PENTACON INC, 424B4, 1998-03-11

PENTACON INC
424B4, 1998-03-11
HARDWARE

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5,200,000 SHARES

PENTACON, INC.

(LOGO)

COMMON STOCK
------------------------

All of the 5,200,000 shares of Common Stock offered hereby are being
offered by Pentacon, Inc. Pentacon, Inc. was founded in 1997 to acquire five
companies engaged in the fastener and small parts distribution business (the
"Founding Companies") and has conducted no operations to date. Prior to this
offering, there has been no public market for the Common Stock of the Company.
See "Underwriting" for a discussion of the factors considered in determining
the initial public offering price. The Common Stock has been approved for
listing on The New York Stock Exchange under the symbol "JIT." Of the net
proceeds to the Company from the sale of the Common Stock offered hereby, $28.7
million will be paid to the stockholders of the Founding Companies, including
the cash consideration to be paid in connection with the acquisition of the
Founding Companies. See "Use of Proceeds."
------------------------

THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 10 HEREOF.
------------------------

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>
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
PRICE UNDERWRITING PROCEEDS
TO DISCOUNTS AND TO
PUBLIC COMMISSIONS COMPANY(1)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share............................ $10.00 $0.70 $9.30
Total(2)............................. $52,000,000 $3,640,000 $48,360,000
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Before deducting expenses of the offering payable by the Company, estimated
at $4,250,000.

(2) The Company has granted to the Underwriters a 30-day option to purchase up
to 780,000 additional shares of Common Stock solely to cover
over-allotments, if any. To the extent that the option is exercised, the
Underwriters will offer the additional shares at the Price to Public as
shown above. If such option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Company will be
$59,800,000, $4,186,000 and $55,614,000, respectively. See "Underwriting."
------------------------

The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when and if delivered to and accepted by them, subject to the
right of the Underwriters to reject any order in whole or in part. It is
expected that delivery of the shares of Common Stock will be made at the offices
of BT Alex. Brown Incorporated, Baltimore, Maryland, on or about March 13, 1998.

BT ALEX. BROWN
SCHRODER & CO. INC.
SANDERS MORRIS MUNDY

THE DATE OF THIS PROSPECTUS IS MARCH 9, 1998.
<PAGE>
[Map of the United States indicating the location of
the Company's facilities.]
<PAGE>
[Photographs of bolts, screws and other small parts,
automated picking equipment and parts bagging equipment.]

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THIS OFFERING
AND MAY BID FOR AND PURCHASE SHARES OF THE COMMON STOCK IN THE OPEN MARKET. FOR
A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."

<PAGE>
PROSPECTUS SUMMARY

CONCURRENTLY WITH AND AS A CONDITION TO THE CONSUMMATION OF THE OFFERING
MADE HEREBY (THE "OFFERING"), PENTACON PLANS TO ACQUIRE, IN SEPARATE
TRANSACTIONS (COLLECTIVELY, THE "ACQUISITIONS"), FOR CONSIDERATION INCLUDING
CASH AND SHARES OF ITS COMMON STOCK, THE FOLLOWING FIVE ENTITIES ENGAGED IN THE
FASTENER AND SMALL PARTS DISTRIBUTION BUSINESS: ALATEC PRODUCTS, INC.
("ALATEC"), AXS SOLUTIONS, INC. ("AXS"), CAPITOL BOLT & SUPPLY, INC.
("CAPITOL"), MAUMEE INDUSTRIES, INC. ("MAUMEE") AND SALES SYSTEMS, LIMITED
("SSL" AND, TOGETHER WITH ALATEC, AXS, CAPITOL AND MAUMEE, THE "FOUNDING
COMPANIES"). UNLESS OTHERWISE INDICATED, REFERENCES HEREIN TO "PENTACON" MEAN
PENTACON, INC., AND REFERENCES TO THE "COMPANY" MEAN PENTACON AND THE FOUNDING
COMPANIES, COLLECTIVELY. THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY
THE DETAILED INFORMATION AND FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO,
APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, THE
FINANCIAL INFORMATION AND PER SHARE DATA IN THIS PROSPECTUS (I) HAVE BEEN
ADJUSTED FOR (A) THE ACQUISITIONS, (B) THE EFFECTS OF CERTAIN PRO FORMA
ADJUSTMENTS TO THE HISTORICAL FINANCIAL STATEMENTS AND (C) THE CONSUMMATION OF
THE OFFERING, AND (II) ASSUME THAT THE UNDERWRITERS' OVER-ALLOTMENT OPTION IS
NOT EXERCISED. UNLESS OTHERWISE INDICATED, ALL REFERENCES TO COMMON STOCK
INCLUDE BOTH COMMON STOCK, $0.01 PAR VALUE PER SHARE, AND RESTRICTED VOTING
COMMON STOCK, $0.01 PAR VALUE PER SHARE (THE "RESTRICTED COMMON STOCK"), OF
THE COMPANY.

THE COMPANY

The Company is a leading distributor of fasteners and other small parts and
provider of related inventory procurement and management services to original
equipment manufacturers ("OEMs") on a worldwide basis. Fasteners and small
parts include screws, bolts, nuts, washers, pins, rings, fittings, springs,
electrical connectors and similar parts. Pentacon was founded in March 1997 to
aggressively pursue the consolidation of the highly fragmented fastener
distribution industry. According to an industry study by The Freedonia Group,
Inc., sales by fastener manufacturers in 1996 were approximately $8.0 billion in
the United States and $25.0 billion globally. The United States fastener market
is estimated to have over 1,900 distributors. The Company believes that the OEM
fastener and small part distribution industry is in the early stages of
consolidation, and the Company plans to lead the consolidation of the industry.
The Company believes that its broad selection of fasteners and small parts,
high-quality services, professional management team, and strong competitive
position as a publicly owned fastener distributor focused on the OEM market,
will allow it to be the leading consolidator.

Fasteners and other small parts constitute a majority of the total number
of parts needed by an OEM to manufacture many products, but represent only a
small fraction of the total materials cost. The cost for an OEM to internally
manage its inventory of fasteners and small parts is relatively high due to (i)
the large number of fasteners and other small parts in the inventory, (ii) the
risk of interruptions for just-in-time ("JIT") manufacturing operations, and
(iii) the need to perform quality assurance testing of the fasteners and small
parts. The Company believes that OEMs are increasingly outsourcing their
fastener and other small parts inventory procurement and management needs to
distributors in order to focus on their core manufacturing businesses and to
reduce costs. To further reduce costs, many manufacturers are seeking to
consolidate the number of distributors they use and are selecting national
distributors with extensive product lines who can also provide inventory-related
services. To capitalize on these trends, the Company offers a broad array of
fasteners and small parts and provides a variety of related procurement and
inventory management services, including inventory management information
systems ("MIS") and reports, JIT delivery, quality assurance, advisory
engineering services, component kit production and delivery, small component
assembly and electronic data interchange ("EDI").

3
<PAGE>
the four years ended December 31, 1996, the combined net sales of the Founding
Companies have increased at a compound annual rate of approximately 13.3% per
year over the same period. The Company believes that it has generated superior
growth primarily by expanding the breadth of its product offerings and value-
added services, which has allowed the Founding Companies to increase market
share at existing customers and attract new customers.

The Company operates a national sales and distribution network with 24
facilities in 14 states. Through this network and international agents, the
Company serves more than 2,600 customers in over 25 countries. These customers
manufacture a wide variety of products including diesel engines, locomotives,
power turbines, motorcycles, telecommunications equipment, refrigeration
equipment and aerospace equipment. The Company's largest customers include
Cummins Engine Company, General Electric Corporation, Harley-Davidson, Inc., the
Hughes Aircraft subsidiary of General Motors Corporation, The Trane Company,
Dana Corporation and The Boeing Company. The Company anticipates that its
ability to provide a comprehensive product line and offer related services over
a broad geographic area will assist the Company in obtaining additional
nationwide accounts with large national and international OEMs.

BUSINESS STRATEGY

The Company intends to become the leading fastener and small parts
distributor on a worldwide basis. Key elements of the Company's strategy to
achieve its objective are:

PROVIDE VALUE-ADDED SERVICES. The Company seeks to continually
develop and supply inventory-related services designed to reduce its
customers' operating costs. Quality assurance, JIT delivery and component
kit production are examples of such services currently provided by the
Company to its customers. By supplying such services, the Company becomes
more integrated into the customers' internal manufacturing processes and is
better able to anticipate its customers' needs, which the Company believes
results in improved profitability and customer retention.

DELIVER SUPERIOR CUSTOMER SERVICE. OEMs and other fastener customers
choose fastener suppliers based, in significant part, on the quality of the
service supplied. The Company believes that its superior customer service
depends on its well-trained, technically competent workforce and that its
workforce provides an advantage over other fastener distributors. The
Company intends to review the training and operating practices at each
Founding Company to identify and adopt those "best practices" in
providing customer service that can be successfully implemented throughout
its operations. As part of its commitment to superior customer service, the
Company intends to have each of its operating companies certified under or
be in compliance with the International Standards Organization ("ISO")
standards for distribution companies. Two of the Founding Companies are
already ISO-9002 certified. The other Founding Companies have commenced
application for ISO-9002 or similar certification, and the Company expects
the substantial majority of its currently uncertified locations to be ISO
compliant or certified in 1998.

ACCELERATE INTERNAL SALES GROWTH. One of the primary goals of the
Company is to accelerate internal growth by both expanding the range of
products and services provided to existing customers and aggressively
pursuing new customers domestically and abroad. The Company believes it
will be able to expand sales to existing customers by capitalizing on (i)
the diverse products and the marketing expertise of the Founding Companies,
(ii) cross-selling opportunities across the Company's customer base, and
(iii) the additional financial resources that are expected to be available
after consummation of the Offering. The Company believes its broad
geographic coverage will present opportunities to capture additional
business from existing customers that operate on a national and
international basis. The Company intends to implement a company-wide
marketing program and to adopt the "best practices" used by the Founding
Companies to identify, obtain and maintain new customers.

EXPAND OPERATING MARGINS. The Company believes that the combination
of the Founding Companies will provide significant opportunities to
increase its profitability. The key components of

4
<PAGE>
this strategy are to increase operating efficiencies and centralize
appropriate administrative functions. The Company intends to use its
increased purchasing power to improve contractual relationships and gain
volume discounts from its suppliers. The Company also intends to improve
productivity through enhanced inventory management procedures, increased
utilization of the Company's laboratories and distribution facilities, and
the consolidation of information systems and employee benefits.

AGGRESSIVELY PURSUE ACQUISITIONS. The Company believes that the
fastener distribution industry is highly fragmented and in the early stages
of consolidation. The Company intends to pursue an aggressive acquisition
program targeting fastener distributors that will help the Company increase
its presence in markets it currently serves, sell to new markets, develop
new customer relationships with major OEMs, increase its presence in the
international markets and expand its range of products and services. The
Company believes there is a significant number of acquisition candidates
available and that it will be regarded as an attractive acquiror due to its
position as an industry leader, its ability to offer cash and/or publicly
traded stock for acquisitions, and the potential for improved growth and
profitability as part of the Company. The Company intends to file a
registration statement covering 3,350,000 additional shares of Common Stock
under the Securities Act for its use in connection with future
acquisitions.

THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the
Company............................ 5,200,000 shares
Common Stock to be outstanding after
the Offering(1).................... 14,750,000 shares
Use of proceeds...................... The net proceeds from the Offering will be used to
repay certain indebtedness, including the obligation
to pay the cash portion of the purchase price for the
Founding Companies. See "Use of Proceeds."
NYSE trading symbol.................. JIT
</TABLE>
- ------------
(1) Consists of (i) 6,720,000 shares to be issued to the owners of the Founding
Companies, (ii) 515,000 shares issued to the management of Pentacon, (iii)
20,000 shares to be granted under restricted stock grants to two
non-employee directors, (iv) 2,295,000 shares issued to McFarland, Grossman
Capital Ventures, II, L.C. ("MGCV"), including 667,000 shares of
Restricted Common Stock, and (v) 5,200,000 shares to be sold in the
Offering. Excludes (i) outstanding options to purchase 420,000 shares at an
exercise price equal to the initial public offering price, (ii) options to
purchase 600,000 shares at the initial public offering price, which are
expected to be granted to employees of the Founding Companies upon
consummation of the Offering, (iii) options to purchase 30,000 shares at the
initial public offering price which are expected to be granted to two
non-employee directors, and (iv) outstanding warrants to purchase 50,000
shares at an exercise price equal to the lesser of $8.00 per share or 60% of
the initial public offering price granted to certain Company consultants.
See "Management," "Certain Transactions," and "Description of Capital
Stock -- Common Stock and Restricted Common Stock."

RISK FACTORS

Prospective investors should carefully consider all the information set
forth in this Prospectus and, in particular, should evaluate the specific
factors set forth under "Risk Factors" for risks involved with an investment
in the shares.

