales represented approximately 14%, 11% and 8%, respectively, of
the Company's net sales. See "Risk Factors -- Risks of International Sales and
Operations."

The Company's marketing group, as of October 25, 1996, consisted of 12
persons engaged in a number of activities designed to help the Company achieve
better market recognition and ultimately increased sales. This group's
responsibilities include (i) advertising in magazines targeted to specific
markets, (ii) conducting various promotional programs with the Company's
computer resellers, VARs and distributors, including cooperative advertising
arrangements and special programs where employees of the Company's computer
resellers, VARs and distributors can earn cash awards for their efforts in
recommending or selling the Company's products to end users, (iii) coordinating
the Company's participation in various trade shows, including COMDEX and
specific vertical applications shows such as LegalTech and (iv) cooperating with
publishers and authors of industry magazines in the testing and review of the
Company's products since market acceptance of each new generation of products is
influenced significantly by reviews in leading computer industry magazines and
related awards.

CUSTOMER SERVICE AND SUPPORT

The Company employs engineers and technicians who work closely with the
Company's sales personnel to assist computer resellers, VARs and distributors
and end users with pre- and post-sales support matters, as well as to provide
customers with technical support, education, training and consulting services.
The Company's customer service and technical support staff at October 25, 1996
consisted of approximately 12 people located in Irvine, California. Customer
service personnel provide customer service through software driver updates,
upgrade programs and warranty service. Technical support personnel assist end
users and distributors by telephone, facsimile and on-line services, including
24-hour bulletin board services and World Wide Web sites, in the installation,
configuration and use of the Company's products. The Company also relies on its
computer resellers, VARs and distributors to provide technical support and
service. In November 1995, the Company signed an agreement with Siemens Nixdorf
Information Systems, a national provider of computer technical services
("Siemens"), to provide on-site installation and service to end users of its
high capacity CD servers and arrays. By contracting with Siemens, which has many
offices located throughout the U.S., the Company believes it should be able to
offer a rapid response to end user technical problems throughout the country.
The Company expects that its return rates resulting from technical problems will
decrease as Siemens field representatives demonstrate effective installation and
service methods at customer sites. The Company offers warranties on its products
ranging from one to five years. The Company's primary warranty efforts consist
of accepting defective products from customers and either repairing them or
returning the defective component to the original manufacturer for repair or
replacement during the applicable warranty period. The Company generally
protects itself by extending to its customers a warranty that corresponds to the
warranty provided to the Company by its suppliers. However, if a supplier were
to fail to meet its warranty obligations, the Company would be forced to assume
responsibility for warranties on all components manufactured by that supplier.
Such an event could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Risk Factors -- Warranty
Exposure."

RESEARCH AND DEVELOPMENT

The Company believes that continued investment in research and development
is critical to the Company's ability to continue to introduce, on a timely basis
and at competitive prices, new and enhanced products incorporating the latest
technology and addressing emerging market needs. The Company's research and
development staff consisted of 34 employees as of October 25, 1996, which
includes software and hardware engineers and software quality assurance
technicians. Research and development expenses, primarily consisting of
personnel expenses, were $1.0 million, $1.1 million and $1.6 million in fiscal
1994, 1995 and 1996, respectively, constituting 2.8%, 2.5% and 2.2% of net
sales, respectively and were $0.3 million and $0.7 million in the first quarter
of each of fiscal 1996 and 1997, respectively, constituting 1.9% and 2.8% of net

38
<PAGE> 39

sales for these periods, respectively. The Company anticipates that the dollar
amount of its research and development expenses will increase and that such
expenses also may increase as a percentage of net sales with the addition of
dedicated engineering resources to develop new product categories, to ensure
that the Company's products are compatible with a wide range of hardware
platforms and network topologies, and to develop additional software associated
with the Company's MESA architecture, allowing the Company to develop servers
that support not only CD-ROM, but also hard disk drive and magnetic tape storage
media. The Company's hardware and software engineers are engaged in ongoing
development of new storage subsystems that offer increasing storage capacity and
compatibility with an expanding base of computer networks and operating systems.
See "-- Products and Technology -- Products Under Development." There can be no
assurance that the Company's development efforts will be successful, or that the
Company will be able to introduce competitive new products in a timely manner.

The market for the Company's products is characterized by frequent new
product introductions and rapid product obsolescence. These factors typically
result in short product life cycles, historically ranging from six to twelve
months. For example, the data transfer rate of CD-ROM products has increased
rapidly, resulting in the introduction of four, eight, ten and twelve speed
CD-ROMs. Similar technological advances have been made with regard to disk drive
storage capabilities and other performance standards. Each new product cycle
presents new opportunities for current or prospective competitors of the Company
to gain market share. The Company must continually monitor industry trends in
selecting new technologies and features to incorporate into its products. If the
Company is unable to successfully introduce new products on a timely basis, the
Company's sales could be adversely affected. Any such failure also could impair
the Company's brand name and the Company's ability to command the attention and
loyalty of computer resellers, VARs and distributors in future periods.
Moreover, because short product life cycles are accompanied by long lead times
for many components of the Company's products, the Company may be unable to
reduce or increase production in response to unexpected demand.

The Company's ability to introduce new products in a timely manner is
heavily dependent on its ability to develop or purchase firmware and software
drivers for its CD-ROM and disk drive products. While the Company endeavors to
work with its component suppliers to plan for the timing of introduction of new
components and to develop the associated firmware and software, unforeseen
design issues or other factors that delay introduction of these products could
adversely affect the Company's ability to ship new products. In addition, third
party suppliers may not employ adequate testing and quality assurance
procedures, resulting in the receipt by the Company of defective components.
This could require the Company to find replacement components or wait for the
resolution of the problem, either of which could delay the Company's ability to
bring products to market and have a material adverse effect on the Company's
business, financial condition and results of operations. The Company's business
also will be adversely affected if new disk drives, CD-ROM drives or other
components that it selects from among those offered by its various vendors do
not perform favorably on a cost or performance basis compared to competing
products. In addition, products and technologies developed by competitors may
render the Company's products and technologies noncompetitive or obsolete.
Finally, advances in network and on-line technology and development of new,
higher-capacity storage media such as DVD may result in a reduction or
replacement of CD-ROM as a data storage and information access medium. If the
Company is unable to adapt to these and other technological advances by
developing new products, the Company's financial performance would be materially
adversely affected. See "Risk Factors -- Substantial Competition" and "-- Rapid
Technological Change; Short Product Life Cycles."

MANUFACTURING

The Company's primary manufacturing activities, located at the Company's
headquarters in Irvine, California, consist of testing, assembling and
integrating components to form data storage and information access subsystems.
The Company has historically operated without a material backlog. The Company
generally purchases the major components of such subsystems (hard disk drives,
CD-ROM drives or tape drives) based on historical requirements and forecasted
needs to provide it with two to three weeks of inventory. Some of the Company's
products require printed circuit boards, the assembly of which the

39
<PAGE> 40

Company often subcontracts to third party vendors. The Company's CD servers and
arrays generally require a special housing of either metal or plastic, and the
Company contracts with third party vendors for the manufacture of those housing
units. The Company performs quality assurance testing on most of its products
and subjects third-party supplied components to testing and evaluation before
including such components in the Company's product offerings. The Company
packages the assembled hard disk drives, CD-ROM drives and tape backup drives
with software, manuals and additional hardware components, which it generally
purchases from third party suppliers. The Company relies on a network of
independent subcontractors to supply certain custom components manufactured to
the Company's specifications. This network consists of a number of small firms
with limited financial resources. While the Company utilizes several firms to
mitigate the risk of business interruption, it is possible that several vendors
could simultaneously experience problems with production or financial stability,
which could have a material adverse effect on the Company's business, financial
condition and results of operations.

The Company relies on a small number of suppliers to continue to develop,
introduce and manufacture disk drives, CD-ROM drives and other components that
incorporate new technologies and features that compete favorably in
functionality and price with the offerings of other disk drive and CD-ROM
manufacturers, including competitors of the Company. The Company's dependence on
these sole or limited source suppliers, and the risks associated with any delay
or shortfall in supply, are exacerbated by the short life cycles that
characterize the Company's products. Any delay in the introduction by or
availability of disk drives or CD-ROM drives from the Company's suppliers or the
failure of such suppliers to provide functionality and performance on a cost
effective basis could have a material adverse effect on the Company's business,
financial condition and results of operations. Furthermore, it is possible that
the technology of the components the Company uses in manufacturing its products
will be rendered undesirable or obsolete by the components of other suppliers.
The Company would then be forced to establish relationships with new suppliers,
which could delay or preclude the Company from bringing competitive products to
market and have a material adverse effect on the Company's business, financial
condition and results of operations. See "Risk Factors -- Rapid Technological
Change; Short Product Life Cycles" and "-- Component Shortages; Reliance on Sole
or Limited Source Suppliers."

COMPETITION

40
<PAGE> 41

to a number of factors, including lower taxes and substantially lower costs of
labor associated with international operations. Finally, manufacturers of disk
drives such as Seagate Technology Inc., IBM, Quantum Corporation and Western
Digital Corporation, and manufacturers of CD-ROM drives, such as Toshiba, NEC
Corporation and Plextor Corporation, may in the future become more direct
competitors of the Company to the extent that such manufacturers elect to expand
into the disk drive upgrade market or the CD server and array market.

The Company's primary competitors in the CD server and array market consist
of (i) CD array manufacturers such as Microtest, Inc., Meridian Data, Inc. and
Micro Design, Inc., which also furnish CD-ROM management software with their CD
array products, (ii) a number of hardware aggregators, computer resellers and
VARs that sell CD server products directly to end users, and (iii) various CD
server and array manufacturers. The Company believes that it competes
effectively in the CD server and array market by maintaining relationships with
computer resellers and VARs that possess key relationships with decision makers
at end users, while at the same time developing brand name identity through end
user marketing and advertisements.

The Company's primary competitors in the disk drive upgrade market are (i)
computer manufacturers that also market and sell storage upgrades, such as IBM,
Compaq and Hewlett-Packard, (ii) companies that specialize in reselling
replacement or increased capacity storage disk drives, such as Storage
Dimensions Inc. or Ameriquest Technologies, Inc., and (iii) various national
distributors of third party upgrade drives such as Ingram Micro Inc., Merisel
Inc. and Tech Data Corporation. The Company believes it competes effectively
against each of these three classes of competitors in the disk drive upgrade
market by offering a broad range of reasonably priced storage upgrade products
to its computer resellers, VARs and distributors throughout the U.S. and
worldwide.