5
<PAGE>
SUMMARY PRO FORMA COMBINED FINANCIAL DATA

Pentacon will acquire the Founding Companies simultaneously with and as a
condition to the consummation of the Offering. Pentacon has adopted a fiscal
year-end of September 30. For financial statement presentation purposes, Alatec
(one of the Founding Companies) has been identified as the "accounting
acquiror." Effective January 1, 1997, Alatec changed its fiscal year-end to
September 30 to conform with Pentacon's fiscal year-end. The following table
presents summary unaudited pro forma combined financial data for the Company, as
adjusted for (i) the effects of the Acquisitions, (ii) the effects of certain
pro forma adjustments to the historical financial statements described below and
(iii) the consummation of the Offering. See "Selected Financial Data," the
Unaudited Pro Forma Combined Financial Statements and the Notes thereto and the
historical Financial Statements of the Founding Companies and the Notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED THREE MONTHS ENDED TWELVE MONTHS ENDED
SEPTEMBER 30, 1997 DECEMBER 31, 1997 DECEMBER 31, 1997
PRO FORMA COMBINED(1) PRO FORMA COMBINED(1) PRO FORMA COMBINED(1)(9)
--------------------- --------------------- ------------------------
(DOLLARS IN THOUSANDS EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues........................ $146,117 $ 39,042 $151,844
Cost of goods sold.............. 96,659 25,367 99,697
--------------------- --------------------- -------------
Gross profit............... 49,458 13,675 52,147
Selling, general and
administrative expenses(2).... 35,551 10,819 37,860
Goodwill amortization(3)........ 1,463 366 1,463
--------------------- --------------------- -------------
Operating income........... 12,444 2,490 12,824
Interest and other income
(expense), net(4)............. (909) (229) (869)
--------------------- --------------------- -------------
Income before income
taxes................... 11,535 2,261 11,955
Income taxes.................... 5,336 1,077 5,508
--------------------- --------------------- -------------
Net income................. $ 6,199 $ 1,184 $ 6,447
===================== ===================== =============
Net income per share............ $ 0.42 $ 0.08 $ 0.44
Shares used in computing pro
forma net income per
share(5)...................... 14,770,000 14,770,000 14,770,000
</TABLE>
DECEMBER 31, 1997
---------------------------------------
PRO FORMA COMBINED(6) AS ADJUSTED(7)
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA:
Cash............................ $ 1,856 $ 1,856
Working capital................. 23,899 32,779
Total assets.................... 133,029 132,089
Total debt (including capital
lease obligations)(8)......... 58,893 13,844
Stockholders' equity............ 49,053 93,163

(FOOTNOTES ON FOLLOWING PAGE)

6
<PAGE>
- ------------
(1) The pro forma combined income statement data assumes that the Acquisitions
and Offering were closed at the beginning of the period presented (except
for Capitol, whose historical results for twelve months from September 1,
1996 to August 31, 1997 were used for the twelve months ended September 30,
1997 pro forma information), and are not necessarily indicative of the
results the Company would have obtained had these events actually then
occurred or of the Company's future results. During the periods presented
above, the Founding Companies were not under common control or management
and, therefore, the data presented may not be comparable to or indicative of
post-combination results to be achieved by the Company. The pro forma
combined income statement data is based on available information and certain
assumptions that management deems appropriate and should be read in
conjunction with the other financial statements and notes thereto included
elsewhere in this Prospectus. Neither the potential cost savings from
consolidating certain operational and administrative functions nor the costs
of corporate overhead, other than salaries of executive officers, have been
included in the pro forma combined financial information.

(2) The twelve months ended September 30, 1997, the three months ended December
31, 1997 and the twelve months ended December 31, 1997 pro forma combined
income statement data reflects an aggregate of approximately $2,975,000,
$1,056,000 and $3,202,000, respectively, in pro forma reductions in salary
and benefits of the owners of the Founding Companies to which they have
agreed prospectively, and $600,000, $150,000 and $600,000, respectively, in
pro forma increases in salary and benefits to the corporate management and
$159,000, $40,000 and $159,000, respectively, of expense reductions for the
effect of revisions of certain lease agreements between certain stockholders
of the Founding Companies and those Founding Companies. See "Certain
Transactions."

(3) Reflects amortization of the goodwill for the respective period to be
recorded as a result of the Acquisitions over a 40-year period and computed
on the basis described in the Notes to the Unaudited Pro Forma Combined
Financial Statements.

(4) Includes interest income (expense) and other income (expense); net pro forma
interest expense reflects a reduction in interest for the twelve months
ended September 30, 1997, the three months ended December 31, 1997 and the
twelve months ended December 31, 1997 of $1,545,000, $331,000 and
$1,490,000, respectively, related to repayment of indebtedness with the
proceeds from the Offering. See "Use of Proceeds."

(5) Consists of (i) 6,720,000 shares to be issued to the owners of the Founding
Companies, (ii) 515,000 shares issued to the management of Pentacon, (iii)
20,000 shares to be granted under restricted stock grants to two
non-employee directors, (iv) 2,295,000 shares issued to MGCV, (v) 5,200,000
shares to be sold in the Offering, and (vi) the dilutive effect of warrants
to purchase 50,000 shares at an exercise price equal to the lesser of $8.00
or 60% of the initial public offering price per share using the treasury
stock method. Subsequent to September 30, 1997 (i) options to purchase
420,000 shares at the initial public offering price were issued and are
currently outstanding, (ii) options to purchase 600,000 shares at the
initial public offering price are expected to be granted to the Company's
employees upon consummation of the Offering, and (iii) options to purchase
30,000 shares at the initial public offering price are expected to be
granted to two non-employee directors upon the consummation of the Offering.

(6) The pro forma combined balance sheet data assumes that the Acquisitions were
closed on December 31, 1997. The pro forma combined balance sheet data is
based upon available information and certain assumptions that management
deems appropriate and should be read in conjunction with the other financial
statements and notes thereto included elsewhere in this Prospectus.

(7) Reflects the closing of the Offering at a price of $10.00 per share and the
Company's application of the net proceeds therefrom to fund the cash portion
of the purchase price of the Acquisitions and to repay indebtedness of the
Founding Companies. See "Use of Proceeds" and "Certain Transactions."

(8) The pro forma combined debt includes $28,662,381 for the obligation to pay
the cash portion of the purchase price for the Founding Companies.

(9) Pro forma combined income statement data has been included to provide a
presentation of such financial data for the Company's most recently
completed twelve-month period.

7
<PAGE>
SUMMARY INDIVIDUAL FOUNDING COMPANY AND COMBINED FINANCIAL DATA

The following table presents summary historical financial data for the
Founding Companies and Pentacon for the stated periods. The historical income
from operations has not been adjusted for the anticipated increased costs
associated with the Company's new corporate management and with being a public
company, nor does it take into account the increase in income attributable to
the compensation differential, the rent differential, and potential cost savings
from consolidating certain operational or administrative functions. The Company
has adopted a fiscal year-end of September 30. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Introduction."
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED NINE MONTHS ENDED TWELVE MONTHS
DECEMBER 31, ENDED DECEMBER 31, ENDED
---------------------- SEPTEMBER 30, -------------------- DECEMBER 31,
1995 1996 1997 1996 1997 1997
---- ---- ---- ---- ---- ----
(IN THOUSANDS)
UNAUDITED
-----------------------------------
<S> <C> <C> <C> <C> <C> <C>
ALATEC:
Net sales....................... $ 41,204 $ 44,726 $ 42,296 $ 11,458 $ 14,502 $ 56,798
Gross profit.................... 15,008 18,019 17,182 4,488 5,948 23,130
Operating income................ 3,723 5,201 5,518 1,007 531 6,049
AXS:
Net sales....................... $ 20,228 $ 23,177 $ 22,002 $ 8,566 $ 7,412 $ 29,414
Gross profit.................... 7,234 8,124 6,726 2,960 2,426 9,152
Operating income................ 2,524 2,477 1,747 1,063 628 2,375
CAPITOL(1):
Net sales....................... $ 9,769 $ 10,234 $ 9,043 $ 2,494 $ 2,839 $ 11,882
Gross profit.................... 2,882 3,135 2,717 797 898 3,615
Operating income (loss)......... 233 167 247 18 (34) 213
MAUMEE:
Net sales....................... $ 20,582 $ 26,235 $ 27,473 $ 7,072 $ 10,542 $ 38,015
Gross profit.................... 4,482 6,522 7,916 1,549 3,109 11,025
Operating income (loss)......... (144) 1,245 1,287 38 963 2,250
SSL:
Net sales....................... $ 12,274 $ 15,663 $ 11,988 $ 3,725 $ 3,747 $ 15,735
Gross profit.................... 4,238 5,168 3,931 1,192 1,294 5,225
Operating income (loss)......... 512 569 834 (369) (74) 760
PENTACON:
Net sales....................... $ -- $ -- $ -- $ -- $ -- $ --
Gross profit.................... -- -- -- -- -- --
Operating loss.................. -- -- (18) -- (4,786) (4,804)
HISTORICAL COMBINED:(2)
Net sales....................... $ 104,057 $ 120,035 $ 112,802 $ 33,315 $ 39,042 $ 151,844
Gross profit.................... 33,844 40,968 38,472 10,986 13,675 52,147
Operating income (loss)......... 6,848 9,659 9,615 1,757 (2,772) 6,843
PRO FORMA COMBINED(3):
Net sales..................................................................................... $ 151,844
Gross profit.................................................................................. 52,147
Operating income(4)........................................................................... 12,824
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)

8
<PAGE>
- ------------
(1) The financial data presented on a historical basis for Capitol is based on
the years ended October 31, 1995 and 1996, the nine months ended August 31,
1997, the three months ended November 30, 1996, and the three months ended
December 31, 1997.

(2) The combined results of operations for the periods do not purport to present
those of the combined Founding Companies and Pentacon in accordance with
generally accepted accounting principles, but represent merely a summation
of the net sales, gross profit, and operating income of the individual
Founding Companies and Pentacon on a historical basis and exclude the
effects of pro forma adjustments.

(3) The pro forma combined income statement data assumes that the Acquisitions
and Offering were closed on January 1, 1997, and are not necessarily
indicative of the results the Company would have obtained had these events
actually then occurred or of the Company's future results. During the
periods presented above, the Founding Companies were not under common
control or management and, therefore, the data presented may not be
comparable to or indicative of post-combination results to be achieved by
the Company. The pro forma combined income statement data is based on
available information and certain assumptions that management deems
appropriate and should be read in conjunction with the other financial
statements and notes thereto included elsewhere in this Prospectus. Neither
the potential cost savings from consolidating certain operational and
administrative functions nor the costs of corporate overhead, other than
salaries of executive officers, have been included in the pro forma combined
financial information.

(4) Pro forma combined operating income reflects (i) $3,202,000 in pro forma
reductions in salary and benefits to the owners of the Founding Companies;
(ii) $600,000 increases in salary and benefits to corporate management;
(iii) $159,000 of expense reductions for the effect of revisions of certain
lease agreements between certain stockholders of the Founding Companies and
those Founding Companies; (iv) a charge of approximately $1,463,000 related
to amortization of goodwill over a 40-year period for the twelve months to
be recorded as a result of the Acquisitions; and (v) the elimination of the
non-recurring, non-cash compensation charge of $4,680,000 recorded by
Pentacon, Inc.

9
<PAGE>
RISK FACTORS

PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY, IN ADDITION TO THE OTHER
INFORMATION CONTAINED IN THIS PROSPECTUS, THE FOLLOWING FACTORS BEFORE
PURCHASING THE SHARES OF COMMON STOCK OFFERED HEREBY. INFORMATION CONTAINED IN
THIS PROSPECTUS IS BASED ON BELIEFS OF, AND INFORMATION CURRENTLY AVAILABLE TO,
THE COMPANY'S MANAGEMENT AS WELL AS ESTIMATES AND ASSUMPTIONS MADE BY THE
COMPANY'S MANAGEMENT, AND MAY CONTAIN "FORWARD-LOOKING STATEMENTS" WITHIN THE
MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 (THE "REFORM
ACT"). WHEN USED IN THIS PROSPECTUS, WORDS SUCH AS "MAY," "WILL,"
"EXPECT," "INTEND," "ANTICIPATE," "ESTIMATE" OR "CONTINUE" OR THE
NEGATIVE THEREOF OR OTHER VARIATIONS THEREON OR COMPARABLE TERMINOLOGY, AS THEY
RELATE TO THE COMPANY OR THE COMPANY'S MANAGEMENT, IDENTIFY FORWARD-LOOKING
STATEMENTS. THE FOLLOWING MATTERS AND CERTAIN OTHER FACTORS NOTED THROUGHOUT
THIS PROSPECTUS CONSTITUTE CAUTIONARY STATEMENTS IDENTIFYING IMPORTANT FACTORS
WITH RESPECT TO ANY SUCH FORWARD-LOOKING STATEMENTS, INCLUDING CERTAIN RISKS AND
UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN
SUCH FORWARD-LOOKING STATEMENTS.

ABSENCE OF COMBINED OPERATING HISTORY; RISKS OF INTEGRATING FOUNDING COMPANIES

Pentacon was founded in March 1997 but has conducted no operations other
than in connection with the Offering and the Acquisitions. Pentacon has not
generated any sales to date. The Founding Companies have been operating as
separate independent entities, and there can be no assurance that the Company
will be able to integrate the operations of these businesses successfully or to
institute the necessary systems and procedures, including accounting and
financial reporting systems, to manage the combined enterprise on a profitable
basis. The Company's senior management group has only limited experience working
together and there can be no assurance that the management group will be able to
manage the combined entity or to implement effectively the Company's acquisition
and internal growth operating strategies. The pro forma combined historical
financial results of the Founding Companies cover periods when the Founding
Companies and Pentacon were not under common control or management and may not
be indicative of the Company's future financial or operating results. Among the
issues to be considered in combining the Founding Companies are the different
objectives of, and accounting methodologies used by, private as opposed to
public companies, such as the level of scrutiny imposed by management on
business deductions such as salaries and benefits. The inability of the Company
to integrate the Founding Companies successfully would have a material adverse
effect on the Company's business, financial condition and results of operations
and would make it unlikely that the Company's acquisition program will be
successful. See "Business -- Strategy" and "Management."

RISKS RELATED TO THE COMPANY'S ACQUISITION STRATEGY

The Company's strategy for growth significantly relies on the acquisition
of additional fastener distributors. The Company expects to face competition for
acquisition candidates, which may limit the number of acquisition opportunities
and may lead to higher acquisition prices. There can be no assurance that the
Company will be able to identify, acquire or profitably manage additional
businesses or to integrate successfully any acquired businesses into the Company
without substantial costs, delays or other operational or financial
difficulties. Further, acquisitions (including the acquisition of the Founding
Companies) involve a number of special risks, including failure of the acquired
business to achieve expected results, diversion of management's attention,
failure to retain key personnel and customers of the acquired business and risks
associated with unanticipated conditions, events or liabilities, some or all of
which could have a material adverse effect on the Company's business, financial
condition and results of operations. In addition, there can be no assurance that
the Founding Companies or other businesses acquired in the future will achieve
anticipated net sales and earnings. See "Business -- Strategy."

CAPITAL REQUIREMENTS

The Company's acquisition strategy will require substantial capital. The
Company currently intends to finance future acquisitions by using shares of its
Common Stock for all or a portion of the consideration to be paid. If the Common
Stock does not maintain a sufficient market value, or if potential acquisition

10
<PAGE>
candidates are otherwise unwilling to accept Common Stock as part of the
consideration for the sale of their businesses, the Company may be required to
utilize more of its cash resources, if available, in order to initiate and
maintain its acquisition program. If the Company does not have sufficient cash
resources, its growth could be limited unless it is able to obtain additional
capital through debt or equity financings. The Company has obtained a commitment
for a bank line of credit of approximately $50 million, and for a best efforts
to syndicate a $25 million loan facility, for working capital and acquisitions
contingent upon consummation of the Offering. However, there can be no assurance
that the Company will be able to obtain any additional financing it may need for
acquisitions on terms that the Company deems acceptable. See "Use of Proceeds"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Combined Liquidity and Capital Resources."