The Company's primary competitors in the RAID product market are (i)
computer manufacturers, such as IBM, Compaq and Hewlett-Packard, which generally
focus on providing storage upgrades for their products and (iii) companies that
sell storage solutions directly to end users, such as EMC Corporation and
Storage Technology Corporation. These direct sales competitors historically have
focused their efforts on sales of high capacity storage products in the
mainframe and minicomputer environments. In addition, the Company competes with
many smaller enterprises that provide and sell unique solutions to various
computer users. The Company believes that its relationships with computer
resellers, VARs and distributors provide it with a competitive advantage over
those manufacturers that have in the past sold high capacity storage systems
directly to end users.

The Company's success depends to a great extent on its ability to continue
to develop products that incorporate new and rapidly evolving technologies to
provide network users cost-effective data storage and information access
solutions. However, to the extent that disk drive storage or information access
products become more of a commodity, price competition among both computer
manufacturers and suppliers of disk drives and CD-ROM drives may result in the
availability of such storage and access at a low cost. These factors could
create increased competition for the Company's products which could cause the
Company to experience reduced gross profit margins on its products and could
have a material adverse effect on the Company's business, financial condition
and result of operations. The Company believes that the principal competitive
factors in the Company's markets are product reliability, price/value
relationship, product features and performance, brand name recognition, trade
periodical reviews, time to market with new features and products, industry
relationships, ease of installation and use, the quality of distribution
channels, product quality, technical support and customer service.

The Company believes that its brand name recognition allows the Company to
remain competitive in the network storage solutions aftermarket and the CD
server and array markets, and that the Company generally competes effectively
with respect to the other competitive factors enumerated above. See "Risk
Factors -- Substantial Competition" and "-- Rapid Technological Change; Short
Product Life Cycles."

41
<PAGE> 42

INTELLECTUAL PROPERTY

The Company relies primarily on a combination of copyright and trade secret
protections and confidentiality agreements to establish and protect its
intellectual property rights. The Company has no patent protection for its
current product line. There can be no assurance that the Company's measures to
protect its intellectual property rights will deter or prevent unauthorized use
of the Company's technology. In addition, the laws of certain foreign countries
may not protect the Company's intellectual property rights to the same extent as
the laws of the United States. The Company's inability to protect its
proprietary rights in the United States or internationally may have a material
adverse effect on the Company's business, financial condition and results of
operations.

EMPLOYEES

As of October 25, 1996, the Company had 186 full-time employees, 55 of whom
were engaged in manufacturing (including testing, quality assurance and
materials functions), 34 in engineering and product development, 60 in sales and
marketing, 12 in customer service and technical support, and 25 in finance and
administration. The Company's employees are not represented by any collective
bargaining agreements, and the Company has never experienced a work stoppage.
The Company believes that its employee relations are good. The Company's success
depends to a significant extent upon the continued service of its executive
officers and other key management and technical personnel. See "Risk
Factors -- Dependence on Key Personnel."

FACILITIES

The Company leases approximately 81,000 square feet of space in Irvine,
California for its corporate offices and operations. The property is leased by
the Company under a lease expiring in July 1998. The Company has an option to
extend the lease for an additional four months. The Company believes that its
existing facilities will be adequate to meet its facilities requirements through
July 1998.

42
<PAGE> 43

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The executive officers and directors of the Company as of October 25, 1996
were as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------ --- ----------------------------------------------------------------
<S> <C> <C>
Alex Razmjoo 34 Chairman of the Board, President and Chief Executive Officer
Frank Alaghband 33 Executive Vice President, Operations, and Director
Alex Aydin 34 Executive Vice President, Finance and Administration, and
Director
Nick Shahrestany 33 Executive Vice President, Marketing and Information Technology,
and Director
Frederick Judd 38 Vice President, Finance and General Counsel
Richard W. Ormond 44 Vice President, Marketing and Corporate Relations
Sam Inman(1)(2) 45 Director
Sam Yau(1)(2) 47 Director
</TABLE>

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

(1) Member of the Audit Committee.

(2) Member of the Compensation Committee.

All directors hold office until the next annual meeting of shareholders or
until their successors have been elected and qualified. Officers serve at the
discretion of the Board of Directors (the "Board") and are appointed annually,
subject to the terms of their employment agreements. There are no family
relationships between the executive officers or directors of the Company.

Mr. Razmjoo is one of the Company founders and has served as its Chairman
of the Board, President and Chief Executive Officer since 1987. From 1984 to
1987, Mr. Razmjoo served as Director of Engineering of CMS Enhancements, Inc. He
received a B.S. degree in Electrical Engineering in 1985 from the University of
California, Irvine.

Mr. Alaghband is one of the Company founders and has served as its
Executive Vice President, Operations and as a director since 1987. From 1984 to
1987, Mr. Alaghband served as a Systems Engineer in the Computer Systems
Division of McDonnell Douglas. He received a B.S. degree in Electrical
Engineering in 1985 from the University of California, Irvine.

Mr. Aydin is one of the Company founders and has served as the Company's
Executive Vice President, Finance and Administration and as a director since
1987. From December 1984 to August 1987, Mr. Aydin served as a Product
Development Engineer for Toshiba America, Inc. He received dual B.S. degrees in
Electrical Engineering and Biological Sciences in 1984 from the University of
California, Irvine and a M.S. degree in Biomedical Engineering in 1985 from
California State University, Long Beach.

Mr. Shahrestany is one of the Company founders and has served as its
Executive Vice President, Marketing and Information Technology and as a director
since 1987. From 1985 to 1987, Mr. Shahrestany served as Regional Sales Manager
of CMS Enhancements, Inc. He received a B.S. degree in Biological Sciences with
a minor in Electrical Engineering in 1984 from the University of California,
Irvine.

Mr. Judd has served as the Company's Vice President, Finance and General
Counsel since joining the Company in November 1993. Mr. Judd was General Counsel
for CMS Enhancements, Inc. from February 1992 to November 1993. From April 1987
to February 1992, Mr. Judd served as the Chief Financial Officer and Treasurer
of CMS Enhancements, Inc. Mr. Judd received a B.S. degree in Accounting in 1980
from Arizona State University and a J.D. degree in April 1985 from Brigham Young
University. Mr. Judd is a certified public accountant and is licensed to
practice law in California and Arizona.

Mr. Ormond has served as the Company's Vice President, Sales and Marketing
since October 1996. Mr. Ormond was a principal of Regis McKenna, Incorporated, a
management consulting company, from October 1990 to October 1996. Prior to April
1990, Mr. Ormond held various executive positions with

43
<PAGE> 44

MiniScribe Corporation, a computer manufacturer that filed a petition under the
federal bankruptcy laws in January 1990. He received a B.A. in 1974 from the
University of Notre Dame, and an M.B.A. in 1977 from the University of Southern
California.

Mr. Inman has served as a director since October 1996. Mr. Inman has been
the Chief Executive Officer of Centura Software Corp. since January 1996. Mr.
Inman served as President and Chief Operating Officer of Centura Software Corp.
from April 1995 until January 1996. Immediately prior to joining Centura
Software Corp., Mr. Inman served as an independent consultant to a number of
high technology companies from 1994 until April 1995. Mr. Inman served as
President and Chief Operating Officer of Ingram Micro Inc., a worldwide
distributor of microcomputer products, from 1993 to 1994. Prior to assuming this
position, Mr. Inman served as President of IBM's Personal Computer Company for
the Americas from July 1992 to September 1993, President of IBM's National
Distribution Division from March 1991 to July 1992, Director for IBM's
Enterprise Systems Marketing Division from November 1988 to March 1991, and
prior to this he served in various other positions within IBM. Mr. Inman
received a B.S. degree in Mathematics from Purdue University.

Mr. Yau has served as a director since October 1996. Mr. Yau has been a
director and the President and Chief Executive Officer of National Education
Corporation, a provider of proprietary educational programs, since May 1995.
From May 1993 to November 1994, Mr. Yau was the Chief Operating Officer of
Advacare, Inc., a medical management company. From May 1987 to May 1993, Mr. Yau
was the Senior Vice President of Finance and Administration of Archive
Corporation, now part of Seagate Technologies Inc., a computer storage company.
He is a director of Steck Vaughn Publishing Corporation and Milcom International
Inc. Mr. Yau received a B.S. degree in Economics from the University of Hong
Kong and an M.B.A. from the University of Chicago.

BOARD COMMITTEES

The Board formed a Compensation Committee and an Audit Committee in October
1996. Each committee is comprised of Messrs. Yau and Inman, the outside
directors of the Company. Prior to such date, there were no committees of the
Board. The Compensation Committee makes recommendations to the Board concerning
salaries and incentive compensation for the Company's officers and employees and
administers the Company's 1995 Stock Option Plan. The Audit Committee reviews
the results and scope of the audit and other accounting-related services and
evaluates the Company's internal audit and control functions.

DIRECTOR COMPENSATION

Directors who are not compensated as employees of or consultants to the
Company receive a $6,000 annual retainer fee, a fee of $2,000 per board meeting,
a fee of $500 for service on any committee and reimbursement of expenses
incurred in attending Board meetings. In October 1996, Messrs. Yau and Inman
were each granted stock options under the 1995 Stock Option Plan to purchase
9,000 shares of the Company's Common Stock with an exercise price equal to $8.33
per share.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Compensation Committee of the Board consists of Messrs. Yau and Inman.
No member of the Compensation Committee or executive officer of the Company has
a relationship that constitutes an interlocking relationship with executive
officers or directors of another entity.

LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS

The Company has adopted provisions in its Articles of Incorporation that
limit the liability of its directors for monetary damages arising from a breach
of their fiduciary duties as directors to the fullest extent permitted by the
California Corporations Code. The Company's Bylaws provide that the Company must
indemnify its directors and officers to the fullest extent permitted by the
California Corporations Code. The Company also has entered into indemnification
agreements with its executive officers and directors and expects to obtain
officer and director liability insurance with respect to certain liabilities.
See "Description of Capital Stock -- Limitation of Liability of Directors and
Indemnification of Directors and Officers."

44
<PAGE> 45

EXECUTIVE COMPENSATION

The following table shows the compensation earned in fiscal 1996 by each of
the Company's executive officers at the end of fiscal 1996 (collectively, the
"Named Executive Officers").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION ------------
--------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) COMPENSATION($)(1) OPTIONS(#) COMPENSATION($)(2)
- ------------------------------- -------- -------- ------------------ ------------ ------------------
<S> <C> <C> <C> <C> <C>
Alex Razmjoo................... $193,608 $737,500 $5,101 -- $7,470
Chairman, President and CEO
Frank Alaghband................ 193,608 737,500 9,959 -- 7,470
EVP-Operations
Alex Aydin..................... 193,608 702,500 4,217 -- 7,470
EVP-Finance & Admin.
Nick Shahrestany............... 193,608 712,500 6,580 -- 8,160
EVP-Marketing & Info. Tech.
Frederick Judd................. 84,000 43,371 -- 9,600 --
VP-Finance & General
Counsel
</TABLE>

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

(1) Reimbursement of various personal expenses included in the executive
officer's taxable income and, in the case of Mr. Alaghband, the portion of
certain car lease payments considered as personal.

(2) Represents life insurance premiums paid by the Company.

The Company granted no stock options and no stock options were exercised
through the end of fiscal 1995. The following table summarizes option grants
during fiscal 1996 to each of the Named Executive Officers:

OPTION GRANTS IN FISCAL 1996

<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE AT
INDIVIDUAL GRANTS ASSUMED ANNUAL
------------------------------------------------------------------- RATES OF STOCK
NUMBER OF PERCENT OF TOTAL PRICE APPRECIATION
SECURITIES OPTIONS GRANTED TO FOR OPTION TERM(2)
UNDERLYING OPTIONS EMPLOYEES IN EXERCISE EXPIRATION -------------------
NAME GRANTED(#) FISCAL 1996(%) PRICE ($/SH) DATE 5% 10%
- --------------------- ------------------ ------------------ ------------ ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Alex Razmjoo......... -- -- -- -- -- --
Frank Alaghband...... -- -- -- -- -- --
Alex Aydin........... -- -- -- -- -- --
Nick Shahrestany..... -- -- -- -- -- --
Frederick Judd....... 9,600(1) 4.1% $ 2.50 9/15/05 $132,384 $225,024
</TABLE>

- ---------------
(1) The option vests in 25% installments on each anniversary of the date of
grant. In November 1993, Mr. Judd was also granted an option by Mr. Aydin to
purchase 90,000 shares of the Company's Common Stock owned by Mr. Aydin. The
exercise price of the option is $0.35 per share, which was the estimated
fair market value of the Company's Common Stock on the date of grant.

(2) This column shows the hypothetical gains or "option spreads" of the options
granted based on both the fair market value of the Common Stock for
financial reporting purposes and assumed annual compound stock appreciation
rates of 5% and 10% over the full 10-year term of the options. The 5% and
10% assumed rates of appreciation are mandated by the rules of the
Securities and Exchange Commission and do not represent the Company's
estimate or projection of future Common Stock prices. The gains shown are
net of the option exercise price, but do not include deductions for taxes or
other expenses associated with the exercise of the option or the sale of the
underlying shares. The actual gains, if any, on the exercises of stock
options will depend on the future performance of the Common Stock, the
option holder's continued employment through the option period, and the date
on which the options are exercised.

45
<PAGE> 46

The following table summarizes the value of options held at July 26, 1996
by the Named Executive Officers. There were no options exercised by the Named
Executive Officers during the fiscal year ended July 26, 1996.

FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
JULY 26, 1996 (#) JULY 26, 1996 ($)(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Alex Razmjoo..................................... -- -- -- --
Frank Alaghband.................................. -- -- -- --
Alex Aydin....................................... -- -- -- --
Nick Shahrestany................................. -- -- -- --
Frederick Judd................................... -- 9,600 -- $25,632
</TABLE>

- ---------------
(1) The amounts set forth represent the difference between the estimated fair
market value of $5.17 per share as of July 26, 1996 and the exercise price
of the options, multiplied by the applicable number of shares underlying
the options.

EMPLOYEE BENEFIT PLANS

1995 Stock Option Plan

In September 1995, the Board adopted and the Company's shareholders
approved the 1995 Stock Option Plan, as amended (the "1995 Plan"), and reserved
540,000 shares of Common Stock for issuance thereunder. The 1995 Plan provides
for the grant to employees of the Company of incentive stock options within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), and for the grant to employees, directors, and consultants of the
Company of nonstatutory stock options. As of October 25, 1996, options to
purchase an aggregate of 271,800 shares were outstanding under the 1995 Plan
(47,888 of which were vested), and an aggregate of 268,200 additional shares
remained available for additional grants.

The 1995 Plan may be administered by the Board or a committee approved by
the Board. Currently, the 1995 Plan is administered by the Compensation
Committee of the Board, which determines the terms of options granted
thereunder, including the exercise price, number of shares subject to the option
and vesting schedule. Options granted under the 1995 Plan are not transferable
other than by will or the laws of descent or distribution, and each option is
exercisable during the lifetime of the recipient only by such person. Options
that are outstanding under the 1995 Plan will remain outstanding until they are
exercised or they expire in accordance with these terms. The exercise price of
all incentive stock options granted under the 1995 Plan must be at least equal
to the fair market value of a share of Common Stock on the date of grant. With
respect to any participant who owns stock possessing more than 10% of the voting
power of all classes of stock of the Company, the exercise price of any
incentive stock option granted must equal at least 110% of the fair market value
on the grant date and the maximum term of the option must not exceed five years.
The term of all other options granted under the 1995 Plan may not exceed ten
years. In the event the shareholders of the Company approve certain mergers or
consolidations, or the sale of substantially all of the business assets of the
Company or certain persons other than beneficial owners of greater than 5% of
the then outstanding voting power become the beneficial owner of more than 50%
of the voting power of the Company, unless prior to such event the Board
determines that there shall be either no acceleration or limited acceleration of
awards, each option outstanding under the 1995 Plan will become immediately
exercisable.

401(k) Plan

Effective August 1992, the Company adopted a tax deferred savings plan (the
"401(k) Plan") that covers all full-time employees over the age of 21 with more
than one year of service. An employee may

46
<PAGE> 47

contribute to the 401(k) Plan from 1% to 15% of his or her pretax compensation
not to exceed in any given year the maximum amount allowable under Internal
Revenue Service regulations. At the discretion of the Board, the Company may
elect to match up to 100% of an employee's contributions to the 401(k) Plan. The
Company is not obligated to make matching contributions, but has done so in the
past on a discretionary basis. The rates of pre-tax contributions may be reduced
with respect to highly compensated employees, as defined in the Code, so that
the 401(k) Plan will comply with Section 401(k) of the Code. Pre-tax
contributions are allocated to each employee's individual account, which is
invested in selected investment alternatives according to the direction of the
employee. An employee's pre-tax contributions are fully vested and
nonforfeitable at all times, while employer contributions to an employee's
account vest over a five-year period. An employee may also borrow from his or
her account. All vested benefits are generally distributed to employees upon
termination of employment. See Note 8 of Notes to Consolidated Financial
Statements.

EMPLOYMENT AGREEMENTS

The Company has employment agreements with Messrs. Razmjoo, Alaghband,
Aydin and Shahrestany. Each employment agreement has a three-year term with an
automatic renewal provision which provides that the agreement will perpetually
maintain a three-year term unless terminated. Pursuant to the agreements, each
officer receives an annual salary of not less than $225,000, which may at the
discretion of the Board be increased in light of performance, inflation or other
factors. Each officer is also entitled to receive an annual bonus based on the
Company's performance, awarded at the discretion of the Board based upon the
attainment of mutually agreed upon performance goals. Performance goals of the
Company for purposes of calculating bonus payments are not specified in the
employment agreements but rather are determined on a yearly basis by mutual
agreement between the Board and the officer. The bonuses received by Messrs.
Razmjoo, Alaghband, Aydin and Shahrestany in fiscal 1996 were based upon a
formula contained in each of their original employment agreements, as thereafter
modified among the parties, which provided for a bonus equal to 9.8%, 9.8%, 9.3%
and 9.5%, respectively, of the Company's earnings before taxes (and before
payment of such bonuses), not to exceed $750,000 per person. This provision
governing the calculation of bonuses was subsequently amended to provide for
bonuses based upon the attainment of mutually agreed upon performance goals as
described above. For purposes of calculating the bonuses of Messrs. Razmjoo,
Alaghband, Aydin and Shahrestany for fiscal 1997, the Board has not yet
established performance goals for the Company but expects to do so in
consultation with the Compensation Committee after the closing of the Offering.
Each officer is entitled to receive a monthly automobile allowance of $750 and
reimbursement of business expenses. The Company is required to maintain a life
insurance policy of $1 million for the benefit of each officer, and each officer
is entitled to participate in the other benefit programs of the Company
available to its executive officers. Each officer is entitled to an annual tax
preparation allowance of $1,000. If the Company terminates an officer's
employment without Cause (as defined in the employment agreement) or the officer
terminates his employment for Good Reason (as defined in the employment
agreement), the Company is obligated to provide certain benefits to the
terminated officer, including paying the officer 35 months base salary, subject
to Internal Revenue Code restrictions, a pro rata bonus for the year of
termination and the continuation for up to two years of all life insurance and
medical benefits.

On November 15, 1993, Mr. Judd joined the Company as Vice President,
Finance and General Counsel. Pursuant to the Company's employment agreement with
Mr. Judd, Mr. Judd's base salary is $84,000, and Mr. Judd can qualify for
performance-based bonuses of up to $32,000 per year which may be adjusted in the
future.

47
<PAGE> 48

CERTAIN TRANSACTIONS

The Company made product sales totaling $411,000 and $398,000 to an entity
owned by a relative of Mr. Razmjoo during fiscal 1994 and 1995, respectively. At
July 29, 1994, the Company had accounts receivable from this related party of
$323,000. As a result of an Executive Order issued in May 1995 related to
transactions with Iranian companies, the Company determined that amounts owed by
this entity might not be collectible in the near future and, accordingly, during
fiscal 1995, wrote off the outstanding balances owed to the Company by this
entity of approximately $251,000. As a result, at July 28, 1995, the Company had
no account receivable from this entity.

In fiscal 1995, the Company purchased $38,000 of CD-ROM software products
and $128,000 of software programming services from, and made cash advances
totalling $159,000 to, Softbit, Inc., an entity that is 90 percent owned by the
Founders and of which each of the Founders is a director and officer. At July
28, 1994 and July 28, 1995, the Company had a net receivable of $80,000 and
$181,000, respectively, from this entity. During fiscal 1996, the Company made
cash advances of approximately $93,000 to the entity, sold products valued at
approximately $2,000 to the entity and incurred expenses of approximately
$25,000 on behalf of the entity. At July 26, 1996, the Company had a net
receivable of $301,000 from the entity, and due to the financial position of the
entity, the Company determined that the receivable was uncollectible and wrote
off the entire amount.

The Company has entered into indemnification agreements with each of its
directors and executive officers. These agreements require the Company to
indemnify such individuals for certain liabilities to which they may be subject
as a result of their affiliation with the Company, to the fullest extent allowed
by law.

The Company has adopted a policy that transactions, other than compensation
matters, between the Company and its executive officers, directors and
affiliates, will be submitted to the Company's non-employee directors for
approval.