RISKS RELATED TO INTERNAL GROWTH AND OPERATING STRATEGIES

Although the Company intends to seek to improve the profitability of the
Founding Companies and any subsequently acquired businesses by various means,
including realizing overhead and purchasing efficiencies and centralizing
certain administrative functions, there can be no assurances that the Company
will be able to do so. The Company's ability to increase the profitability of
the Founding Companies and any subsequently acquired businesses will be affected
by various factors, including demand for fasteners, the Company's ability to
expand the range of products and services offered by each Founding Company and
by any subsequently acquired businesses and the Company's ability to enter new
markets successfully. Many of these factors are beyond the control of the
Company, and there can be no assurance that the Company's strategies will be
successful or that it will be able to generate cash flow adequate to support its
operations and internal growth. A key component of the Company's strategy is to
operate the Founding Companies and subsequently acquired businesses on a
decentralized basis, with local management retaining responsibility for
day-to-day operations, profitability and the growth of the business. If proper
overall business controls are not implemented or if management of the Founding
Companies and subsequently acquired businesses are not successful in adopting an
integrated operating approach, this decentralized operating strategy could
result in inconsistent operating and financial practices at the Founding
Companies and subsequently acquired businesses and the Company's overall
profitability could be adversely affected. See "Business -- Strategy."

RELIANCE ON PRINCIPAL CUSTOMERS

A significant portion of the Company's revenue has historically been
generated by a limited number of customers, although not necessarily the same
customers from year to year. For the nine months ended September 30, 1997, the
Company's ten largest customers collectively accounted for approximately 45% of
the Company's net sales. The loss of a significant customer for any reason,
including reduced production by a customer or competitive factors, could result
in a substantial loss of revenue and could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Customers."

INTEGRATION OF COMPUTER SYSTEMS AND RELIANCE ON COMPUTER SYSTEMS

The Company's success will be dependent in part on the Company's ability to
coordinate and integrate the management and information systems ("MIS") of the
Founding Companies that are used for ordering products, recording and analyzing
financial results, controlling inventory and performing other important
functions. There can be no assurance that the Company will be able to coordinate
and integrate the MIS economically or that the Company will not experience
delays, disruptions and unanticipated expenses in doing so. Any such event could
have a material adverse effect on the Company's business, financial condition
and results of operations. The Company will not be able to achieve fully certain
contemplated operating efficiencies and competitive advantages until it has
fully coordinated and integrated the MIS. Until the Company establishes
coordinated and integrated MIS, which may not occur for several years, it will
rely primarily on the separate systems of the Founding Companies. After the MIS
are integrated, the Company will rely heavily on them in its daily operations.
Consequently, any interruption in the operation

11
<PAGE>
of the MIS may have a material adverse effect on the Company's business,
financial condition and results of operations.

RELIANCE ON INDUSTRIES SUBJECT TO FLUCTUATING DEMAND

Certain of the Company's products are sold to customers in industries that
experience significant fluctuations in demand based on economic conditions,
energy prices, consumer demand and other factors beyond the control of the
Company. No assurance can be given that the Company will be able to increase or
maintain its level of sales in periods of economic stagnation or downturn.

RELIANCE ON KEY PERSONNEL

The Company will be highly dependent on the continuing efforts of its
executive officers and, due in part to the Company's decentralized operating
strategy, the senior management of the Founding Companies. In addition, the
Company is likely to depend on the senior management of any significant business
it acquires in the future. The Company's business, financial condition and
results of operations could be affected adversely if any of these persons do not
continue in his or her management role until the Company is able to attract and
retain qualified replacements. See "Management."

FLUCTUATIONS IN OPERATING RESULTS

The Company's results of operations may fluctuate significantly from
quarter to quarter or year to year because of a number of factors, including the
timing of future acquisitions, fluctuations in the demand for its distribution
services and competitive factors. Accordingly, quarterly comparisons of the
Company's revenues and operating results should not be relied on as an
indication of future performance, and the results of any quarterly period may
not be indicative of results to be expected for a full year. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

COMPETITION

The Company is engaged in a highly fragmented and competitive industry.
Competition is based primarily on service, quality and geographic proximity. The
Company competes with a large number of fastener distributors on a regional and
local basis, some of which may have greater financial resources than the Company
and some of which are public companies or divisions of public companies. The
Company may also face competition for acquisition candidates from these
companies, some of whom have acquired fastener distribution businesses during
the past decade. Other smaller fastener distributors may also seek acquisitions
from time to time. See "Business -- Competition."

DEPENDENCE ON SUPPLIERS

Certain types of specialized fasteners are available from only a limited
number of sources. If for any reason those sources became unavailable to the
Company, the Company would not be able to continue to sell such fasteners unless
an alternative supplier was located. The inability to supply certain types of
fasteners may adversely impact the Company's sales and its relationship with the
customers requiring such fasteners.

RISKS ASSOCIATED WITH GOVERNMENT REGULATION

The Company's operations are subject to a number of federal, state and
local regulations relating to the protection of the environment and to workplace
health and safety. In addition, the Fastener Quality Act may impose additional
tracking, marking and testing requirements on the Company that could result in
operating costs that could adversely affect the Company's business, financial
condition and results of operations. See "Business -- Government Regulation."

CONTROL BY EXISTING MANAGEMENT AND STOCKHOLDERS

Following the consummation of the Acquisitions and the Offering, the
Company's executive officers and directors, former stockholders of the Founding
Companies and entities affiliated with them will

12
<PAGE>
beneficially own approximately 64.8% of the outstanding shares of Common Stock
(61.5% if the Underwriters' over-allotment option is exercised in full). These
holders of Common Stock, if acting in concert, will be able to exercise control
over the Company's affairs, to elect the entire Board of Directors and to
control the outcome of any matter submitted to a vote of stockholders. See
"Principal Stockholders."

SUBSTANTIAL PROCEEDS OF OFFERING PAYABLE TO AFFILIATES OF FOUNDING COMPANIES

Of the net proceeds of the Offering, $28.7 million will be paid as the cash
portion of the purchase price for the Founding Companies. Certain of the
Founding Companies have incurred indebtedness that has been personally
guaranteed by their stockholders or by entities controlled by their
stockholders. Some of the recipients of these funds will become directors of the
Company or holders of more than 5% of the Common Stock. See "Principal
Stockholders." At December 31, 1997, the aggregate amount of indebtedness of
these Founding Companies was $30.7 million of which $19.1 million was subject to
personal guarantees. After December 31, 1997, the Founding Companies borrowed an
aggregate of approximately $5.0 million to fund distributions to shareholders of
the Founding Companies that are S-corporations representing
S-corporations earnings through the date of the Acquisitions previously taxed to
their respective stockholders (the "S-Corporation Distributions"). No funds
other than the borrowed funds will be used to make the S-Corporation
Distributions. The Company intends to use the net proceeds from the Offering,
together with borrowings available from the Company's revolving credit facility,
to repay substantially all of the indebtedness of the Founding Companies.
Additionally, MGCV has agreed to advance to Pentacon, until the consummation of
the Acquisitions and the Offering, such funds as are necessary to effect the
Acquisitions and the Offering and will be reimbursed from the proceeds of the
Offering in respect of such expenses. As of December 31, 1997, MGCV had advanced
the Company $0.9 million for such expenses. See "Use of Proceeds" and
"Certain Transactions."

NO PRIOR PUBLIC MARKET AND DETERMINATION OF OFFERING PRICE

Prior to the Offering, there has been no public market for the Common
Stock. Therefore, the initial public offering price for the Common Stock was
determined by negotiation between the Company and the Representatives of the
Underwriters and may bear no relationship to the price at which the Common Stock
will trade after the Offering. See "Underwriting" for the factors considered
in determining the initial public offering price. The Common Stock has been
approved for listing upon notice of issuance on the New York Stock Exchange.
However, there can be no assurance that an active trading market will develop
subsequent to the Offering or, if developed, that it will be sustained.

PRIVATE SALE OF COMMON STOCK TO STOCKHOLDERS OF THE FOUNDING COMPANIES

Due to changes in market conditions and certain delays in the consummation
of the Offering, the stockholders of the Founding Companies who are parties to
the agreements (the "Acquisition Agreements") in connection with the
Acquisitions (the "Founding Company Stockholders") may have a right under
certain provisions of the Acquisition Agreements to terminate the Acquisition
Agreements. The Founding Company Stockholders have agreed, however, not to
exercise such rights and to proceed with the transactions contemplated by the
Acquisition Agreements. The decision by the Founding Company Stockholders not to
exercise any such termination rights could, arguably, impact the private
placement exemption available for the offer and sale of Common Stock pursuant to
the Acquisition transactions. More specifically, if the offers and sales of
Common Stock pursuant to the Acquisition Agreements were deemed to be integrated
with the Offering (I.E., to be part of the public offering), a private placement
exemption from the registration requirements of the Securities Act would not be
available and certain rescission rights would be available to the Founding
Company Stockholders under the Securities Act. The Company, however, believes
that the offer and sale of Common Stock to the Founding Company Stockholders
would not be integrated with the Offering and would continue to qualify for a
private placement exemption. Furthermore, the Founding Company Stockholders will
enter into agreements with the Company pursuant to which the Founding Company
Stockholders agree (i) not to pursue any rescission rights which might be
available and (ii) to contribute any such rights to the Company in exchange for
the merger consideration payable under the Acquisition Agreements. There can be
no assurances that the Founding Company Stockholders' agreement to not pursue
any rescission rights will be enforceable under State securities laws.
Furthermore, Section 14 of the Securities Act provides that any provision
requiring any person acquiring

13
<PAGE>
securities to waive compliance with the provisions of the Securities Act is
void. In the event that a claim for rescission is brought by a substantial
number of the Founding Company Stockholders and a court were to hold that (i)
the private placement exemption was not available for the sale of Common Stock
to the Founding Company Stockholders, (ii) the Founding Company Stockholders are
entitled to rescission rights, (iii) the waiver agreements are unenforceable and
(iv) the recontribution agreements are unenforceable, the Company's operating
results and financial condition could be materially adversely affected. The
total value of the Common Stock delivered to the Founding Company Stockholders
in connection with the Acquisitions was $53.8 million. The Company believes that
a private placement exemption continues to exist and would vigorously resist any
efforts by the Founding Company Stockholders to assert rescission rights or any
noncompliance by the Founding Company Stockholders with the waiver or
recontribution agreements. Accordingly, the Company does not believe that the
potential rescission rights would have any material effect on the Company's use
of proceeds from the Offering. See "Certain Transactions -- Organization of the
Company."

VOLATILITY OF MARKET PRICE

After completion of the Offering, the market price of the Common Stock
could be subject to significant fluctuations due to variations in responses to
numerous factors, including the timing of any acquisitions by the Company,
variations in the Company's annual or quarterly financial results or those of
its competitors, changes by financial research analysts in their estimates of
the future earnings of the Company, conditions in the economy in general or in
the Company's industry in particular, unfavorable publicity or changes in
applicable laws and regulations (or judicial or administrative interpretations
thereof) affecting the Company or the fastener industry. In addition, the
securities markets have experienced significant price and volume fluctuations
from time to time in recent years. This volatility has had a significant effect
on the market prices of securities issued by many companies for reasons
unrelated to their operating performance, and these broad fluctuations may
adversely affect the market price of the Common Stock.

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

Upon consummation of the Acquisitions and the Offering, 14,750,000 shares
of Common Stock, including 667,000 shares of Restricted Common Stock will be
outstanding. The 5,200,000 shares sold in the Offering (other than shares that
may be purchased by affiliates of the Company) will be freely tradable. The
remaining outstanding shares may be resold publicly only following their
registration under the Securities Act of 1933, as amended (the "Securities
Act"), or pursuant to an available exemption from registration (such as
provided by Rule 144 following a one year holding period for previously
unregistered shares). The holders of these remaining shares have agreed with the
Company that they will not sell, transfer or otherwise dispose of any of their
shares for one year following the consummation of the Offering. Sales, or the
availability for sale, of substantial amounts of the Common Stock in the public
market could adversely affect prevailing market prices and the future ability of
the Company to raise equity capital and complete any additional acquisitions for
Common Stock. See "Shares Eligible for Future Sale."

POSSIBLE ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS

Pentacon's Second Amended and Restated Certificate of Incorporation
authorizes the Board of Directors to issue, without stockholder approval, one or
more series of preferred stock having such preferences, powers and relative,
participating, optional and other rights (including preferences over the Common
Stock respecting dividends and distributions and voting rights) as the Board of
Directors may determine. The issuance of this "blank-check" preferred stock
could render more difficult or discourage an attempt to obtain control of the
Company by means of a tender offer, merger, proxy contest or otherwise. In
addition, the Second Amended and Restated Certificate of Incorporation provides
for a classified Board of Directors, which may also have the effect of
inhibiting or delaying a change in control of the Company. Certain provisions of
the Delaware General Corporation Law may also discourage takeover attempts that
have not been approved by the Board of Directors. See "Description of Capital
Stock."

IMMEDIATE AND SUBSTANTIAL DILUTION

Purchasers of Common Stock in the Offering will experience immediate and
substantial dilution in the net tangible book value of their stock of $7.89 per
share and may experience further dilution in that value from issuances of Common
Stock in connection with future acquisitions. See "Dilution."

14
<PAGE>
THE COMPANY

Pentacon was founded in March 1997 to become the leading domestic and
international value-added distributor of fasteners and other small parts to
OEMs, to provide inventory procurement and management services and to
aggressively pursue the consolidation of the highly fragmented fastener
distribution industry. Pentacon has entered into agreements to acquire the
Founding Companies simultaneously with, and as a condition to, the consummation
of the Offering. The Founding Companies, which have been in business an average
of 25 years, had combined net sales of $120.0 million for the twelve months
ended December 31, 1996 and $151.8 million for the twelve months ended December
31, 1997, and serve in excess of 2,600 customers. For a description of the
transactions pursuant to which these businesses will be acquired, see "Certain
Transactions -- Organization of the Company." The following is a brief
description of the Founding Companies:

ALATEC PRODUCTS, INC. -- Alatec Products, Inc. ("Alatec"), headquartered
in Chatsworth, California, was founded in 1972 by Fred List. Alatec operates
through eight distribution facilities and sales offices located throughout the
United States. Alatec principally serves commercial aviation, defense
electronics, and other high-technology industries. Alatec had 1996 net sales of
$44.7 million, net sales of $42.3 million for the nine months ended September
30, 1997, and, as of September 30, 1997, employed 274 people. Donald B. List,
the President of Alatec, has been employed by Alatec for 20 years, will sign a
five-year employment agreement with Alatec to continue to serve as President of
Alatec following consummation of the Offering and will become a director of the
Company.