48
<PAGE> 49

PRINCIPAL AND SELLING SHAREHOLDERS

The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of October 25, 1996, and as adjusted
to give effect to the sale of shares offered hereby, (i) by each person who is
known by 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, (iv) all directors and executive officers as a group and (v)
each Selling Shareholder. Except as indicated in the footnotes to the table, the
persons named in the table have sole voting and investment power with respect to
all shares of Common Stock shown as beneficially owned by them, subject to
community property laws where applicable.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING NUMBER OF OFFERING(1)
----------------------- SHARES -----------------------
BENEFICIAL OWNER NUMBER PERCENT(2) BEING OFFERED(1) NUMBER PERCENT(2)
- ----------------------------------- --------- ---------- ---------------- --------- ----------
<S> <C> <C> <C> <C> <C>
Alex Razmjoo(3)(4)................. 2,250,000 25.0% 250,000 2,000,000 18.2%
2181 Dupont
Irvine, California 92715
Frank Alaghband(3)(4).............. 2,127,000 23.6% 250,000 1,877,000 17.1%
2181 Dupont
Irvine, California 92715
Alex Aydin(3)(4)(5)................ 1,872,000 20.8% 250,000 1,597,000(5) 14.5%
2181 Dupont
Irvine, California 92715
Nick Shahrestany(3)(4)............. 2,049,000 22.8% 250,000 1,799,000 16.4%
2181 Dupont
Irvine, California 92715
Frederick Judd(4)(6)(7)............ 92,400 1.0% 25,000 67,400 *
Samuel Inman(3).................... -- -- -- -- --
Samuel Yau(3)...................... -- -- -- -- --
All directors and executive 8,300,400 92.2% 1,025,000 7,275,400 66.1%
officers as a group (8
persons)(7)......................
</TABLE>

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

* Less than one percent.

(1) Assumes no exercise of the Underwriters' over-allotment option. If the
Underwriters' over-allotment option is exercised in full, Mr. Aydin will
sell an additional 113,430 shares of Common Stock and each of Messrs.
Razmjoo, Alaghband and Shahrestany will sell an additional 113,440 shares of
Common Stock.

(2) Percentage calculation is based upon 9,000,000 shares outstanding as of
October 25, 1996 (or 11,000,000 shares following the Offering, based on the
proposed issuance of 2,000,000 shares by the Company in the Offering).

(3) A director of the Company.

(4) An officer of the Company.

(5) Includes the number of shares being sold by Mr. Aydin in the Offering and
the sale of 25,000 shares by Mr. Judd in the Offering, which shares Mr. Judd
will acquire upon partial exercise of the option described in footnote (6)
below. In addition, the number of shares owned after the Offering reflects
65,000 shares of Common Stock owned by Mr. Aydin that remain subject to the
option.

(6) Includes shares subject to an option granted to Mr. Judd by Mr. Aydin to
acquire 90,000 shares of Common Stock owned by Mr. Aydin, which option is
presently exercisable in full, and of which 25,000 shares will be exercised
and sold in the Offering.

(7) Includes 2,400 shares of Common Stock subject to vested options.

49
<PAGE> 50

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 65,000,000 shares
of Common Stock, $.01 par value, and 10,000,000 shares of Preferred Stock, $.01
par value.

COMMON STOCK

Holders of Common Stock are entitled to receive such dividends as may from
time to time be declared by the Board out of funds legally available therefor.
Holders of Common Stock are entitled to one vote per share on all matters on
which they are entitled to vote other than the election of directors, in which
event, until the Company becomes a listed corporation as defined below, any
holder may demand cumulative voting. See "-- Certain Anti-Takeover
Effects -- Classified Board of Directors" and "-- No Cumulative Voting." Holders
of Common Stock have no preemptive, conversion, redemption or sinking funds
rights. In the event of a liquidation, dissolution or winding-up of the Company,
holders of Common Stock are entitled to share equally and ratably in the assets
of the Company, if any, remaining after the payment of all debts and liabilities
of the Company and the liquidation preference of any outstanding Preferred
Stock. The outstanding shares of Common Stock are, and the shares of Common
Stock offered by the Company hereby when issued will be, fully paid and
nonassessable. The rights, preferences and privileges of holders of Common Stock
are subject to any series of Preferred Stock that the Company may issue in the
future.

PREFERRED STOCK

The Board is authorized to provide for the issuance of Preferred Stock in
one or more series and to fix the designations, preferences, powers and
relative, participating, optional and other rights, qualifications, limitations
and restrictions thereof, including the dividend rate, conversion rights, voting
rights, redemption price and liquidation preference, and to fix the number of
shares to be included in any such series. Any Preferred Stock so issued may rank
senior to the Common Stock with respect to the payment of dividends or amounts
upon liquidation, dissolution or winding-up, or both. In addition, any such
shares of Preferred Stock may have class or series voting rights. Issuances of
Preferred Stock, while providing the Company with flexibility in connection with
general corporate purposes, may, among other things, have an adverse effect on
the rights of holders of Common Stock, may have the effect of delaying,
deterring or preventing a change in control of the Company without further
action by the shareholders, may discourage bids for the Company's Common Stock
at a premium over the market price of the Common Stock, and may adversely affect
the market price and the voting and other rights of the holders of Common Stock.
At present, the Company has no plans to issue any shares of Preferred Stock.

REGISTRATION RIGHTS

After this Offering, the Founders will be entitled, upon expiration of the
lock-up agreements with the Underwriters, to certain rights with respect to the
registration of their shares under the Securities Act. Under the terms of the
Registration Rights Agreement to which each Founder is a party, if the Company
proposes to register any of its securities under the Securities Act, either for
its own account or for the account of others, the Founders, as the holders of
7,273,000 (assuming the consummation of this Offering and no exercise of the
Underwriters' over-allotment option) shares of Common Stock, are entitled,
subject to certain limitations and exceptions, to notice of such registration
and are entitled to include shares of their Common Stock therein. In addition,
at any time after the first anniversary of the Company's initial public offering
and the Company becomes eligible to file registration statements on Form S-3
under the Securities Act, each Founder may, no more often than once during any
12-month period, request that the Company file a registration statement on Form
S-3 with respect to shares of his Common Stock, and the Company is required to
use its best efforts to effect such registration, subject to certain conditions
and limitations. In general, all fees, costs and expenses of such registration
will be borne by the Founders.

50
<PAGE> 51

LIMITATION OF LIABILITY OF DIRECTORS AND INDEMNIFICATION OF DIRECTORS AND
OFFICERS

The California General Corporation Law (the "Law") provides that California
corporations may include provisions in their articles of incorporation relieving
directors of monetary liability for breach of their fiduciary duties as
directors, except for the liability of a director resulting from (i) any
transaction from which the director derives an improper personal benefit, (ii)
acts or omissions involving intentional misconduct or a knowing and culpable
violation of law, (iii) acts or omissions that a director believes to be
contrary to the best interests of the Company or its shareholders or that
involve the absence of good faith on the part of the director, (iv) acts or
omissions constituting an unexcused pattern of inattention that amounts to an
abdication of the director's duty to the Company or its shareholders, (v) acts
or omissions showing a reckless disregard for the director's duty to the Company
or its shareholders in circumstances in which the director was aware or should
have been aware, in the ordinary course of performing a director's duties, of a
risk of serious injury to the Company or its shareholders, (vi) any improper
transaction between a director and the Company in which the director has a
material financial interest or (vii) the making of an illegal distribution to
shareholders or an illegal loan or guaranty. In addition, the Company may not
indemnify directors and officers in circumstances in which indemnification is
expressly prohibited by Section 317 of the Law. The Company's Articles of
Incorporation provide that the Company's directors are not liable to the Company
or its shareholders for monetary damages for breach of their fiduciary duties to
the fullest extent permitted by California law. Such limitation of liability
does not affect the availability of equitable remedies such as injunctive relief
or rescission. The Bylaws of the Company (the "Bylaws") provide that the Company
will indemnify its directors and officers to the fullest extent permitted by
California law, including circumstances in which indemnification is otherwise
discretionary under California law, subject to certain limitations for actions
initiated by the director or officer, settlements not approved by the Company,
losses covered by the directors' and officers' liability insurance policy
maintained by the Company and judgments for an accounting of profits pursuant to
Section 16(b) of the Securities Exchange Act of 1934 and similar laws.

The inclusion of the above provisions in the Company's Articles of
Incorporation and Bylaws may have the effect of reducing the likelihood of
derivative litigation against directors and may discourage or deter shareholders
or management from bringing a lawsuit against directors for breach of their duty
of care, even though such an action, if successful, might otherwise have
benefitted the Company and its shareholders. This provision does not affect a
director's responsibilities under certain other laws such as the federal
securities laws or state or federal environmental laws. At present, there is no
litigation or proceeding pending involving a director of the Company pursuant to
which indemnification is being sought, nor is the Company aware of any
threatened litigation that might result in claims for indemnification by any
director.

The Company has entered into indemnification agreements with its directors
and executive officers that require the Company to indemnify such directors and
officers to the fullest extent permitted by applicable provisions of law
provided that any settlement of a third party action against a director or
officer is approved by the Company, and subject to limitations for actions
initiated by the director or officer, penalties paid by insurance and violations
of Section 16(b) of the Securities Exchange Act of 1934, as amended, and similar
laws. The agreements contain provisions that are broader in some respects than
the specific indemnification provisions contained in the California Corporations
Code. The indemnification agreements may require the Company, among other
things, to indemnify its officers and directors against certain liabilities that
may arise by reason of their status or service as directors or executive
officers (other than liabilities arising from willful misconduct of a culpable
nature), to advance their expenses incurred as a result of any proceeding
against them as to which they could be indemnified and to obtain directors' and
officers' insurance, if available on reasonable terms. The Company expects to
obtain directors' and officers' liability insurance with respect to liabilities
arising out of certain matters, including matters arising under the Securities
Act. The Company believes the foregoing provisions are necessary to attract and
retain qualified persons as directors and executive officers.

51
<PAGE> 52

CERTAIN ANTI-TAKEOVER EFFECTS

The provisions of the Articles of Incorporation and the Company's Bylaws
summarized in the succeeding paragraphs may be deemed to have anti-takeover
effects and may delay, deter or prevent a tender offer or takeover attempt that
a shareholder might consider to be in such shareholder's best interest,
including those attempts that might result in a premium over the market price
for the shares held by shareholders.

Classified Board of Directors. The Articles of Incorporation and Bylaws
provide that when the Company becomes a "listed corporation" as defined below,
as long as the size of the Board is at least six but less than nine directors,
the Board will be divided into two classes of directors with each class serving
staggered two-year terms and, if the number of directors is increased to nine or
more, the Board will be divided into three classes serving staggered three-year
terms. The Company will be deemed a "listed corporation" when it has been listed
on the Nasdaq National Market and has at least 800 shareholders on the record
date of an annual meeting of shareholders, as calculated in accordance with the
California Corporations Code. The classification of the Board may discourage a
third party from making a tender offer or otherwise attempting to obtain control
of the Company and may maintain the incumbency of the directors, as a classified
Board generally makes it more difficult for shareholders to replace a majority
of the directors.

No Cumulative Voting. The Articles of Incorporation and Bylaws provide
that, when the Company becomes a "listed corporation," cumulative voting will be
eliminated. Without cumulative voting, which entitles a holder of Common Stock
to cast a number of votes for each share held by such holder equal to the number
of directors to be elected, the holders of a majority of the shares present or
represented at an annual meeting of shareholders will be able to elect all of
the directors to be elected at that meeting. Consequently, the elimination of
cumulative voting may make a change in control of the Company more difficult by
denying minority shareholders representation on the Board.

Advance Notice Requirements for Shareholder Proposals and Director
Nominations. The Bylaws establish advance notice procedures with regard to
shareholder proposals and the nomination, other than by or at the direction of
the Board or a committee thereof, of candidates for election as directors. The
Company may, subject to compliance with Securities and Exchange Commission rules
and regulations regarding proxy solicitation, reject a shareholder proposal or
nomination that is not made in accordance with such procedures.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for the Common Stock is U.S. Stock
Transfer Corporation.

LISTING

The Company's Common Stock has been approved for quotation on the Nasdaq
National Market under the trading symbol "PRCM."

52
<PAGE> 53

SHARES ELIGIBLE FOR FUTURE SALE

Sales of substantial amounts of Common Stock in the public market could
adversely affect the market price of the Common Stock and could impair the
Company's future ability to raise capital through the sale of its equity
securities. Upon the closing of this Offering, the Company will have outstanding
11,000,000 shares of Common Stock. Of these shares, the 3,025,000 shares sold in
this Offering will be freely tradeable without restriction under the Securities
Act, unless purchased by "affiliates" of the Company.

The remaining 7,975,000 shares of Common Stock held by existing
shareholders will be "restricted" shares under the Securities Act (the
"Restricted Shares"). Immediately following the Effective Date, 33,000
Restricted Shares will be eligible for sale in reliance on Rule 144 of the
Securities Act. Upon the expiration of lock-up agreements between certain
shareholders and the Underwriters, which will occur 180 days after the Effective
Date, the remaining 7,942,000 Restricted Shares will become eligible for sale,
subject to the volume limitations described below.

At October 25, 1996, an aggregate of 271,800 shares of Common Stock are
subject to outstanding options. A total of 47,888 shares subject to options are
vested as of the date of this Prospectus and an aggregate of 268,200 additional
shares are reserved for future issuance pursuant to the Company's 1995 Stock
Option Plan. The Company plans to file a Registration Statement on Form S-8 to
register the shares of Common Stock issuable pursuant to the 1995 Stock Option
Plan. Approximately 55,000 shares of Common Stock subject to vested options will
be eligible for resale upon the expiration of lock-up agreements 180 days
following the Effective Date, unless earlier released for resale by the Company.
The Underwriting Agreement prohibits the Company from releasing such shares for
resale until 90 days following the Effective Date. Accordingly, shares of Common
Stock issued under the 1995 Stock Option Plan will be available for sale in the
public market upon vesting of such shares, subject to certain volume limitations
under Rule 144 with respect to affiliates.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned Restricted Shares for at
least two years, will be entitled to sell in any three-month period a number of
shares that does not exceed the greater of: (i) 1% of the number of shares of
Common Stock then outstanding (approximately 110,000 shares immediately after
this Offering) or (ii) the average weekly trading volume of the Company's Common
Stock in the Nasdaq National Market during the four calendar weeks immediately
preceding the date on which notice of the sale is filed with the Securities and
Exchange Commission. Sales pursuant to Rule 144 are subject to certain
requirements relating to manner of sale, notice and availability of current
public information about the Company. A person (or persons whose shares are
aggregated) who is not deemed to have been an affiliate of the Company at any
time during the 90 days immediately preceding the sale and who has beneficially
owned Restricted Shares for at least three years is entitled to sell such shares
pursuant to Rule 144(k) without regard to the limitations and requirements
described above. The Securities and Exchange Commission has recently proposed to
reduce the Rule 144 holding periods. If enacted, such modification could have an
impact on the timing of when shares of Common Stock become eligible for resale.

Holders of 7,942,000 shares of Common Stock of the Company have agreed with
Montgomery Securities that until 180 days after the Effective Date they will not
sell, offer to sell, contract to sell, transfer the economic risk of ownership
in, make any short sale, pledge or otherwise dispose of, any shares of Common
Stock, or any securities exercisable or exchangeable for or any other rights to
purchase or acquire shares of Common Stock owned directly by such holders or
with respect to which they have power of disposition. The Company has also
agreed not to issue, sell, offer to sell, grant any option to purchase or
otherwise dispose of any equity securities or any securities convertible into,
exercisable or exchangeable for Common Stock or other equity security for a
period of 180 days after the Effective Date without the prior written consent of
Montgomery Securities, subject to certain limited exceptions including grants of
options and sales of shares under the 1995 Plan. The lock-up agreements with
Montgomery Securities may be released at any time as to all or any portion of
the shares subject to such agreements at the sole discretion of Montgomery
Securities.

53
<PAGE> 54

UNDERWRITING

The underwriters named below (the "Underwriters"), represented by
Montgomery Securities and Dain Bosworth Incorporated (the "Representatives"),
have severally agreed, subject to the terms and conditions set forth in the
Underwriting Agreement, to purchase from the Company and the Selling
Shareholders the number of shares of Common Stock indicated below opposite their
respective names at the initial public offering price less the underwriting
discount set forth on the cover page of this Prospectus. The Underwriting
Agreement provides that the obligations of the Underwriters are subject to
certain conditions precedent and that the Underwriters are committed to purchase
all of such shares, if any are purchased.

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
------------------------------------------------------ ---------
<S> <C>
Montgomery Securities................................. 1,381,000
Dain Bosworth Incorporated............................ 744,000
Alex. Brown & Sons Incorporated....................... 100,000
Donaldson, Lufkin & Jenrette Securities Corporation... 100,000
A.G. Edwards & Sons, Inc. ............................ 100,000
Hambrecht & Quist LLC................................. 100,000
Robertson, Stephens & Company LLC..................... 100,000
Smith Barney Inc. .................................... 100,000
Adams, Harkness & Hill, Inc. ......................... 50,000
Cruttenden Roth Incorporated.......................... 50,000
Needham & Company, Inc. .............................. 50,000
Nesbitt Burns Securities Inc. ........................ 50,000
Soundview Financial Group, Inc. ...................... 50,000
H.C. Wainwright & Co., Inc. .......................... 50,000
---------
Total....................................... 3,025,000
=========
</TABLE>

The Representatives have advised the Company that the Underwriters
initially propose to offer the Common Stock to the public on the terms set forth
on the cover page of this Prospectus. The Underwriters may allow to selected
dealers a concession of not more than $0.35 per share, and the Underwriters may
allow, and such dealers may reallow, a concession of not more than $0.10 per
share to certain other dealers. After the initial public offering, the offering
price and other selling terms 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 in
part.

The Selling Shareholders have granted an option to the Underwriters,
exercisable during the 30-day period after the date of this Prospectus, to
purchase up to a maximum of 453,750 additional shares of Common Stock to cover
over-allotments, if any, at the same price per share as the initial shares to be
purchased by the Underwriters. To the extent the Underwriters exercise this
option, each of the Underwriters will be committed, subject to certain
conditions, to purchase such additional shares in approximately the same
proportion as set forth in the above table. The Underwriters may purchase such
shares only to cover over-allotments made in connection with this Offering.

Holders of 7,942,000 shares of Common Stock prior to this Offering
(excluding shares to be sold in the Offering) have agreed, subject to certain
limited exceptions, not to sell or offer to sell, contract to sell, transfer the
economic risk of ownership in, make any short sale, pledge or otherwise dispose
of the shares of Common Stock currently held by them, or any securities
exercisable or exchangeable for or any other rights to purchase or acquire any
shares of Common Stock for a period of 180 days after the Effective Date without
the prior written consent of Montgomery Securities. Montgomery Securities may,
in its sole discretion and at any time without notice, release all or any
portion of the securities subject to these lock-up agreements. In addition, the
Company has agreed that for a period of 180 days after the Effective Date it
will not, without the prior written consent of Montgomery Securities, issue,
offer, sell, grant options to purchase or otherwise dispose of any equity
securities or securities convertible into, exercisable or exchangeable for
Common Stock or other equity

54
<PAGE> 55

securities, subject to certain limited exceptions including grants of options
and sales of shares under the 1995 Plan.

The Underwriting Agreement provides that the Company and the Selling
Shareholders will indemnify the Underwriters and their controlling persons
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 Representatives have advised the Company that the Underwriters will not
confirm sales to any accounts over which they exercise discretionary authority
in excess of 5% of the number of shares of Common Stock offered hereby.

Prior to this Offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price has been determined
through negotiations among the Company, the Selling Shareholders and the
Representatives. Among the factors considered in such negotiations were the
history of, and prospects for, the Company and the industry in which it
competes, an assessment of the Company management, its past and present
operations and financial performance, the prospects for future earnings of the
Company, the present state of the Company's development, the general condition
of the securities markets at the time of the Offering, the market prices of and
demand for publicly traded common stocks of comparable companies in recent
periods and other factors deemed relevant.

LEGAL MATTERS

The validity of the shares of Common Stock offered hereby will be passed
upon for the Company and any Selling Shareholders by O'Melveny & Myers LLP,
Newport Beach, California. Certain legal matters will be passed upon for the
Underwriters by Fenwick & West LLP, Palo Alto, California.

EXPERTS

The consolidated balance sheets as of July 28, 1995 and July 26, 1996 and
the consolidated statements of operations, shareholders' equity and cash flows
for each of the three years in the period ended July 26, 1996 included in this
Prospectus and the related financial statement schedule included elsewhere in
the Registration Statement have been included herein in reliance on the report
of Arthur Andersen LLP ("Arthur Andersen"), independent accountants, given on
the authority of that firm as experts in accounting and auditing.