AXS SOLUTIONS, INC. -- AXS Solutions, Inc. ("AXS") is headquartered in
Erie, Pennsylvania. AXS was formed upon the merger of Hoyt Fastener, Corp.
("Hoyt"), an Illinois corporation, and Champion Bolt Corp. ("Champion"), a
Pennsylvania corporation, in 1996. Hoyt was incorporated in 1965 and Champion
was incorporated in 1967. AXS operates through two distribution facilities and
sales offices located in Pennsylvania and Illinois. AXS' principal customers are
in the power generation, locomotive, gas and steam turbine and small motor
industries. AXS had 1996 net sales of $23.2 million, net sales of $22.0 million
for the nine months ended September 30, 1997, and, as of September 30, 1997,
employed 70 people. The principal officers of AXS are Jack L. Fatica, the Chief
Executive Officer of AXS, who has been employed by AXS or its predecessors for
more than 30 years, Jeffrey P. Fatica, the President of the Champion division of
AXS, who has been employed by AXS for 21 years, and Robert M. Hoyt, the
President of the Hoyt division of AXS, who has been employed by AXS for 9 years.
Each of these individuals will sign a five-year employment agreement with AXS to
continue in his current position. Following the consummation of the Offering,
Jack L. Fatica will also become the President and Chief Operating Officer and a
director of the Company.

CAPITOL BOLT & SUPPLY, INC. -- Capitol Bolt & Supply, Inc. ("Capitol"),
headquartered in Austin, Texas, was founded in 1966 by Earl and Mary E. McClure.
Capitol operates through eight distribution facilities and sales offices located
in the Midwest and the South. Capitol principally serves the metals,
refrigeration, electronics and construction industries. Capitol had 1996 net
sales of $10.2 million, net sales of $9.0 million for the nine months ended
August 31, 1997, and, as of September 30, 1997, employed 50 people directly and
indirectly. Ms. McClure, the President of Capitol, has been employed by Capitol
for 31 years, will sign a five-year employment agreement with Capitol to
continue to serve as President of Capitol following consummation of the Offering
and will become a director of the Company.

MAUMEE INDUSTRIES, INC. -- Maumee Industries, Inc. ("Maumee"),
headquartered in Fort Wayne, Indiana, was founded in 1979 by Michael Black.
Maumee operates through four distribution facilities located primarily in the
Midwest. Maumee principally serves the automotive, recreational vehicle, heavy
duty truck and toy industries. Maumee had 1996 net sales of $26.2 million, net
sales of $27.5 million for the nine months ended September 30, 1997, and, as of
September 30, 1997, employed 142 people. The principal officers of Maumee are
Mr. Black, the President of Maumee, who has been employed by Maumee for 18
years, and Michael W. Peters, the Chief Executive Officer of Maumee, who has
been employed by Maumee for 11 years. Mr. Peters will sign a five-year
employment agreement with Maumee to continue to serve in his current position.
Mr. Black has signed an Advisory Agreement with Pentacon to provide

15
<PAGE>
advisory services to Pentacon. Following the consummation of the Offering, Mr.
Peters will become a director of the Company.

SALES SYSTEMS, LIMITED -- Sales Systems, Limited ("SSL"), headquartered
in Allentown, Pennsylvania, was founded in 1979 and prior to consummation of the
Offering, will be owned principally by Benjamin E. Spence, Jr. and Richard
Knorr. SSL operates through two distribution facilities and sales offices in
Pennsylvania and South Carolina. SSL principally serves the motor vehicles,
furniture and equipment, general service machinery and transport equipment
industries. SSL had 1996 net sales of $15.7 million, net sales of $12.0 million
for the nine months ended September 30, 1997, and, as of September 30, 1997,
employed 44 people directly and indirectly. The principal officers of SSL are
Mr. Spence, the President of SSL, who has been employed by SSL for 18 years, and
Richard Knorr, the Vice President of SSL, who has been employed by SSL for 16
years. Each of these individuals will sign a five-year employment agreement with
SSL to continue to serve in their current positions. Following the consummation
of the Offering, Mr. Spence will become a director of the Company.

Pentacon's executive offices are located at 9821 Katy Freeway, Suite 500,
Houston, Texas 77024, and its telephone number is (800) 315-6979.

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<PAGE>
USE OF PROCEEDS

The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby, after deducting estimated underwriting discounts and commissions
and estimated offering expenses payable by the Company, are estimated to be
approximately $44.1 million (approximately $51.4 million if the Underwriters
exercise their over-allotment option in full).

Of the net proceeds, the Company estimates that approximately $28.7 million
will be used to pay the cash portion of the purchase price for the Founding
Companies, all of which will be paid to the stockholders of the Founding
Companies. The remainder of the purchase price for the Founding Companies will
be paid by the issuance of 6,720,000 shares of Common Stock to their
stockholders. The total value of the cash and stock paid for the Founding
Companies will equal $82.4 million (based on an estimated fair value per share
equal to the assumed initial public offering price less a marketability discount
of 20%). In addition, approximately $15.5 million of the net proceeds will be
used to repay outstanding indebtedness of the Founding Companies at the closing
of the Offering. Of that $15.5 million, (i) approximately $5.1 million is owed
by Maumee to a financial institution, bears interest at 1.5% over the bank's
base rate or 10% at December 31, 1997 and matures May 31, 2000 and (ii)
approximately $7.1 million of the $9.8 million currently outstanding under a
line of credit provided to Alatec by a financial institution, bears interest at
the prime rate or 8.5% at December 31, 1997 and matures in June 1999. The
remaining indebtedness of $3.3 million to be repaid from the proceeds of the
Offering consists of various notes payable that bear interest ranging from 6.2%
to 9.3% and mature at various dates through January 2002. See "Certain
Transactions." After the consummation of the Offering and the Acquisitions and
after giving effect to the application of the proceeds as described above and to
the anticipated draw down on the Company's credit facilities, described below,
to pay off the Founding Companies' current indebtedness, the Company expects to
have a total of $10.8 million in debt outstanding.

The Company has obtained a commitment from a bank for a credit facility of
$50 million. The bank has also committed to use its best efforts to form a
syndicate for an additional $25 million credit facility. The Company intends to
use such facilities for working capital, payoff of indebtedness of the Founding
Companies, and acquisitions. The credit facilities will be subject to customary
drawing conditions and the completion of negotiations with the lender and the
execution of appropriate loan documentation.

DIVIDEND POLICY

The Company intends to retain all its earnings, if any, to finance the
expansion of its business, and does not anticipate paying any cash dividends on
its Common Stock in the foreseeable future. Any future dividends will be at the
discretion of the Board of Directors after taking into account various factors,
including, among others, the Company's financial condition, results of
operations, cash flows from operations, current and anticipated cash needs and
expansion plans, the income tax laws then in effect and the requirements of
Delaware law. In addition, the credit facility may restrict or prohibit the
payment of dividends by the Company. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Results of
Operations -- Combined -- Combined Liquidity and Capital Resources."

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<PAGE>
CAPITALIZATION

The following table sets forth the capitalization at December 31, 1997 (i)
of the Company on a pro forma combined basis to give effect to the Acquisitions
and (ii) of the Company, as adjusted, to give effect to both the Acquisitions
and the Offering and the application of the estimated net proceeds therefrom.
See "Use of Proceeds." This table should be read in conjunction with the
Unaudited Pro Forma Combined Financial Statements of the Company and the Notes
thereto included elsewhere in this Prospectus.

DECEMBER 31, 1997
------------------------------
PRO FORMA(1) AS ADJUSTED
-------------- ------------
(IN THOUSANDS)
Cash................................. $ 1,856 $ 1,856
============== ============
Current maturities of long-term
obligations, notes payable, and
capital lease obligations.......... $ 14,426 $ 5,546
Long-term obligations, less current
maturities(2)...................... 44,467 8,297
Stockholders' equity:
Preferred Stock: $0.01 par
value, 10,000,000 shares
authorized; no shares issued
and outstanding -- --
Common Stock: $0.01 par value,
51,000,000 shares authorized;
9,550,000 shares issued and
outstanding, pro forma; and
14,750,000 shares issued and
outstanding, as adjusted(3)... 95 147
Additional paid-in capital........... 39,189 83,247
Retained earnings.................... 9,769 9,769
-------------- ------------
Total stockholders' equity...... 49,053 93,163
-------------- ------------
Total capitalization....... $107,946 $107,006
============== ============
- ------------
(1) Combines the respective accounts of Pentacon and the Founding Companies as
reflected in the pro forma combined balance sheet as of December 31, 1997.

(2) Includes $28,662,387 for the obligation to pay the cash portion of the
purchase price for the Founding Companies.

(3) Consists of (i) 6,720,000 shares to be issued to the owners of the Founding
Companies, (ii) 515,000 shares issued to the management of Pentacon, (iii)
20,000 shares to be granted upon consummation of the Offering under
restricted stock grants to two non-employee directors, (iv) 2,295,000 shares
issued to McFarland, Grossman Capital Ventures, II, L.C. ("MGCV"),
including 667,000 shares of Restricted Common Stock, and (v) 5,200,000
shares to be sold in the Offering. Excludes (i) outstanding options to
purchase 420,000 shares at an exercise price equal to the initial public
offering price, (ii) options to purchase 600,000 shares at the initial
public offering price which are expected to be granted to employees of the
Founding Companies upon consummation of the Offering, (iii) options to
purchase 30,000 shares at the initial public offering price expected to be
granted to two non-employer directors upon the consummation of the Offering,
and (iv) outstanding warrants to purchase 50,000 shares at an exercise price
equal to the lesser of $8.00 per share or 60% of the initial public offering
price granted to certain Company consultants. See "Management," "Certain
Transactions," and "Description of Capital Stock -- Common Stock and
Restricted Common Stock."

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<PAGE>
DILUTION

The deficit in pro forma net tangible book value of the Company at December
31, 1997 was approximately $12.9 million or $1.35 per share after giving effect
to the Acquisitions but before the Offering. Pro forma net tangible book value
per share is the adjusted tangible net worth (total tangible assets less total
liabilities) of the Company divided by the number of shares of Common Stock
outstanding after giving effect to the Acquisitions. Net tangible book value
dilution per share represents the difference between the amount per share paid
by purchasers of shares of Common Stock in the Offering and the pro forma net
tangible book value per share after the Offering. After giving effect to the
sale of the shares of Common Stock offered hereby (at a price of $10.00 per
share and after deducting underwriting discounts and commissions and estimated
offering expenses), the pro forma net tangible book value of the Company at
December 31, 1997 would have been $31.2 million or $2.11 per share, representing
an immediate increase in net tangible book value of $3.46 per share to existing
stockholders and an immediate dilution of $7.89 per share to the investors
purchasing the shares in the Offering ("New Investors"). The following table
illustrates this dilution to New Investors:

Initial public offering price per
share.............................. $ 10.00
---------
Pro forma deficit in net
tangible book value per share
at December 31, 1997........... $ (1.35)
Increase in net tangible book
value per share attributable to
New Investors.................. 3.46
---------
Pro forma net tangible book value per
share after the Offering........... 2.11
---------
Dilution per share to New
Investors.......................... $ 7.89
=========

The following table sets forth as of the date of this Prospectus the number
of shares of Common Stock purchased from the Company, the total consideration to
the Company and the average price per share paid by existing stockholders (after
giving effect to the Acquisitions) and by the New Investors:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION(1)
--------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
<S> <C> <C> <C> <C> <C>
Existing stockholders (including
owners of Founding Companies)...... 9,550,000 64.7% $(12,405,000) (31.3)% $ (1.30)
New Investors........................ 5,200,000 35.3 52,000,000 131.3 10.00
---------- ------- ------------ ------- -------------
Total........................... 14,750,000 100.0% $ 39,595,000 100.0% $ 2.68
========== ======= ============ ======= =============
</TABLE>
- ------------
(1) Total consideration paid by existing stockholders represents the combined
stockholders' equity of the Founding Companies and Pentacon before the
offering of approximately $16.3 million, adjusted to reflect the payment of
approximately $28.7 million in cash to the stockholders of the Founding
Companies as part of the consideration for the Acquisitions. See "Certain
Transactions."

19
<PAGE>
SELECTED FINANCIAL DATA

Pentacon will acquire the Founding Companies simultaneously with and as a
condition to the consummation of the Offering. Pentacon has adopted a fiscal
year-end of September 30. For financial statement presentation purposes, Alatec
has been identified as the "accounting acquiror." Effective January 1, 1997,
Alatec changed its fiscal year to September 30. The following selected
historical financial data for Alatec as of and for the years ended December 31,
1995 and 1996 and the nine month period ended September 30, 1997 have been
derived from audited financial statements of Alatec included elsewhere in this
Prospectus. The selected historical financial data as of, and for the years
ended December 31, 1993 and 1994, and as of and for the three months ended
December 31, 1996 and 1997 has been derived from unaudited financial statements
of Alatec, which have been prepared on the same basis as the audited financial
statements and, in the opinion of Alatec, reflect all adjustments consisting of
normal recurring adjustments, necessary for a fair presentation of such data.
The following summary unaudited pro forma combined financial data presents
certain data for the Company, adjusted for (i) the Acquisitions, (ii) the
effects of certain pro forma adjustments to the historical financial statements
and (iii) the consummation of the Offering and the application of the net
proceeds therefrom. See the Unaudited Pro Forma Combined Financial Statements
and the notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
ALATEC
--------------------------------------------------------------------------------
NINE MONTHS THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, ENDED DECEMBER 31,
------------------------------------------ SEPTEMBER 30, --------------------
1993 1994 1995 1996 1997 1996 1997
---- ---- ---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales........................ $ 30,935 $ 33,700 $ 41,204 $ 44,726 $42,296 $ 11,458 $ 14,502
Cost of goods sold............... 20,004 21,926 26,196 26,707 25,114 6,970 8,554
--------- --------- --------- --------- ------------- --------- ---------
Gross profit................. 10,931 11,774 15,008 18,019 17,182 4,488 5,948
Selling, general and
administrative expenses(2)..... 9,795 10,238 11,285 12,818 11,664 3,481 5,417
Goodwill amortization(3)......... -- -- -- -- -- -- --
--------- --------- --------- --------- ------------- --------- ---------
Operating income............. 1,136 1,536 3,723 5,201 5,518 1,007 531
Interest and other income
(expense), net(4).............. (885) (699) (1,304) (1,062) (989) (215) 283
--------- --------- --------- --------- ------------- --------- ---------
Income before income taxes... 251 837 2,419 4,139 4,529 792 248
Income taxes..................... 97 384 995 1,628 1,860 317 103
--------- --------- --------- --------- ------------- --------- ---------
Net income................... $ 154 $ 453 $ 1,424 $ 2,511 $ 2,669 $ 475 $ 145
========= ========= ========= ========= ============= ========= =========
Net income per share...............................................................................................
Shares used in computing pro forma net income per share(5).........................................................
</TABLE>