CHANGE IN ACCOUNTANTS

Effective July 24, 1995, Arthur Andersen was engaged as the principal
independent accountants for the Company to replace the Company's prior
accounting firm, which was dismissed effective the same date. The decision to
change independent accountants was approved by the Board. In connection with the
audit of fiscal 1994, there were no disagreements with the prior accounting firm
on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedures, which disagreements if not resolved
to the satisfaction of the firm would have caused the firm to make reference to
the matter in its report. The audit report of the prior accounting firm on the
consolidated financial statements of the Company as of and for the year ended
July 29, 1994 did not contain any adverse opinion or disclaimer of opinion, nor
was it qualified or modified as to uncertainty, audit scope or accounting
principles. During fiscal 1994 and through July 24, 1995, there were no
reportable events. During the two fiscal years and the subsequent interim period
preceding the engagement of Arthur Andersen, the Company had not consulted with
Arthur Andersen on items that were or should have been subject to SAS 50 or
concerned the subject matter of a disagreement or reportable event with the
prior accounting firm.

55
<PAGE> 56

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (together with all
amendments, exhibits and schedule thereto, "Registration Statement"), of which
this Prospectus forms a part, covering the Common Stock to be sold pursuant to
the Offering. As permitted by the rules and regulations of the Commission, this
Prospectus omits certain information, exhibits and undertakings and the schedule
contained in the Registration Statement. Such additional information, exhibits,
undertakings and schedule can be inspected at and obtained from the Commission
at the public reference facilities maintained by the Commission at Room 1024,
450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549 and at certain
regional offices of the Commission located at Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661 and 13th Floor, 7 World
Trade Center, New York, New York, 10048. Copies of such material can be obtained
from the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549 at prescribed rates. For additional
information with respect to the Company, the Common Stock and related matters
and documents, reference is made to the Registration Statement and the exhibits
thereto. Statements contained herein concerning any such document are not
necessarily complete and, in each instance, reference is made to the copy of
such document filed as an exhibit to the Registration Statement. Each such
statement is qualified in its entirety by such reference. The Commission
maintains a Web site that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission at http://www.sec.gov.

56
<PAGE> 57

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Report of Independent Public Accountants.............................................. F-2
Consolidated Financial Statements:
Consolidated Balance Sheets........................................................... F-3
Consolidated Statements of Operations................................................. F-4
Consolidated Statements of Shareholders' Equity....................................... F-5
Consolidated Statements of Cash Flows................................................. F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>

F-1
<PAGE> 58

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

The Board of Directors
Procom Technology, Inc.:

We have audited the accompanying consolidated balance sheets of Procom
Technology, Inc. (a California corporation) and subsidiary (the "Company") as of
July 28, 1995 and July 26, 1996, and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the three years in
the period ended July 26, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with 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, the financial statements referred to above present fairly, in
all material respects, the financial position of Procom Technology, Inc. and
subsidiary as of July 28, 1995 and July 26, 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
July 26, 1996 in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Orange County, California
November 13, 1996

F-2
<PAGE> 59

PROCOM TECHNOLOGY, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

ASSETS

JULY 28, JULY 26, OCTOBER 25,
1995 1996 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash................................................ $ 212,000 $ 793,000 $ 58,000
Accounts receivable, less allowance for doubtful
accounts
and sales returns of $179,000, $373,000 and
$575,000, respectively........................... 5,507,000 9,234,000 11,083,000
Inventories, net.................................... 4,296,000 9,760,000 12,559,000
Deferred income taxes............................... 359,000 605,000 790,000
Prepaid expenses.................................... 166,000 204,000 249,000
Other current assets................................ 18,000 12,000 4,000
----------- ----------- -----------
Total current assets........................ 10,558,000 20,608,000 24,743,000
Property and equipment, net........................... 239,000 476,000 553,000
Other assets.......................................... 214,000 28,000 29,000
----------- ----------- -----------
Total assets................................ $11,011,000 $21,112,000 $25,325,000
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Line of credit...................................... $ 1,484,000 $ 4,185,000 $ 3,660,000
Accounts payable.................................... 5,530,000 8,254,000 11,583,000
Accrued expenses and other current liabilities...... 368,000 471,000 592,000
Accrued compensation................................ 1,230,000 2,596,000 958,000
Capital lease obligations........................... 8,000 34,000 32,000
Income taxes payable................................ 70,000 436,000 1,349,000
----------- ----------- -----------
Total current liabilities................... 8,690,000 15,976,000 18,174,000
Capital lease obligations, less current portion....... 34,000 -- --
----------- ----------- -----------
Total liabilities........................... 8,724,000 15,976,000 18,174,000
----------- ----------- -----------
Commitments and contingencies
Shareholders' equity:
Preferred stock, no par value; 10,000,000 shares
authorized, no shares issued and outstanding..... -- -- --
Common stock, no par value; 65,000,000 shares
authorized, 9,000,000 shares issued and
outstanding...................................... 3,000 3,000 3,000
Retained earnings................................... 2,284,000 5,133,000 7,148,000
----------- ----------- -----------
Total shareholders' equity.................. 2,287,000 5,136,000 7,151,000
----------- ----------- -----------
Total liabilities and shareholders' equity............ $11,011,000 $21,112,000 $25,325,000
=========== =========== ===========
</TABLE>

The accompanying notes are an integral part of these consolidated balance
sheets.

F-3
<PAGE> 60

PROCOM TECHNOLOGY, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEARS ENDED QUARTERS ENDED
--------------------------------------- -------------------------
JULY 29, JULY 28, JULY 26, OCTOBER 27, OCTOBER 25,
1994 1995 1996 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales....................... $34,502,000 $44,660,000 $73,456,000 $15,275,000 $24,915,000
Cost of sales................... 27,187,000 32,858,000 51,489,000 11,133,000 16,490,000
----------- ----------- ----------- ----------- -----------
Gross profit............... 7,315,000 11,802,000 21,967,000 4,142,000 8,425,000
Selling, general and
administrative expenses....... 6,902,000 9,362,000 15,401,000 2,875,000 4,367,000
Research and development
expenses...................... 983,000 1,108,000 1,635,000 292,000 688,000
Loss on closure of German
subsidiary.................... 409,000 -- -- -- --
----------- ----------- ----------- ----------- -----------
Operating income (loss).... (979,000) 1,332,000 4,931,000 975,000 3,370,000
Interest expense................ 151,000 195,000 282,000 60,000 60,000
----------- ----------- ----------- ----------- -----------
Income (loss) before income
taxes...................... (1,130,000) 1,137,000 4,649,000 915,000 3,310,000
Provision (benefit) for income
taxes......................... (357,000) 414,000 1,800,000 356,000 1,295,000
----------- ----------- ----------- ----------- -----------
Net income (loss).......... $ (773,000) $ 723,000 $ 2,849,000 $ 559,000 $ 2,015,000
=========== =========== =========== =========== ===========
Net income (loss) per share..... $ (0.08) $ 0.08 $ 0.31 $ 0.06 $ 0.22
=========== =========== =========== =========== ===========
Weighted average number of
shares........................ 9,171,950 9,171,950 9,171,950 9,171,950 9,171,950
=========== =========== =========== =========== ===========
</TABLE>

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

F-4
<PAGE> 61

PROCOM TECHNOLOGY, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
COMMON STOCK
-------------------- RETAINED
SHARES AMOUNT EARNINGS TOTAL
--------- ------ ---------- ----------
<S> <C> <C> <C> <C>
Balance at July 30, 1993...................... 9,000,000 $3,000 $2,334,000 $2,337,000
Net income.................................. -- -- (773,000) (773,000)
--------- ------ ---------- ----------
Balance at July 29, 1994...................... 9,000,000 3,000 1,561,000 1,564,000
Net income.................................. -- -- 723,000 723,000
--------- ------ ---------- ----------
Balance at July 28, 1995...................... 9,000,000 3,000 2,284,000 2,287,000
Net income.................................. -- -- 2,849,000 2,849,000
--------- ------ ---------- ----------
Balance at July 26, 1996...................... 9,000,000 3,000 5,133,000 5,136,000
Net income (unaudited)...................... -- -- 2,015,000 2,015,000
--------- ------ ---------- ----------
Balance at October 25, 1996 (unaudited)....... 9,000,000 $3,000 $7,148,000 $7,151,000
========= ====== ========== ==========
</TABLE>

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

F-5
<PAGE> 62

PROCOM TECHNOLOGY, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEARS ENDED QUARTERS ENDED
------------------------------------------ ---------------------------
JULY 29, JULY 28, JULY 26, OCTOBER 27, OCTOBER 25,
1994 1995 1996 1995 1996
------------ ------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).................. $ (773,000) $ 723,000 $ 2,849,000 $ 559,000 $ 2,015,000
Adjustments to reconcile net
income (loss) to net cash
provided by (used in) operating
activities:
Depreciation and
amortization................ 220,000 235,000 194,000 49,000 64,000
Changes in assets and
liabilities:
Accounts receivable......... 1,535,000 (1,457,000) (3,727,000) (1,243,000) (1,849,000)
Inventories................. 334,000 (2,048,000) (5,464,000) (1,027,000) (2,799,000)
Deferred income taxes....... (67,000) (18,000) (246,000) (78,000) (185,000)
Prepaid expenses............ (2,000) (128,000) (38,000) (26,000) (35,000)
Income tax refund
receivable................ (274,000) 274,000 -- -- --
Other current assets........ (93,000) 129,000 6,000 7,000 (2,000)
Other assets................ 7,000 (180,000) 186,000 (27,000) (1,000)
Accounts payable............ 596,000 1,616,000 2,724,000 697,000 3,329,000
Accrued expenses............ (15,000) 1,175,000 1,469,000 (309,000) (1,517,000)
Income taxes payable........ (24,000) 70,000 366,000 314,000 913,000
----------- ----------- ----------- ------------ -----------
Net cash provided by
(used in) operating
activities............ 1,444,000 391,000 (1,681,000) (1,084,000) (67,000)
----------- ----------- ----------- ------------ -----------
Cash flows from investing activities:
Purchase of property and
equipment........................ (71,000) (179,000) (431,000) (124,000) (141,000)
----------- ----------- ----------- ------------ -----------
Cash flows from financing activities:
Principal payments for capital
lease obligations................ (29,000) (16,000) (8,000) (2,000) (2,000)
Borrowings on line of credit....... 34,919,000 43,771,000 64,825,000 14,527,000 22,575,000
Payments made on line of credit.... (36,108,000) (43,966,000) (62,124,000) (13,529,000) (23,100,000)
----------- ----------- ----------- ------------ -----------
Net cash provided by
(used in) financing
activities............ (1,218,000) (211,000) 2,693,000 996,000 (527,000)
----------- ----------- ----------- ------------ -----------
Increase (decrease) in cash...... 155,000 1,000 581,000 (212,000) (735,000)
Cash at beginning of period.......... 56,000 211,000 212,000 212,000 793,000
----------- ----------- ----------- ------------ -----------
Cash at end of period................ $ 211,000 $ 212,000 $ 793,000 $ 0 $ 58,000
=========== =========== =========== ============ ===========
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest......................... $ 161,000 $ 170,000 $ 248,000 42,000 106,000
Income taxes..................... 3,000 360,000 1,472,000 73,000 500,000
</TABLE>

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

F-6
<PAGE> 63

PROCOM TECHNOLOGY, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

Procom Technology, Inc. (the "Company") was incorporated in California in
1987. The Company designs, manufactures and markets enterprise-wide data storage
and information access solutions that are compatible with all major hardware
platforms, network protocols and operating systems.

Principles of Consolidation

The consolidated financial statements include the accounts of Procom
Technology, Inc. and its wholly-owned subsidiary, Procom Technology FSC, a
foreign sales corporation. All significant intercompany transactions have been
eliminated in consolidation.

Fiscal Year

The Company's fiscal year ends on the Friday of, or nearest to, July 31.
Fiscal 1994, 1995 and 1996 each had 52 weeks.

Use of Estimates

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

Accounts Receivable

The allowance for doubtful accounts includes management's estimate of the
amount expected to be lost on specific accounts and for losses on other as yet
unidentified accounts included in accounts receivable. In estimating the
potential losses on specific accounts, management relies on in-house prepared
analyses and review of other available information. The allowance for sales
returns includes management's estimates of the anticipated sales returns
relating to each reporting period. In estimating the allowance for sales
returns, management relies on historical experience. The amounts the Company
will ultimately realize could differ materially in the near term from the
amounts assumed in arriving at the allowance for doubtful accounts and sales
returns in the accompanying financial statements.

Inventories

Inventories are valued at the lower of cost (on a first-in, first-out
(FIFO) basis) or market. Allowances for obsolete inventory are based on
management's estimate of the amount considered obsolete based on specific
reviews of inventory items. In estimating the allowance, management relies on
its knowledge of the industry (including technological and design changes) as
well as its current inventory levels. The amounts the Company will ultimately
realize could differ materially in the near term from amounts estimated by
management.

Property and Equipment

Property and equipment are stated at cost. Depreciation is calculated using
the straight-line method over the respective estimated useful lives of the
assets, which range from three to seven years. Leasehold improvements and assets
under capital leases are amortized using the straight-line method over the
lesser of the lease term or the estimated useful life of the assets.

Expenditures for major renewals and betterments are capitalized, while
minor replacements, maintenance and repairs that do not extend the assets' lives
are charged to operations as incurred. Upon sale or disposition,

F-7
<PAGE> 64

PROCOM TECHNOLOGY, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

the cost and related accumulated depreciation are removed from the Company's
accounts and any gain or loss is included in the statement of operations.

Income Taxes

The Company reports certain expenses differently for financial and tax
reporting purposes and, accordingly, provides for the related deferred income
taxes. Income taxes are accounted for under the liability method in accordance
with Statement of Financial Accounting Standards No. 109.

Revenue Recognition

The Company recognizes revenue from product sales upon shipment. All sales
are denominated in U.S. dollars. The Company has established a program that,
under specified conditions, enables distributors and resellers to return
products to the Company for credit against additional purchases or, in the event
the Company reduces its selling prices, to receive credits for the reduction in
selling price. The amount of potential product returns, including returns under
the Company's warranty program, and credits for selling price reductions are
estimated and provided for in the period of the sale. Under an evaluation
program, products may be shipped to customers on a trial basis and returned
within a specified period if the customers are not satisfied. Evaluation units
shipped are not recorded as sales until the customer has paid for such units.

Research and Development Costs

Costs and expenses that can be clearly identified as research and
development, including software development costs, are charged to research and
development expenses as incurred.

Concentration of Credit Risk

Three customers accounted for approximately 30% and 36% of the Company's
total accounts receivable on July 28, 1995 and July 26, 1996, respectively, and
one customer accounted for approximately 14% and 9% of the Company's net sales
for fiscal 1995 and 1996, respectively. The loss of any one of the Company's
significant customers could have an adverse effect on the Company's business.

Impact of Recent Accounting Pronouncements

Effective in fiscal 1997, the Company will be required to adopt Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-lived Assets and Long-lived Assets to be Disposed of" and SFAS No. 123,
"Accounting for Stock Based Compensation." The Company plans to adopt SFAS No.
123 utilizing the disclosure alternative under the Statement. The impact of the
adoption of these pronouncements is not expected to be material to the Company's
financial position or results of operations.

Net income (loss) per share

Net income (loss) per share has been computed using the weighted average
number of shares of common stock outstanding during the periods. Pursuant to the
requirements of the Securities and Exchange Commission, options granted under
the Company's stock option plan (see Note 10) at prices below the expected
initial public offering price have been included in the Company's net income
(loss) per share calculation as if they had been outstanding for all periods
presented (using the treasury stock method and utilizing an initial public
offering price of $10 per share).

F-8
<PAGE> 65

PROCOM TECHNOLOGY, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

Unaudited Information

The accompanying financial data as of October 25, 1996 and for the three
month periods ended October 27, 1995 and October 25, 1996 is unaudited and has
been prepared on substantially the same basis as the annual financial
statements. In the opinion of management, the unaudited information contains all
adjustments (consisting only of normal recurring accruals) necessary to present
fairly the financial position and results of operations as of such date and for
such periods.

2. INVENTORIES

A summary of inventories is as follows:

JULY 28, JULY 26, OCTOBER 25,
1995 1996 1996
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials................................. $2,988,000 $6,960,000 $ 9,057,000
Work-in-process............................... 383,000 496,000 1,277,000
Finished goods................................ 925,000 2,304,000 2,225,000
---------- ---------- -----------
$4,296,000 $9,760,000 $12,559,000
========== ========== ===========
</TABLE>

3. PROPERTY AND EQUIPMENT

A summary of property and equipment is as follows:

JULY 28, JULY 26, OCTOBER 25,
1995 1996 1996
---------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Computer equipment.............................. $ 381,000 $ 552,000 $ 609,000
Furniture and fixtures.......................... 401,000 466,000 502,000
Office equipment................................ 302,000 490,000 536,000
Vehicles........................................ 82,000 82,000 82,000
Leasehold improvements.......................... 71,000 77,000 77,000
---------- ----------- ----------
1,237,000 1,667,000 1,808,000
Less accumulated depreciation................... (998,000) (1,191,000) (1,255,000)
---------- ----------- ----------
Total................................. $ 239,000 $ 476,000 $ 553,000
========== =========== ==========
</TABLE>

Depreciation and amortization expense for fiscal 1994, 1995 and 1996
totaled $220,000, $235,000 and $194,000, respectively.

F-9
<PAGE> 66

PROCOM TECHNOLOGY, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

4. INCOME TAXES

The components of the provision (benefit) for income taxes for fiscal 1994,
1995 and 1996 are summarized as follows:

<TABLE>
<CAPTION>
FISCAL YEAR
-------------------------------------
1994 1995 1996
--------- -------- ----------
<S> <C> <C> <C>
Current:
Federal........................................ $(308,000) $379,000 $1,612,000
State.......................................... 18,000 53,000 434,000
--------- -------- ----------
(290,000) 432,000 2,046,000
--------- -------- ----------
Deferred:
Federal........................................ (46,000) (15,000) (223,000)
State.......................................... (21,000) (3,000) (23,000)
--------- -------- ----------
(67,000) (18,000) (246,000)
--------- -------- ----------
Provision (benefit) for income taxes............. $(357,000) $414,000 $1,800,000
========= ======== ==========
</TABLE>

Components of the Company's deferred income tax provision are presented
below:

<TABLE>
<CAPTION>
FISCAL YEAR
----------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
State tax payments......................... $(16,000) $ (7,000) $137,000
Depreciation............................... 21,000 35,000 (3,000)
Inventory reserves......................... (5,000) 18,000 36,000
Reserves for bad debts and returns......... 31,000 (41,000) 102,000
Other...................................... 36,000 13,000 (26,000)
-------- -------- --------
Deferred income tax provision.............. $ 67,000 $ 18,000 $246,000
======== ======== ========
</TABLE>

The following table reconciles the federal statutory income tax rate to the
effective tax rate of the provision (benefit) for income taxes.

<TABLE>
<CAPTION>
FISCAL YEAR
-------------------------
1994 1995 1996
----- ---- -----
<S> <C> <C> <C>
Federal statutory income tax rate................... (34.0)% 34.0% 34.0%
State income taxes, net of federal benefit.......... (6.3) 6.3 6.1
Foreign sales benefit............................... -- (3.4) (1.1)
Research and development tax credit................. (0.5) (2.0) (0.6)
Unused prior year loss carryforwards and
assessments....................................... 7.8 -- --
Other............................................... 1.4 1.5 0.3
----- ---- ----
Effective tax rate................................ (31.6)% 36.4% 38.7%
===== ==== ====
</TABLE>

F-10
<PAGE> 67

PROCOM TECHNOLOGY, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

Deferred tax assets are summarized below:

<TABLE>
<CAPTION>
JULY 28, JULY 26,
1995 1996
-------- --------
<S> <C> <C>
Deferred tax assets:
State tax payments................................... $ 34,000 $171,000
Depreciation......................................... 71,000 68,000
Inventory reserves................................... 85,000 121,000
Reserves for bad debts and returns................... 99,000 201,000
Other................................................ 70,000 44,000
-------- --------
Deferred income taxes............................. $359,000 $605,000
======== ========
</TABLE>

5. LINE OF CREDIT

The Company has established a revolving line of credit with an
institutional lender. The line is based on a percentage of the Company's
eligible accounts receivable and inventory, up to a maximum of $6,000,000 in
working capital loans.

The line of credit accrues certain commitment fees, unused facility fees,
and interest on outstanding amounts at the lender's prime rate (8.25% at July
26, 1996) plus 1.5%. The initial term of the line of credit expires on November
29, 1996, but automatically renews for successive one year periods unless
terminated by either party within a specified period in advance of the automatic
renewal date. The institutional lender also makes available to the Company
various flooring commitments pursuant to which the Company may finance the
purchase of up to $13.0 million in inventory (less any amounts outstanding in
working capital loans) from certain of the Company's vendors who have credit
arrangements with the institutional lender. The combined line of credit contains
restrictive covenants that, among other provisions, require compliance with
certain financial covenants, including the maintenance of working capital of at
least $500,000. The combined line of credit is collateralized by all the assets
of the Company and is guaranteed by the shareholders of the Company. At July 28,
1995 and July 26, 1996, the Company owed $1,484,000 and $4,185,000 under the
line of credit and $2,875,000 and $4,464,000, which is included in accounts
payable, under the flooring agreements, respectively (see Note 6).

6. COMMITMENTS AND CONTINGENCIES

Lease Commitments

The Company leases a facility under a noncancellable operating lease that
expires in fiscal 1998. The facility lease contains an option to extend the
lease under the same terms for four months.