THE COMPANY
----------------------------
TWELVE
ENDED ENDED
SEPTEMBER 30, DECEMBER 31,
1997(1) 1997(1)
------- -------

INCOME STATEMENT DATA:
Net sales........................ $146,117 $ 39,042
Cost of goods sold............... 96,659 25,367
------------- ------------
Gross profit................. 49,458 13,675
Selling, general and
administrative expenses(2)..... 35,551 10,819
Goodwill amortization(3)......... 1,463 366
------------- ------------
Operating income............. 12,444 2,490
Interest and other income
(expense), net(4).............. (909) (229)
------------- ------------
Income before income taxes... 11,535 2,261
Income taxes..................... 5,336 1,077
------------- ------------
Net income................... $ 6,199 $ 1,184
============= ============
Net income per share............. $ 0.42 $ 0.08
Shares used in computing pro form 14,770,000 14,770,000
<TABLE>
<CAPTION>
ALATEC
------------------------------------------------------------------------ THE COMPANY
AS OF DECEMBER 31, AS OF AS OF -----------
------------------------------------------ SEPTEMBER 30, DECEMBER 31, PRO FORMA
1993 1994 1995 1996 1997 1997 COMBINED(6)
---- ---- ---- ---- ---- ---- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash............................. $ 95 $ 237 $ 117 $ 256 $ 733 $ -- $ 1,856
Working capital.................. 3,611 3,835 13,308 17,130 20,155 20,479 23,899
Total assets..................... 15,255 19,902 23,226 28,519 34,911 36,855 133,029
Total debt (including capital
lease obligations)............. 7,403 9,671 10,698 11,588 14,050 14,298 58,893(8)
Stockholders' equity............. 3,662 3,695 5,119 7,630 8,384 8,529 49,053
</TABLE>
AS
ADJUSTED(7)
-----------
BALANCE SHEET DATA:
Cash............................. $ 1,856
Working capital.................. 32,779
Total assets..................... 132,089
Total debt (including capital
lease obligations)............. 13,844
Stockholders' equity............. 93,163

(FOOTNOTES ON FOLLOWING PAGE)

20
<PAGE>
- ------------
(1) The pro forma combined income statement data assumes that the Acquisitions
and Offering were closed at the beginning of the period presented (except
for Capitol, whose historical results for twelve months from September 1,
1996 to August 31, 1997 were used for the twelve months ended September 30,
1997 pro forma information), and are not necessarily indicative of the
results the Company would have obtained had these events actually then
occurred or of the Company's future results. During the periods presented
above, the Founding Companies were not under common control or management
and, therefore, the data presented may not be comparable to or indicative of
post-combination results to be achieved by the Company. The pro forma
combined income statement data is based on available information and certain
assumptions that management deems appropriate and should be read in
conjunction with the other financial statements and notes thereto included
elsewhere in this Prospectus. Neither the potential cost savings from
consolidating certain operational and administrative functions nor the costs
of corporate overhead, other than salaries of executive officers, have been
included in the pro forma combined financial information.

(2) The twelve months ended September 30, 1997 and the three months ended
December 31, 1997 pro forma combined income statement data reflects an
aggregate of approximately $2,975,000 and $1,056,000, respectively, in pro
forma reductions in salary and benefits of the owners of the Founding
Companies to which they have agreed prospectively, and $600,000 and
$150,000, respectively, in pro forma increases in salary and benefits to the
corporate management and $159,000 and $40,000, respectively, of expense
reductions for the effect of revisions of certain lease agreements between
certain stockholders of the Founding Companies and those Founding Companies.
See "Certain Transactions."

(4) Includes interest income (expense) and other income (expense); net pro forma
interest expense reflects a reduction in interest for the twelve months
ended September 30, 1997 and the three months ended December 31, 1997 of
$1,545,000 and $331,000, respectively, related to repayment of indebtedness
with the proceeds from the Offering. See "Use of Proceeds."

(8) Includes $28,662,381 for the obligation to pay the cash portion of the
purchase price for the Founding Companies.

21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the Founding
Companies' Financial Statements and related notes thereto and "Selected
Financial Data" appearing elsewhere in this Prospectus.

INTRODUCTION

The Company's revenues are derived from the sale of fasteners and other
small parts with associated inventory management services. Net sales are
recognized upon shipment of the product to the customer.

Cost of goods and services consists primarily of materials, cost of
products sold, costs for product processing and modification, freight and
obsolescence. Selling, general and administrative expenses consist primarily of
compensation and related benefits, advertising, facility rent and utilities,
communications and professional fees. Certain owners and certain key employees
of the Founding Companies have agreed to reductions totaling $3.2 million in
their compensation and related benefits in connection with their acquisition by
the Company on a pro forma basis for the twelve months ended December 31, 1997.
Such reductions in salaries, bonuses and benefits are in accordance with the
terms of employment agreements. Certain facility leases have also been
renegotiated and the lessors have agreed to reductions totaling approximately
$159,000 on a pro forma basis for the twelve months ended December 31, 1997.
Both adjustments have been reflected as a pro forma adjustment in the Unaudited
Pro Forma Combined Statement of Operations but have not been reflected in the
Historical Combined Statement of Operations.

The Company anticipates that following the Acquisitions it will realize
savings from (i) greater volume discounts from suppliers and (ii) consolidation
of insurance programs and other general and administrative expenses. However,
there will be costs related to the Company's new corporate management, costs
associated with being a public company and integration costs. None of these
savings or incremental costs are reflected in the Pro Forma or Historical
Combined Statement of Operations.

In November 1997, the Company recorded a non-recurring non-cash
compensation charge of $4.7 million relating to certain shares of Common Stock
sold to management, based on the difference between an estimated initial public
offering price with a twenty percent marketability discount and the amount paid
for the shares. In January 1998, the Company made a restricted stock grant of
65,000 shares to an employee of the Company and agreed to make a restricted
stock grant of 20,000 shares to two non-employee directors. The total of 85,000
shares will vest ratably over three years. The Company will recognize
approximately $680,000 of compensation expense ratably over three years, based
on the initial public offering price net of a 20% marketability discount. These
charges will be offset by increases in equal amounts in stockholders equity (par
value common stock and paid-in capital).

As a result of the acquisition of the Founding Companies other than Alatec,
the excess of the fair value of the consideration paid over the fair value of
the net assets to be acquired will be recorded as goodwill on the Company's
balance sheet. Goodwill will be amortized as a non-cash charge to the income
statement over a 40-year period. The initial amount of goodwill will be $58.5
million and the pro forma impact of this amortization expense, which is
non-deductible for tax purposes, is expected to be approximately $1.5 million
per year. Such amortization expense is reflected in the Pro Forma Combined
Results of Operations but not the Historical Combined Results of Operations.

The following sections present the results of the four largest Founding
Companies on an individual basis and on a combined basis for all Founding
Companies. The results of Capitol have not been presented separately as they do
not represent a significant portion of the combined Company's net sales. The
combined results do not include certain pro forma adjustments that the Company
expects to incur following the Acquisitions, including the reduction of salaries
among key employees of the Founding Companies and an increase in corporate
expenses. Pentacon has adopted a fiscal year-end of September 30, and the
accounting acquiror, Alatec, has changed its fiscal year to September 30 to
conform to Pentacon's fiscal year-end. The nine-month period ended September 30,
1997 is therefore used for comparison purposes to the year ended December 31,
1996. Pentacon was founded in March 1997 and does not have financial statements
for the nine-month period ended September 30, 1996. For the remaining Founding
Companies,

22
<PAGE>
the nine-month period ended September 30, 1997 is compared to the year ended
December 31, 1996. The comparison below between the nine months ended September
30, 1997 and prior period is made as follows: (i) for net sales, the comparison
is made versus the unaudited nine months ended September 30, 1996, and (ii) for
cost of goods sold, gross profit, selling, general and administrative expenses
and operating income, the comparison is made on a percentage of sales basis
between the nine months ended September 30, 1997 and the twelve months ended
December 31, 1996.

RESULTS OF OPERATIONS -- COMBINED

The Combined Founding Companies Statements of Operations for the years
ended December 31, 1995 and 1996 and for the fiscal period comprised of the nine
months ended September 30, 1997 do not purport to present results of operations
of the combined Founding Companies in accordance with generally accepted
accounting principles, but are only a summation of the revenues, gross profit
and operating costs and expenses of the individual Founding Companies on a
historical basis and exclude the effects of pro forma adjustments. This data may
not be comparable to and may not be indicative of the Company's post combination
results of operations because (i) the Founding Companies were not under common
control or management during the periods presented; (ii) the Founding Companies
used different tax structures (S corporations and C corporations) during the
periods presented; (iii) the Company will incur incremental costs related to its
new corporate management and the costs of being a public company; (iv) the
Company will use the purchase method to record the Acquisitions, resulting in
the recording of goodwill that will be amortized over 40 years; and (v) the
combined data does not reflect the compensation differential and potential
benefits and costs savings the Company expects to realize when operating as a
combined entity.

The following table sets forth the combined results of operations of the
Founding Companies on a historical basis and such results as a percentage of net
sales.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED DECEMBER 31,
------------------------------------------ SEPTEMBER 30, 1997 --------------------
1995 1996 1996
-------------------- -------------------- -------------------- --------------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............................ $ 104.1 100.0% $ 120.0 100.0% $ 112.8 100.0% $ 33.3 100.0%
Cost of sales........................ 70.3 67.5 79.0 65.8 74.3 65.9 22.3 67.0
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit......................... 33.8 32.5 41.0 34.2 38.5 34.1 11.0 33.0
</TABLE>
1997
--------------------
Net sales............................ $ 39.0 100.0%
Cost of sales........................ 25.3 64.9
--------- ---------
Gross profit......................... 13.7 35.1

COMBINED THREE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO THREE MONTHS ENDED
DECEMBER 31, 1996

NET SALES. Combined net sales increased $5.7 million, or 17.1%, from $33.3
million for the three months ended December 31, 1996 to $39.0 million for the
three months ended December 31, 1997. The increase in combined net sales was
attributable to several factors, including net sales to new customers and an
increase in net sales to existing customers, primarily at Alatec and Maumee,
partially offset by a decrease in net sales at AXS. Net sales for Alatec
increased $3.0 million from the three months ended December 31, 1996 to the
three months ended December 31, 1997 due to an increase in net sales to existing
customers. Net sales for Maumee increased $3.5 million from the three months
ended December 31, 1996 to the three months ended December 31, 1997 due to an
increase in net sales to new and existing customers. Net sales for AXS decreased
$1.2 million from the three months ended December 31, 1996 to the three months
ended December 31, 1997 due to the loss of a customer and a decrease in net
sales to existing customers.

COST OF SALES. Combined cost of sales increased $3.0 million, or 13.5%,
from $22.3 million for the three months ended December 31, 1996 to $25.3 million
for the three months ended December 31, 1997. As a percentage of combined net
sales, combined cost of sales decreased from 67.0% in the three months ended
December 31, 1996 to 64.9% in the three months ended December 31, 1997. The
decrease was primarily due to reductions at Alatec and Maumee, partially offset
by an increase in the cost of sales percentage at AXS. As a percentage of net
sales, Alatec's cost of sales decreased from 60.9% in the three months ended
December 31, 1996 to 59.3% in the three months ended December 31, 1997. The
decrease was due to an increase in sales of products with higher margins. As a
percentage of net sales, Maumee's cost of sales decreased from 78.6% in the
three months ended December 31, 1996 to 70.5% in the three months ended

23
<PAGE>
December 31, 1997. The decrease was due to an increase in sales of products with
higher margins. As a percentage of net sales, AXS' cost of sales increased from
65.1% in the three months ended December 31, 1996 to 67.6% in the three months
ended December 31, 1997. The increase in costs was due to initial
implimentations of inventory management systems at customer locations.

COMBINED NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO TWELVE MONTHS ENDED
DECEMBER 31, 1996

NET SALES. Combined net sales increased $26.3 million, or 30.4%, from
$86.5 million for the nine months ended September 30, 1996 to $112.8 million for
the nine months ended September 30, 1997. The increase in combined net sales was
attributable to several factors, including net sales to new customers and an
increase in net sales to existing customers primarily at Alatec, AXS and Maumee
and an acquisition in the third quarter of 1996 by AXS. Net sales for Alatec
increased $9.0 million from the nine months ended September 30, 1996 to the nine
months ended September 30, 1997 due to an increase in net sales to new and
existing customers. Net sales for AXS increased $7.4 million from the nine
months ended September 30, 1996 to the nine months ended September 30, 1997 due
primarily to an acquisition during 1996 that accounted for $5.0 million of the
increase, three new customers that accounted for $0.8 million of the increase
and $1.0 million attributable to increased sales to new and existing customers
due to the customers' implementation of new inventory management systems. Net
sales for Maumee increased $8.3 million from the nine months ended September 30,
1996 to the nine months ended September 30, 1997 due to an approximately $4.5
million increase in sales to new customers and an approximately $5.5 million
increase with existing customers, offset by a $1.2 million reduction in net
sales to one existing customer. Net sales for the twelve months ended December
31, 1996 were $120.0 million compared to net sales for the nine months ended
September 30, 1997 of $112.8 million.

COST OF SALES. As a percentage of net sales, combined cost of sales
remained consistent at 65.8% in the twelve months ended December 31, 1996 and
65.9% in the nine months ended September 30, 1997.

COMBINED YEAR ENDED 1996 COMPARED TO YEAR ENDED 1995

NET SALES. Combined net sales increased $15.9 million, or 15.3%, from
$104.1 million in 1995 to $120.0 million in 1996. Net sales for Alatec increased
$3.5 million from 1995 to 1996 due to an increase in net sales to existing
customers. Net sales for AXS increased $3.0 million from 1995 to 1996 due to an
acquisition in 1996 that accounted for $2.7 million of the increase. Net sales
for Maumee increased $5.6 million from 1995 to 1996 due to an increase in net
sales to new and existing customers. Net sales for SSL increased $3.5 million
primarily due to an increase of approximately $2.2 million in net sales to an
existing customer.

COST OF SALES. Combined cost of sales increased $8.7 million, or 12.4%,
from $70.3 million in 1995 to $79.0 million in 1996. The increase in combined
cost of sales was primarily a result of the increase in net sales for 1996 and
increased costs related to AXS' 1996 acquisition. As a percentage of net sales,
combined cost of sales decreased from 67.5% in 1995 to 65.8% in 1996 primarily
due to an increase in sales of products with higher margins.

COMBINED LIQUIDITY AND CAPITAL RESOURCES

On a combined basis, the Founding Companies used $0.3 million of net cash
from operating activities during the three months ended December 31, 1997,
primarily for working capital requirements. Net cash used in investing
activities was $0.3 million, primarily for capital expenditures. Net cash used
in financing activities was $1.2 million for the three months ended December 31,
1997 and primarily consisted of reductions in net borrowings under lines of
credit of $1.7 million and net increases in stockholder borrowings of $0.4
million. At December 31, 1997, the combined Founding Companies had cash of $1.9
million, working capital of $20.8 million and total debt of $30.7 million
(including $13.2 million of debt to related parties).

On a combined basis the Founding Companies generated $2.1 million of net
cash from operating activities for the nine months ended September 30, 1997,
which was used primarily for working capital

24
<PAGE>
requirements. Net cash used in investing activities was $0.6 million on a
combined basis for the nine months ended September 30, 1997, primarily for
capital expenditures. Net cash used in financing activities was $1.9 million for
the nine months ended September 30, 1997 and primarily consisted of
distributions to stockholders of $1.2 million and reductions in borrowings under
lines of credit of $1.6 million. At September 30, 1997, the combined Founding
Companies had cash of $3.6 million, working capital of $26.0 million and total
debt of $26.1 million (including $7.0 million of debt to related parties).

On a combined basis, the Founding Companies generated $0.4 million of net
cash from operating activities during the three months ended December 31, 1996,
primarily for working capital requirements. Net cash used in investing
activities was $0.3 million, primarily for capital expenditures. Net cash
generated by financing activities was $0.2 million for the three months ended
December 31, 1996 and primarily consisted of reductions in net borrowings under
lines of credit.

On a combined basis, the Founding Companies generated $2.2 million of net
cash from operating activities during 1996 primarily for working capital
requirements. Net cash used in investing activities was $0.3 million on a
combined basis for 1996 and was used primarily for capital expenditures. Net
cash used in financing activities was $0.4 million on a combined basis and
primarily consisted of advances under lines of credit of $1.8 million offset by
distributions to stockholders of $1.2 million. At December 31, 1996, the
combined Founding Companies had cash of $3.9 million, working capital of $23.9
million and total debt of $25.3 million, including $2.5 million of debt to
related parties.

The Company has obtained a commitment from a bank for a credit facility of
$50 million. The bank has also committed to use its best efforts to form a
syndicate for an additional $25 million credit facility. The Company intends to
use such facilities for working capital, payoff of indebtedness of the Founding
Companies and acquisitions. The credit facilities will be subject to customary
drawing conditions and the completion of negotiations with the lender and the
execution of appropriate loan documentation.

The Company intends to actively pursue acquisition opportunities. The
Company expects to fund acquisitions through the issuance of additional Common
Stock, borrowings (including use of amounts available under its credit facility)
and cash flow from operations. The Company has agreed to repay substantially all
of the Founding Companies' outstanding bank loans. Such payments will include
$150,000 in prepayment penalties. Capital expenditures for equipment and
expansion of facilities are expected to be funded from cash flow from operations
and supplemented as necessary by borrowings from the credit facility or other
sources of financing. The Company anticipates that its cash flow from operations
will be sufficient to meet the Company's normal working capital and debt service
requirements for at least the next several years.

The Company anticipates spending approximately $2.5 million on updating and
combining the Founding Companies' computer systems. Such costs include the
estimated cost of any software updates required to allow the systems to process
data attributable to the year 2000 and thereafter. The funds to pay such costs
will be obtained from cash flow, the Company's credit facilities, or both.

RESULTS OF OPERATIONS -- ALATEC

Alatec, headquartered in Chatsworth, California, was founded in 1972 and
operates through eight distribution facilities and sales offices located
throughout the United States. Alatec principally serves the commercial aviation,
defense electronics and other high-technology industries.

25
<PAGE>
The following table sets forth certain historic data and such data as a
percentage of net sales for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED DECEMBER 31,
------------------------------------------ SEPTEMBER 30, 1997 --------------------
1995 1996 1996
-------------------- -------------------- -------------------- --------------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............................ $ 41.2 100.0% $ 44.7 100.0% $ 42.3 100.0% $ 11.5 100.0%
Cost of sales........................ 26.2 63.6 26.7 59.7 25.1 59.3 7.0 60.9
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit......................... 15.0 36.4 18.0 40.3 17.2 40.7 4.5 39.1
Selling, general and administrative
expenses........................... 11.3 27.4 12.8 28.6 11.7 27.7 3.5 30.4
--------- --------- --------- --------- --------- --------- --------- ---------
Operating income..................... $ 3.7 9.0% $ 5.2 11.7% $ 5.5 13.0% $ 1.0 8.7%
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
1997
--------------------

Net sales............................ $ 14.5 100.0%
Cost of sales........................ 8.6 59.3
--------- ---------
Gross profit......................... 5.9 40.7
Selling, general and administrative
expenses........................... 5.4 37.2
--------- ---------
Operating income..................... $ 0.5 3.5%
========= =========

ALATEC THREE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO THREE MONTHS ENDED
DECEMBER 31, 1996

NET SALES. Net sales increased $3.0 million, or 26.1%, from $11.5 million
for the three months ended December 31, 1996 to $14.5 million for the three
months ended December 31, 1997. The increase in net sales was due to an increase
in net sales to existing customers.

COST OF SALES. Cost of sales increased $1.6 million, or 22.9%, from $7.0
million for the three months ended December 31, 1996 to $8.6 million for the
three months ended December 31, 1997. As a percentage of net sales, cost of
sales decreased from 60.9% in the three months ended December 31, 1996 to 59.3%
in the three months ended December 31, 1997. The decrease was due to an increase
in sales of products with higher margins.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $1.9 million, or 54.3%, from $3.5 million in
the three months ended December 31, 1996 to $5.4 million in the three months
ended December 31, 1997. As a percentage of net sales, selling, general and
administrative expenses increased from 30.4% for the three months ended December
31, 1996 to 37.2% for the three months ended December 31, 1997. This increase
was primarily due to increased personnel to support increased sales volume,
compensation increases, increased commissions on increased sales and
professional fees incurred in connection with the purchase transaction.

OPERATING INCOME. Due to the factors discussed above, operating income
decreased $0.5 million from $1.0 million for the three months ended December 31,
1996 to $0.5 million for the three months ended December 31, 1997. As a
percentage of net sales, operating income decreased from 8.7% for the three
months ended December 31, 1996 to 3.5% for the three months ended December 31,
1997.

ALATEC NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO TWELVE MONTHS ENDED
DECEMBER 31, 1996

NET SALES. Net sales increased $9.0 million, or 27.0%, from $33.3 million
for the nine months ended September 30, 1996 to $42.3 million for the nine
months ended September 30, 1997. Approximately $1.0 million of this increase was
attributable to new customers and approximately $8.0 million was due to an
increase in net sales to existing customers. Net sales for the twelve months
ended December 31, 1996 were $44.7 million compared to net sales for the nine
months ended September 30, 1997 of $42.3 million.

COST OF SALES. As a percentage of net sales, cost of sales remained
relatively constant at 59.3% in the nine months ended September 30, 1997
compared to 59.7% in the twelve months ended December 31, 1996.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. As a percentage of net
sales, selling, general and administrative expenses decreased from 28.6% in the
twelve months ended December 31, 1996 to 27.7% in the nine months ended
September 30, 1997. This percentage decrease was a result of the increase in net
sales without a commensurate increase in administrative costs.

26
<PAGE>
OPERATING INCOME. As a percentage of net sales, operating income increased
from 11.7% in the twelve months ended December 31, 1996 to 13.0% in the nine
months ended September 30, 1997 as a result of the factors discussed above.

ALATEC YEAR ENDED 1996 COMPARED TO YEAR ENDED 1995

NET SALES. Net sales increased $3.5 million, or 8.5%, from $41.2 million
in 1995 to $44.7 million in 1996. Approximately $1.0 million of this increase
was attributable to new customers and approximately $2.5 million was due to an
increase in net sales to existing customers.

COST OF SALES. Cost of sales increased $0.5 million, or 1.9%, from $26.2
million in 1995 to $26.7 million in 1996. As a percentage of net sales, cost of
sales decreased from 63.6% in 1995 to 59.7% in 1996. The decrease was primarily
due to an increase in sales of products with higher margins.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $1.5 million, or 13.3%, from $11.3 million in
1995 to $12.8 million in 1996. Approximately $0.6 million of this increase was
due to the hiring of additional personnel to support certain new just in time
supply contracts and the majority of the remainder was related to wage increases
and overtime expense. As a percentage of net sales, selling, general and
administrative expenses increased from 27.4% in 1995 to 28.6% in 1996.

OPERATING INCOME. Due to the factors discussed above, operating income
increased $1.5 million, or 40.5%, from $3.7 million in 1995 to $5.2 million in
1996. As a percentage of net sales, operating income increased from 9.0% in 1995
to 11.7% in 1996.

ALATEC LIQUIDITY AND CAPITAL RESOURCES

At December 31, 1997, Alatec had working capital of $20.5 million, compared
to working capital of $17.1 million and $20.2 million at December 31, 1996 and
September 30, 1997, respectively. Alatec's principal capital requirements have
been to fund inventory and accounts receivable and purchase and upgrade property
and equipment. Historically, these requirements have been met by cash flows from
operating activities and borrowings under bank lines of credit.

Net cash provided by (used in) operating activities for the years ended
December 31, 1995 and 1996, the nine months ended September 30, 1997 and the
three months ended December 31, 1996 and 1997 was $(1.1) million, $(0.4)
million, $0.1 million, $.04 million and $(0.8) million, respectively. Net cash
used in investing activities for the years ended December 31, 1995 and 1996, the
nine months ended September 30, 1997 and the three months ended December 31,
1996 and 1997 was $0.1 million, $0.3 million, $0.1 million $0.3 million and $0.2
million, respectively. The net cash used for investing activities during these
periods was primarily attributable to capital expenditures of which the
individual components of these expenditures were not significant.

Net cash provided by financing activities for the years ended December 31,
1995 and 1996, the nine months ended September 30, 1997 and the three months
ended December 31, 1996 and 1997 was $1.0 million, $0.9 million, $0.5 million,
$0.2 million and $0.2 million, respectively.

As of December 31, and September 30, 1997, Alatec had a $13.3 million bank
credit facility secured by accounts receivable, inventories, equipment and the
guarantee of the principal stockholder. The facility will expire in June 1999.
At December 31, 1997, approximately $1.0 million was available for borrowings.
The credit agreement contains certain restrictive financial covenants including,
but not limited to, minimum working capital requirements and dividend
restrictions. As of September 30, 1997, the Company was in compliance with the
financial covenants. However, at September 30, 1997, Alatec was not in
compliance with certain nonfinancial covenants relating to providing information
and notice of defined transactions and events to the bank. The bank provided a
written waiver for these covenant violations and the Company was in compliance
with these covenants at December 31, 1997. It is anticipated that the bank
credit facility will be repaid upon consummation of the Offering.

27
<PAGE>
RESULTS OF OPERATIONS -- AXS

AXS, headquartered in Erie, Pennsylvania, was founded in 1996 upon the
merger of Hoyt (founded 1964) and Champion (founded 1968). AXS operates through
two distribution facilities and sales offices located in Pennsylvania and
Illinois. AXS principally serves the power generation, locomotive, gas and steam
turbine and small motor industries.

The following table sets forth certain historic data and such data as a
percentage of net sales for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED DECEMBER 31,
------------------------------------------ SEPTEMBER 30, 1997 --------------------
1995 1996 1996
-------------------- -------------------- -------------------- --------------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............................ $ 20.2 100.0% $ 23.2 100.0% $ 22.0 100.0% $ 8.6 100.0%
Cost of sales........................ 13.0 64.4 15.1 65.1 15.3 69.6 5.6 65.1
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit......................... 7.2 35.6 8.1 34.9 6.7 30.4 3.0 34.9
Selling, general and administrative
expenses........................... 4.7 23.3 5.6 24.1 5.0 22.7 1.9 22.1
--------- --------- --------- --------- --------- --------- --------- ---------
Operating income..................... $ 2.5 12.3% $ 2.5 10.8% $ 1.7 7.7% $ 1.1 12.8%
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
1997
--------------------

Net sales............................ $ 7.4 100.0%
Cost of sales........................ 5.0 67.6
--------- ---------
Gross profit......................... 2.4 32.4
Selling, general and administrative
expenses........................... 1.8 24.3
--------- ---------
Operating income..................... $ 0.6 8.1%
========= =========

AXS THREE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO THREE MONTHS ENDED
DECEMBER 31, 1996

NET SALES. Net sales decreased $1.2 million, or 14.0%, from $8.6 million
for the three months ended December 31, 1996 to $7.4 million for the three
months ended December 31, 1997. Approximately $0.6 million of this decrease was
attributable to the loss of a customer in March 1997, approximately $0.4 million
was due to a decrease in net sales to existing customers and approximately $0.2
million was due to a reduction in sales to customers in the power generation
business.

COST OF SALES. Cost of sales decreased $0.6 million, or 10.7%, from $5.6
million for the three months ended December 31, 1996 to $5.0 million for the
three months ended December 31, 1997. As a percentage of net sales, cost of
sales increased from 65.1% in the three months ended December 31, 1996 to 67.6%
in the three months ended December 31, 1997. The increase in costs was due to
initial implementations of inventory management systems at customer locations.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. As a percentage of net
sales, selling, general and administrative expenses increased from 22.1% in the
three months ended December 31, 1996 to 24.3% in the three months ended December
31, 1997. This increase was due to the reduced level of net sales as the amount
of selling, general and administrative expenses remained the same.

OPERATING INCOME. Operating income decreased $0.5 million from $1.1
million for the three months ended December 31, 1996 to $0.6 million for the
three months ended December 31, 1997 due to the factors discussed above. As a
percentage of net sales, operating income decreased from 12.8% for the three
months ended December 31, 1996 to 8.1% for the three months ended December 31,
1997.