Future minimum lease payments at July 26, 1996, under these leases were as
follows:

<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASE LEASE
------- --------
<S> <C> <C>
Fiscal year ending:
1997............................................ $35,000 $450,000
1998............................................ -- 412,500
------- --------
Total minimum lease payments.................... 35,000 $862,500
========
Less, amounts representing interest............. 1,000
-------
Present value of future minimum capital lease
obligations................................... $34,000
=======
</TABLE>

Rent expense was $395,000, $425,000 and $398,000 for fiscal 1994, 1995 and
1996, respectively.

F-11
<PAGE> 68

PROCOM TECHNOLOGY, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

Flooring Agreements

As is customary in the computer reseller industry, the Company is
contingently liable at July 26, 1996 under the terms of repurchase agreements
with several financial institutions providing inventory financing for dealers of
the Company's products. The contingent liability under these agreements
approximates the amount financed, reduced by the resale value of any products
that may be repurchased, and the risk of loss is spread over several dealers and
financial institutions. Losses under these agreements have been immaterial in
the past.

Litigation

The Company is involved solely in routine litigation arising in the
ordinary course of its business. While the outcome of litigation cannot be
predicted with certainty, the Company believes that none of the pending
litigation will have a material adverse effect on the Company's financial
position or results of operations.

Employment Agreements

The Company has employment agreements with the Company's President and
three Executive Vice Presidents. Each agreement is for a three year term with an
automatic renewal provision which provides that the agreement will perpetually
maintain a three-year term unless terminated. Each agreement contains severance
provisions that require the payment of 35 months of base salary in the event of
the termination of the covered executives. Should all four executives be
terminated, the aggregate commitment arising under the severance provisions
would be approximately $2.6 million and, in addition, the Company would be
obligated to pay a pro rata bonus for the year of termination and the
continuation for up to two years of all life insurance and medical benefits.

7. RELATED PARTY TRANSACTIONS

The Company made product sales totaling $411,000 and $398,000 to an entity
owned by a relative of one of the Company's stockholders during fiscal 1994 and
1995, respectively. At July 29, 1994, the Company had accounts receivable from
this related party of $323,000. As a result of an Executive Order issued by the
President of the United States in May 1995 related to transactions with Iranian
companies, the Company determined that amounts owed by this entity might not be
collectible in the near future and, accordingly, during fiscal 1995, wrote off
the outstanding balances owed the Company by this entity of approximately
$251,000. There were no transactions with this entity in fiscal 1996.

At July 28, 1995, the Company had a net receivable of $181,000, from an
entity 90 percent of which is owned by the Company's four shareholders. During
fiscal 1996, the Company made cash advances of approximately $93,000 to the
entity. In addition, during fiscal 1996, the Company sold products valued at
approximately $2,000 to the entity, and incurred other expenses of approximately
$25,000 on behalf of the entity. At July 26, 1996, the Company had a net
receivable of $301,000 from the entity, and due to the financial position of the
entity, the Company determined that the receivable was uncollectible and wrote
off the entire amount.

8. RETIREMENT PLAN

The Company has a defined contribution plan covering substantially all
full-time employees with more than one year of service. Each participant can
elect to contribute up to 15% of his or her annual compensation. While employer
contributions to the plan are discretionary, during fiscal 1994, 1995 and 1996,
the Company elected to make matching contributions equivalent to between 38% and
50% of the first 4% of the employee's contribution. Total expense for fiscal
1994, 1995 and 1996 was $16,000, $21,000 and $47,000, respectively.

F-12
<PAGE> 69

PROCOM TECHNOLOGY, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

9. LOSS ON CLOSURE OF GERMAN SUBSIDIARY

During fiscal 1993, the Company formed a subsidiary in West Germany. During
fiscal 1994, the Company made cash advances, and shipped products, to the German
subsidiary totaling $550,000. Due to a lack of profitability, management decided
to terminate this operation in April 1994. The Company has recorded the loss on
closure of this subsidiary in its consolidated financial statements at July 29,
1994. During fiscal 1995, the Company completed the liquidation of the German
subsidiary's assets.

10. STOCK SPLIT AND STOCK OPTION PLAN

In September 1995, the shareholders of the Company approved a stock split,
whereby each shareholder was issued 10,000 shares of common stock for each share
held.

During November 1993, options to purchase 90,000 shares of common stock at
the estimated fair market value on the date of grant were granted by a principal
shareholder to an officer of the Company in connection with the officer's
employment. In addition, during fiscal 1996, the Company instituted the 1995
Stock Option Plan (the "1995 Plan") for its key employees and reserved 540,000
shares for grant under the 1995 Plan. Pursuant to the terms of the 1995 Plan,
options to purchase the Company's common stock may be granted with exercise
prices equal to the fair market value of the stock on the date of grant. Options
granted vest over a period of four years.

The following table sets forth options authorized, granted and outstanding
under the 1995 Plan:

<TABLE>
<CAPTION>
AUTHORIZED OUTSTANDING AVERAGE
FOR GRANT OPTIONS PRICE
---------- ----------- -----------
<S> <C> <C> <C>
Balances, July 28, 1995................ -- -- --
Institution of the 1995 Plan......... 540,000 -- --
Options granted...................... (235,050) 235,050 $2.50-$4.50
Options cancelled.................... 7,350 (7,350) $2.50
------- -------
Balances, July 26, 1996................ 312,300 227,700 $2.50-$4.50
Activity in Quarter Ended October 25,
1996 (unaudited)
Options granted...................... (51,000) 51,000 $5.16-$8.33
Options cancelled.................... 6,900 (6,900) $2.50
------- -------
Balances, October 25, 1996
(unaudited).......................... 268,200 271,800 $2.50-$8.33
======= =======
</TABLE>

In addition to the September 1995 stock split discussed above, the Company
filed amended and restated articles of incorporation on November 13, 1996,
which, among other things, effected a stock split pursuant to which each
shareholder was issued three shares of common stock for each common share held.
All share and per share amounts have been restated to give retroactive effect to
this stock split as well as the September 1995 stock split.

F-13
<PAGE> 70

PROCOM TECHNOLOGY, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

11. GEOGRAPHIC

Export sales as a percentage of net sales amounted to 19%, 14% and 11% for
fiscal years 1994, 1995 and 1996, respectively. A summary of the Company's net
sales and gross profit by geographic area is as follows (in thousands):

<TABLE>
<CAPTION>
YEAR ENDED QUARTER ENDED
-------------------------------- -------------------------
JULY 29, JULY 28, JULY 26, OCTOBER 27, OCTOBER 26,
1994 1995 1996 1995 1996
-------- -------- -------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales
United States.................. $27,953 $38,478 $65,072 $13,586 $22,761
Foreign........................ 6,549 6,182 8,384 1,689 2,154
------- ------- ------- ------- -------
Total..................... $34,502 $44,660 $73,456 $15,275 $24,915
======= ======= ======= ======= =======
Gross profit
United States.................. $ 6,365 $10,812 $20,004 $ 3,799 $ 7,802
Foreign........................ 950 990 1,963 343 623
------- ------- ------- ------- -------
Total..................... $ 7,315 $11,802 $21,967 $ 4,142 $ 8,425
======= ======= ======= ======= =======
</TABLE>

The Company has no material identifiable assets used in connection with the
Company's foreign operations.

12. SUBSEQUENT EVENT

The Company's amended and restated articles of incorporation, which were
filed on November 13, 1996, as discussed above in Note 10, also effected a
change in common stock from no par value to par value of $.01 per share. In the
quarter ending January 24, 1997, $89,700 will be transferred from retained
earnings to common stock to reflect the change in par value.

F-14
<PAGE> 71

[PHOTOGRAPHS OF A CD-ROM AND A CD FORCE SERVER AND GRAPHICS DISPLAYING NETWORK
CONNECTIVITY, GRAPHICAL USER INTERFACES, ACCESS THROUGH THE INTERNET AND MESA
ARCHITECTURE BEARING THE FOLLOWING CAPTIONS: "CD FORCE - THE POWER TO SEAMLESSLY
NETWORK CDS(TM)," "CD -- FORCE SERVERS PROVIDE CROSS-PLATFORM ACCESS TO
CD-ROMS," "ENTERPRISE WIDE CD-ROM NETWORKING SOFTWARE," "WINDOWS -- MACINTOSH
O/S -- IBM OS/2 WARP -- UNIX," "CENTRALIZED AND REMOTE ADMINISTRATOR ACCESS AND
GRAPHICAL USER INTERFACE ("GUI")," "EASY USER ACCESS TO CDS FROM NETWORKS OR
WITH SIMILAR GUIS THROUGH THE INTERNET," "MESA(TM) -- MANAGED ENTERPRISE STORAGE
ARCHITECTURE" AND "PROCOM TECHNOLOGY -- INTELLIGENT STORAGE FOR THE
ENTERPRISE(TM)."]
<PAGE> 72

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No dealer, salesperson or other person has been authorized to give any
information or to make any representation not contained in this Prospectus in
connection with the offer made in this Prospectus and, if given or made, such
information or representation must not be relied upon as having been authorized
by the Company, the Underwriters or the Selling Shareholders. This Prospectus
does not constitute an offer to sell or solicitation of an offer to buy any of
the securities offered hereby by anyone in any jurisdiction in which the person
making such offer or solicitation is not qualified to do so or to anyone to whom
it is unlawful to make such offer or solicitation. Neither the delivery of this
Prospectus nor any sale made hereunder shall under any circumstances create any
implication that the affairs of the Company since the date hereof or the
information herein is correct as of any time subsequent to the date of this
Prospectus.
---------------------------------

TABLE OF CONTENTS

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

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary........................ 3
Risk Factors.............................. 5
Use of Proceeds........................... 15
Dividend Policy........................... 15
Capitalization............................ 16
Dilution.................................. 17
Selected Consolidated Financial Data...... 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. 19
Business.................................. 28
Management................................ 43
Certain Transactions...................... 48
Principal and Selling Shareholders........ 49
Description of Capital Stock.............. 50
Shares Eligible for Future Sale........... 53
Underwriting.............................. 54
Legal Matters............................. 55
Experts................................... 55
Change in Accountants..................... 55
Additional Information.................... 56
Index to Consolidated Financial
Statements.............................. F-1
</TABLE>

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

Until January 11, 1997 (25 days after the date of this Prospectus), all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This delivery requirement is in addition to the obligation of dealers to deliver
a Prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.

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

3,025,000 SHARES

[PROCOM LOGO]

COMMON STOCK

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

PROSPECTUS

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

MONTGOMERY SECURITIES

DAIN BOSWORTH
INCORPORATED

December 17, 1996

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