AXS NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THE TWELVE MONTHS ENDED
DECEMBER 31, 1996

NET SALES. Net sales increased $7.4 million, or 50.7%, from $14.6 million
for the nine months ended September 30, 1996 to $22.0 million for the nine
months ended September 30, 1997. The increase was due to the acquisition of Hoyt
during the third quarter of 1996, which accounted for $5.0 million of the
increase, three new customers which accounted for $0.8 million of the increase
and $1.0 million attributable to increased sales to new and existing customers
due to the customers' implementation of inventory management systems. Net sales
for the twelve months ended December 31, 1996 were $23.2 million compared to net
sales for the nine months ended September 30, 1997 of $22.0 million.

COST OF SALES. As a percentage of net sales, cost of sales increased from
65.1% in the twelve months ended December 31, 1996 to 69.6% in the nine months
ended September 30, 1997. The increase was

28
<PAGE>
primarily due to the writedown of slow-moving inventory to market of
approximately $700,000. The inventory written down to market was not
concentrated in any particular class or classes of inventory and resulted from
more inventory meeting the Company's slow-moving or obsolescence criteria in a
variety of classes of inventory.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. As a percentage of net
sales, selling, general and administrative expenses decreased from 24.1% in the
twelve months ended December 31, 1996 to 22.7% in the nine months ended
September 30, 1997. The decrease was primarily due to reduced compensation
expense related to the termination of an executive level position and other
personnel reductions related to the elimination of duplicative positions
resulting from the 1996 acquisition of Hoyt.

OPERATING INCOME. As a percentage of net sales, operating income decreased
from 10.8% in the twelve months ended December 31, 1996 to 7.7% in the nine
months ended September 30, 1997.

AXS YEAR ENDED 1996 COMPARED TO YEAR ENDED 1995

NET SALES. Net sales increased $3.0 million, or 14.9%, from $20.2 million
in 1995 to $23.2 million in 1996. The increase was primarily due to the
acquisition of Hoyt during the third quarter of 1996, which accounted for $2.7
million of the increase.

COST OF SALES. Cost of sales increased $2.1 million, or 16.2%, from $13.0
million in 1995 to $15.1 million in 1996. The increase was primarily
attributable to the increase in net sales in 1996 and costs associated with the
1996 acquisition of Hoyt. As a percentage of net sales, cost of sales increased
from 64.4% in 1995 to 65.1% in 1996. The increase was primarily due to an
increase in the sale of products with lower profit margins.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.9 million, or 19.1%, from $4.7 million in
1995 to $5.6 million in 1996. Substantially all of this increase was related to
costs associated with the 1996 acquisition of Hoyt. As a percentage of net
sales, selling, general and administrative expenses increased from 23.3% in 1995
to 24.1% in 1996.

OPERATING INCOME. Due to the factors discussed above, operating income
remained constant at $2.5 million for both periods. As a percentage of net
sales, operating income decreased from 12.3% in 1995 to 10.8% in 1996.

AXS LIQUIDITY AND CAPITAL RESOURCES

At December 31, 1997, AXS' working capital was $4.3 million, compared to
working capital of $4.3 million and $6.4 million at September 30, 1997 and
December 31, 1996, respectively. AXS' principal capital requirements have been
to fund inventory and purchase and upgrade property and equipment. Historically,
these requirements have been met by cash flows from operating activities and
borrowings under bank lines of credit.

Net cash provided by operating activities for the years ended December 31,
1995 and 1996, the nine months ended September 30, 1997 and the three months
ended December 31, 1996 and 1997was $3.4 million, $2.5 million, $1.9 million,
$0.6 million and $0.8 million, respectively. Net cash provided by (used in)
investing activities for the years ended December 31, 1995 and 1996, the nine
months ended September 30, 1997 and the three months ended December 31, 1996 and
1997 was $(0.2) million, $0.3 million, $(0.1) million, $(0.01) million and
$(0.01) million, respectively. The net cash used in investing activities during
these periods was primarily attributable to capital expenditures of which the
individual components of these expenditures were not significant.

Net cash (used in) financing activities for the years ended December 31,
1995 and 1996, the nine months ended September 30, 1997 and the three months
ended December 31, 1996 and 1997 was $2.5 million, $0.9 million, $2.5 million,
$0.2 million and $1.9 million, respectively.

The Company continuously evaluates its inventory for slow-moving and
obsolete inventory and makes appropriate non-cash charges to cost of sales to
write any such inventory down to market. During the nine months ended September
30, 1997, the Company wrote down inventory by approximately $0.7 million as a

29
<PAGE>
result of an increase of items which met the Company's slow-moving or obsolete
inventory criteria as compared to no write-down during the year ended December
31, 1996. The write-down was due to the accumulation of prior purchases in a
variety of inventory classes for which sales have slowed down or ceased. The
inventory that became slow-moving or obsolete in 1997 was not due to the loss of
any significant customer, and management does not believe the write-down in 1997
was the result of a continuing trend. Management is monitoring its purchasing
patterns to better reflect demand and does not expect this trend to continue.

As of September 30 and December 31, 1997, AXS had a $3.0 million bank
credit facility secured by separate balances with the bank and the guarantee of
the two principal stockholders, which was due on demand. At December 31 and
September 30, 1997, approximately $2.7 million and $1.1 million, respectively,
was available for borrowings. It is anticipated that the bank credit facility
will be repaid upon consummation of the Offering.

RESULTS OF OPERATIONS -- MAUMEE

Maumee, headquartered in Fort Wayne, Indiana, was founded in 1979 and
operates through four facilities and sales offices in two states. Maumee
principally serves the automotive, recreational vehicle, heavy duty truck and
toy industries.

The following table sets forth certain historic data and such data as a
percentage of net sales for the period indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED DECEMBER 31,
------------------------------------------ SEPTEMBER 30, 1997 --------------------
1995 1996 1996
-------------------- -------------------- -------------------- --------------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............................ $ 20.6 100.0% $ 26.2 100.0% $ 27.5 100.0% $ 7.0 100.0%
Cost of sales........................ 16.1 78.2 19.7 75.2 19.6 71.3 5.5 78.6
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit......................... 4.5 21.8 6.5 24.8 7.9 28.7 1.5 21.4
Selling, general and administrative
expense............................ 4.6 22.3 5.3 20.2 6.6 24.0 1.5 21.4
--------- --------- --------- --------- --------- --------- --------- ---------
Operating income..................... $ (0.1) (0.5)% $ 1.2 4.6% $ 1.3 4.7% $ 0.0 0.0%
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
1997
--------------------

Net sales............................ $ 10.5 100.0%
Cost of sales........................ 7.4 70.5
--------- ---------
Gross profit......................... 3.1 29.5
Selling, general and administrative
expense............................ 2.1 20.0
--------- ---------
Operating income..................... $ 1.0 9.5%
========= =========

MAUMEE THREE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO THREE MONTHS ENDED
DECEMBER 31, 1996

NET SALES. Net sales increased $3.5 million, or 50.0%, from $7.0 million
for the three months ended December 31, 1996 to $10.5 million for the three
months ended December 31, 1997. Approximately $1.0 million of this increase was
attributable to new customers and approximately $2.4 million was due to an
increase in net sales to existing customers.

COST OF SALES. Cost of sales increased $1.9 million, or 34.5%, from $5.5
million for the three months ended December 31, 1996 to $7.4 million for the
three months ended December 31, 1997. As a percentage of net sales, cost of
sales decreased from 78.6% in the three months ended December 31, 1996 to 70.5%
in the three months ended December 31, 1997. The decrease was due to a higher
margin product mix and the use of lower cost suppliers.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.6 million, or 40.0%, from $1.5 million in
the three months ended December 31, 1996 to $2.1 million in the three months
ended December 31, 1997. This increase was primarily due to the higher level of
net sales, installation of a new computer system and increased professional fees
associated with the purchase transaction.

OPERATING INCOME. Operating income increased from breakeven for the three
months ended December 31, 1996 to $1.0 million for the three months ended
December 31, 1997. As a percentage of net sales, operating income increased to
9.5% for the three months ended December 31, 1997.

30
<PAGE>
MAUMEE NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO TWELVE MONTHS ENDED
DECEMBER 31, 1996

NET SALES. Net sales increased $8.3 million, or 43.2%, from $19.2 million
for the nine months ended September 30, 1996 to $27.5 million for the nine
months ended September 30, 1997. Approximately $4.0 million of this increase was
attributable to new customers and approximately $5.5 million was due to an
increase in net sales to existing customers offset by approximately a $1.2
million reduction in net sales to one existing customer. Net sales for the
twelve months ended December 31, 1996 were $26.2 million compared to net sales
for the nine months ended September 30, 1997 of $27.5 million.

COST OF SALES. As a percentage of net sales, cost of sales decreased from
75.2% in the twelve months ended December 31, 1996 to 71.3% in the nine months
ended September 30, 1997. The decrease was due to a higher margin product mix
from new products and from the use of lower cost suppliers.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. As a percentage of net
sales, selling, general and administrative expenses increased from 20.2% in the
twelve months ended December 31, 1996 to 24.0% in the nine months ended
September 30, 1997. The increase was primarily attributable to $1.2 million, or
4.4%, as a percentage of net sales, in costs associated with the issuance of
stock to a key employee.

OPERATING INCOME. As a percentage of net sales, operating income increased
from 4.6% in the twelve months ended December 31, 1996 to 4.7% in the nine
months ended September 30, 1997.

MAUMEE YEAR ENDED 1996 COMPARED TO YEAR ENDED 1995

NET SALES. Net sales increased $5.6 million, or 27.2%, from $20.6 million
in 1995 to $26.2 million in 1996. Approximately $1.0 million of this increase
was attributable to a new customer and the majority of the remainder was
attributable to an increase in net sales to existing customers.

COST OF SALES. Cost of sales increased $3.6 million, or 22.4%, from $16.1
million in 1995 to $19.7 million in 1996, primarily as a result of the increase
in sales in 1996. As a percentage of net sales, cost of sales decreased from
78.2% in 1995 to 75.2% in 1996. The decrease was due to increased sales of
higher margin products.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.7 million, or 15.2%, from $4.6 million in
1995 to $5.3 million in 1996. This increase was primarily due to an increase in
personnel needed to support increased sales volume. As a percentage of net
sales, selling, general and administrative expenses decreased from 22.3% in 1995
to 20.2% in 1996.

OPERATING INCOME. Operating income increased $1.3 million from $(0.1)
million in 1995 to $1.2 million in 1996. As a percentage of net sales, operating
income increased from a loss in 1995 to 4.6% in 1996.

MAUMEE LIQUIDITY AND CAPITAL RESOURCES

At December 31, 1997, Maumee had a working capital deficit of $1.6 million,
compared to a working capital deficit of $1.9 million and $3.0 million at
September 30, 1997 and December 31, 1996, respectively. Maumee's principal
capital requirements have been to fund inventory and accounts receivable and
purchase and upgrade property and equipment to support the growth of the
Company. Historically, these requirements have been met by cash flows from
operating activities and borrowings under bank lines of credit.

Net cash provided by (used in) operating activities for the years ended
December 31, 1995 and 1996, the nine months ended September 30, 1997 and the
three months ended December 31, 1996 and 1997 was $(0.6) million, $(0.03)
million, $(0.6) million, $0.3 million and $0.5 million, respectively. The usage
of cash from operations during those periods is due to the working capital
requirements to fund the growth and successful turnaround of the Company. During
the three periods the Company has been focused on increasing sales volume and
returning the Company to profitability. As noted above, sales have increased
27.2% from 1995 to 1996 and increased 43.2% for the nine months ended September
30, 1996 to the nine months ended September 30, 1997. The usage of cash from
operations has primarily been to support the increase in inventory and accounts
receivable offset by an increase in accounts payable related to the

31
<PAGE>
increase in sales volume. As sales volumes have increased, the Company's gross
margins have increased as a result of the Company's ability to decrease its
costs to purchase certain inventory and to focus on selling higher margin
products. Management has decreased its working capital deficit by $0.9 million
during the nine months ended September 30, 1997 and anticipates the Company's
historical gross margin will remain stable and result in the Company's ability
to generate cash flows from operations and generate working capital.

Net cash used in investing activities for the years ended December 31, 1995
and 1996, the nine months ended September 30, 1997 and the three months ended
December 31, 1996 and 1997 was $0.2 million, $0.1 million, $0.2 million, $0.01
million and $0.1 million, respectively. The net cash used for investing
activities during these periods was primarily attributable to capital
expenditures of which the individual components of these expenditures were not
significant.

Net cash provided by (used in) financing activities for the years ended
December 31, 1995 and 1996, the nine months ended September 30, 1997 and the
three months ended December 31, 1996 and 1997 was $0.8 million, $0.2 million,
$0.7 million, $(0.3) million and $(0.3) million, respectively.

As of December 31, 1997, Maumee had a $7.7 million bank credit facility
secured by substantially all of Maumee's assets including accounts receivable,
inventories, equipment and the guarantee of the principal stockholder. The
facility will expire May 31, 2000. At December 31, 1997, approximately $2.6
million was available for borrowings. It is anticipated that the bank credit
facility will be repaid upon consummation of the Offering.

RESULTS OF OPERATIONS -- SSL

SSL, headquartered in Allentown, Pennsylvania, was founded in 1979 and
operates through two distribution facilities and sales offices in Pennsylvania
and South Carolina. SSL principally serves the motor vehicles, furniture and
equipment, general service machinery and transport equipment industries.

The following table sets forth certain historic data and such data as a
percentage of net sales for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
------------------------------------------ --------------------
1995 1996 1997 1996
-------------------- -------------------- -------------------- --------------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............................ $ 12.2 100.0% $ 15.7 100.0% $ 12.0 100.0% $ 3.7 100.0%
Cost of sales........................ 8.0 65.6 10.5 66.9 8.1 67.5 2.5 67.6
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit......................... 4.2 34.4 5.2 33.1 3.9 32.5 1.2 32.4
Selling, general and administrative
expenses........................... 3.7 30.3 4.6 29.3 3.1 25.8 1.6 43.2
--------- --------- --------- --------- --------- --------- --------- ---------
Operating income..................... $ 0.5 4.1% $ 0.6 3.8% $ 0.8 6.7% $ (0.4) (10.8)%
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
1997
--------------------

Net sales............................ $ 3.7 100.0%
Cost of sales........................ 2.4 64.9
--------- ---------
Gross profit......................... 1.3 35.1
Selling, general and administrative
expenses........................... 1.4 37.8
--------- ---------
Operating income..................... $ (0.1) (2.7)%
========= =========

SSL THREE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO THREE MONTHS ENDED
DECEMBER 31, 1996

NET SALES. Net sales were unchanged at $3.7 million for the three months
ended December 31, 1996 and 1997. Approximately $0.1 million of net sales
increase was attributable to new customers offset by approximately $0.1 million
of reduced net sales to existing customers.

COST OF SALES. Cost of sales decreased $0.1 million, or 4.0%, from $2.5
million for the three months ended December 31, 1996 compared to $2.4 million
for the three months ended December 31, 1997.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased $0.2 million or 12.5% from $1.6 million in the
three months ended December 31, 1996 to $1.4 million in the three months ended
December 31, 1997. This decrease was primarily due to a reduction in personnel
and related expenses.

32
<PAGE>
OPERATING INCOME. Operating loss decreased $0.3 million from $0.4 million
for the three months ended December 31, 1996 to $0.1 million for the three
months ended December 31, 1997. As a percentage of net sales, operating loss
decreased from 10.8% for the three months ended December 31, 1996 to 2.7% for
the three months ended December 31, 1997 due to the factors discussed above.

SSL NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO TWELVE MONTHS ENDED
DECEMBER 31, 1996

NET SALES. Net sales increased $0.1 million, or 0.8%, from $11.9 million
for the nine months ended September 30, 1996 to $12.0 million for the nine
months ended September 30, 1997. Revenues remained relatively constant for both
periods primarily due to a reduction of approximately $2.0 million in net sales
to one existing customer offset by an increase in net sales of approximately
$2.0 million to other customers. Net sales for the twelve months ended December
31, 1996 were $15.7 million compared to net sales for the nine months ended
September 30, 1997 of $12.0 million.

COST OF SALES. As a percentage of net sales, cost of sales increased from
66.9% in the twelve months ended December 31, 1996 to 67.5% in the nine months
ended September 30, 1997 due to increased supplier costs.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. As a percentage of net
sales, selling, general and administrative expenses decreased from 29.3% in the
twelve months ended December 31, 1996 to 25.8% in the nine months ended
September 30, 1997. The decrease was attributable to a reduction in personnel
and related expenses.

OPERATING INCOME. As a percentage of net sales, operating income increased
from 3.8% in the twelve months ended December 31, 1996 to 6.7% in the nine
months ended September 30, 1997, due to the factors discussed above.

SSL YEAR ENDED 1996 COMPARED TO YEAR ENDED 1995

NET SALES. Net sales increased $3.5 million, or 28.7%, from $12.2 million
in 1995 to $15.7 million in 1996. Approximately $2.2 million of this increase
was attributable to one customer and the remainder of the increase was due to
increased net sales to other customers.

COST OF SALES. Cost of sales increased $2.5 million, or 31.3%, from $8.0
million in 1995 to $10.5 million in 1996, primarily as a result of the increase
in sales in 1996. As a percentage of net sales, cost of sales increased from
65.6% in 1995 to 66.9% in 1996. The increase was due to competitive pricing and
lower margins on the increased net sales related to the one customer mentioned
above.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.9 million, or 24.3%, from $3.7 million in
1995 to $4.6 million in 1996. The increase was due in part to the higher volume
of business, but also reflects the addition of personnel to support the
additional net sales related to the one existing customer mentioned above. As a
percentage of net sales, however, selling, general and administrative expenses
decreased from 30.3% in 1995 to 29.3% in 1996.

OPERATING INCOME. Operating income increased $0.1 million, or 20.0%, from
$0.5 million in 1995 to $0.6 million in 1996. As a percentage of net sales,
operating income decreased from 4.1% in 1995 to 3.8% in 1996, due to the factors
discussed above.

SSL LIQUIDITY AND CAPITAL RESOURCES

At December 31, 1997, SSL had a working capital deficit of $3.2 million,
compared to working capital of $1.9 million and $1.4 million at September 30,
1997 and December 31, 1996, respectively. SSL's principal capital requirements
have been to fund inventory and accounts receivable and purchase and upgrade
property and equipment. Historically, these requirements have been met by cash
flows from operating activities and borrowings under bank lines of credit.

Net cash provided by (used in) operating activities for the fiscal year
ended December 31, 1996, the nine months ended September 30, 1997 and the three
months ended December 31, 1996 and 1997 was $(0.1) million, $1.2 million, $(0.5)
million and $(0.1) million, respectively. Net cash used in investing

33
<PAGE>
activities for the fiscal year ended December 31, 1996, the nine months ended
September 30, 1997 and the three months ended December 31, 1996 and 1997 was
$0.2 million, $0.1 million, $0.1 million and $0.01 million, respectively. The
net cash used for investing activities during these periods was primarily
attributable to capital expenditures of which the individual components of these
expenditures were not significant.

Net cash provided by (used in) financing activities for the fiscal year
ended December 31, 1996, the nine months ended September 30, 1997 and the three
months ended December 31, 1996 and 1997 was $0.3 million, $(1.2) million, $0.7
million and $0.3 million, respectively. SSL paid distributions to shareholders
of $0.2 million in 1996 and 1997. Borrowings in 1996 were primarily made to fund
working capital requirements. During 1997, SSL repaid a portion of the
borrowings under its revolving bank credit facility. Prior to the Acquisitions,
SSL anticipates borrowing approximately $0.5 million to fund its portion of the
S Corporation Tax Payment Distributions.

As of December 31 and September 30, 1997, SSL had a $1.3 million bank
credit facility secured by accounts receivable and inventories and the guarantee
of the stockholders which will expire on June 1, 1998. At December 31 and
September 30, 1997, approximately $0.7 million and $0.9 million was available
for borrowings, respectively. It is anticipated that the bank credit facility
will be repaid upon consummation of the Offering.

SEASONALITY AND QUARTERLY FLUCTUATIONS

The Company experiences modest seasonal declines in the fourth calendar
quarter due to declines in its customers' activities in that quarter. The
Company's volume of business may be adversely affected by a decline in projects
as a result of regional or national downturns in economic conditions. Quarterly
results may also be materially affected by the timing of acquisitions and the
timing and magnitude of acquisition assimilation costs. Accordingly, the
operating results for any three-month period are not necessarily indicative of
the results that may be achieved for any subsequent fiscal quarter or for a full
fiscal year.

INFLATION

Inflation has not had a material impact on the Company's results of
operations for the last three years.

34
<PAGE>
BUSINESS
GENERAL

Upon consummation of the Offering, Pentacon will acquire the five Founding
Companies, which have been in business an average of 25 years and which had
combined net sales of $120.0 million for the twelve months ended December 31,
1996 and $151.8 million for the twelve months ended December 31, 1997. While
total U.S. sales of fasteners have increased at a compound annual rate of
approximately 4.1% during the four years ending December 31, 1996, the combined
net sales of the Founding Companies have increased at a compound annual rate of
approximately 13.3% per year over the same period. The Company believes that it
has generated superior growth primarily by expanding the breadth of its product
offerings and value-added services, which has allowed the Founding Companies to
increase market share at existing customers and attract new customers.

INDUSTRY OVERVIEW

Companies operating in the fastener distribution business can generally be
characterized by the end users they serve, which are comprised broadly of OEMs,
maintenance and repair operations ("MROs") and construction companies. The
traditional fastener distribution market is similar to most industrial
distribution markets. Fasteners are purchased from both domestic and overseas
manufacturers and sold to both domestic and overseas customers. The majority of
these fasteners are sold to OEM and MRO clients on a purchase order basis. Some
smaller distributors specialize along industry lines because of the uniqueness
of manufacturer requirements. Other smaller distributors provide a wide range of
fasteners used for general assembly. Larger distributors, such as the Company,
generally provide a wide range of fasteners as well as meet certain specialized
industry needs.

The U.S. sales by fastener manufacturers was estimated to be approximately
$8.0 billion in 1996, and the global market for fasteners is estimated to be
$25.0 billion. The OEM market represents in excess of

35
<PAGE>
80% of the total U.S. fastener market, while the MRO market accounts for 13%.
Construction and other markets account for the remaining 7%. There are in excess
of 1,900 fastener distributors in the United States, none of which is
responsible for more than 5% of the market sales. The Company believes that
there is currently only one public company whose primary business is fastener
distribution. The industry data provided herein were derived from several
sources including Dun & Bradstreet and The Freedonia Group, Inc. The following
table lists the approximate number of privately owned fastener companies in the
U.S. by size:

NUMBER OF PRIVATELY OWNED FASTENER DISTRIBUTION COMPANIES BY SALES VOLUME

NUMBER OF PRIVATE
SALES VOLUME COMPANIES
- ------------------------------------- -----------------
(DOLLARS IN MILLIONS)
$100+ 3
$50-$100 10
$25-$50 11
$10-$25 61
$5-$10 112
$2-$5 270
<$2 1,523

Customer demand for inventory management services and electronic data
exchange has required industry participants to make substantial investments in
sophisticated computer systems in order to remain competitive. Automated
inventory picking, component kit assembly and quality control laboratories also
require significant capital investment in equipment. In addition, many customers
are seeking to reduce their operating costs by decreasing the number of
suppliers with whom they do business, often eliminating those suppliers offering
limited ranges of products and services. The Company believes that these trends
have placed a substantial number of small, owner-operated fastener distributors
at a competitive disadvantage because of their limited product lines and
inventory systems. In addition, small distributors have limited access to the
capital resources necessary to modernize and expand their capabilities. The
owners of these businesses traditionally have not had a viable exit strategy,
leaving them with few attractive liquidity options. Due in part to these
factors, the Company believes that the opportunity exists for a
well-capitalized, professionally managed company to lead the consolidation of
the industry.

BUSINESS STRATEGY

The Company intends to become the leading fastener and small parts
distributor on a worldwide basis. Key elements of the Company's strategy to
achieve its objective are:

DELIVER SUPERIOR CUSTOMER SERVICE. OEMs and other fastener customers
choose fastener suppliers based, in significant part, on the quality of the
service supplied. The Company believes that its superior customer service
depends on its well-trained, technically competent workforce and that its
workforce provides an advantage over other fastener distributors. The
Company intends to review the training and operating practices at each
Founding Company to identify and adopt those "best practices" in
providing customer service that can be successfully implemented throughout
its operations. As part of its commitment to superior customer service, the
Company intends to have each of its operating companies certified under the
International Standards Organization ("ISO") standards for distribution
companies.

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<PAGE>
ACCELERATE INTERNAL SALES GROWTH. One of the primary goals of the
Company is to accelerate internal growth by both expanding the range of
products and services provided to existing customers and aggressively
pursuing new customers domestically and abroad. The Company believes it
will be able to expand sales to existing customers by capitalizing on (i)
the diverse products and the marketing expertise of the Founding Companies,
(ii) cross-selling opportunities across the Company's customer base, and
(iii) the additional financial resources that are expected to be available
after consummation of the Offering. The Company believes its broad
geographic coverage will present opportunities to capture additional
business from existing customers that operate on a national and
international basis. The Company intends to implement a company-wide
marketing program and to adopt the "best practices" used by the Founding
Companies to identify, obtain and maintain new customers.

EXPAND OPERATING MARGINS. The Company believes that the combination
of the Founding Companies will provide significant opportunities to
increase its profitability. The key components of this strategy are to
increase operating efficiencies and centralize appropriate administrative
functions. The Company intends to use its increased purchasing power to
improve contractual relationships and gain volume discounts from its
suppliers. The Company also intends to improve productivity through
enhanced inventory management procedures, increased utilization of the
Company's laboratories and distribution facilities, and the consolidation
of information systems and employee benefits.

AGGRESSIVELY PURSUE ACQUISITIONS. The Company believes that the
fastener distribution industry is highly fragmented and in the early stages
of consolidation. The Company intends to pursue an aggressive acquisition
program targeting fastener distributors that will help the Company increase
its presence in markets it currently services, sell to new markets, develop
new customer relationships with major OEMs, increase its presence in the
international markets and expand its range of products and services. The
Company believes there is a significant number of acquisition candidates
available and that it will be regarded as an attractive acquiror due to its
position as an industry leader, its ability to offer cash and/or publicly
traded stock for acquisitions, and the potential for improved growth and
profitability as part of the Company.

ACQUISITION STRATEGY

The Company intends to pursue an aggressive acquisition program. The
Company intends to acquire other fastener distributors in order to enter new
industries and markets; increase sales in certain industries it currently
serves; develop new customer relationships with major OEMs; expand the
geographical reach of the Company; and expand its range of products and
services. Potential acquisition candidates will be evaluated on the strength of
management, quality of customer service, profitability and industry orientation.

The Company believes it will be regarded by acquisition candidates as an
attractive acquiror because of (i) the Company's strategy for creating an
international, comprehensive and professionally managed value-added distributor
of fasteners and other small parts to OEMs; (ii) the Company's ability to
acquire businesses with a combination of cash and publicly traded stock; (iii)
the Company's increased visibility and access to financial resources as a public
company; and (iv) the potential for increased profitability of the acquired
company due to purchasing economies, centralization of administrative functions,
enhanced systems capabilities and access to increased marketing resources.

The Company believes management of the Founding Companies will be
instrumental in identifying and completing future acquisitions. Moreover,
several of the principals of the Founding Companies have held leadership roles
in industry trade associations, which have enabled these individuals to develop
relationships with the owners of numerous acquisition targets across the
country. The Company expects that the visibility of these individuals and the
Company within the industry will increase the awareness of, and interest of
acquisition candidates in, the Company and its acquisition program. Within the
past several months, the Company has contacted the owners of a number of
acquisition candidates, several of whom have expressed interest in discussing
the sale of their businesses to the Company. The Company has engaged in
preliminary discussions with a few potential acquisition candidates; however,
the Company has not engaged in any material negotiations with such candidates,
and the Company does not have any

37
<PAGE>
agreements, understandings, arrangements or commitments with respect to any
acquisitions other than the acquisitions of the Founding Companies.

As consideration for future acquisitions, the Company intends to primarily
use various combinations of its Common Stock and cash. The consideration for
each future acquisition will vary on a case-by-case basis, with the major
factors in establishing the purchase price being historical operating results,
future prospects of the target and the ability of the target to provide entry to
new OEM markets or customers. Within 90 days following the completion of the
Offering, the Company intends to register 3,350,000 additional shares of Common
Stock under the Securities Act for its use in connection with future
acquisitions. The Company believes that it can structure certain acquisitions as
tax-free reorganizations by using its Common Stock as consideration, which will
be attractive to those targeted business owners with a low-tax basis in the
stock of their businesses. See "Risk Factors -- Risks Related to the Company's
Acquisition Strategy."

PRODUCTS

The Company distributes over 100,000 different fasteners and other small
parts, generally denoted by a unique standard identifier known as a Stockkeeping
Unit ("SKU"). The SKUs fall into two general categories: fasteners and other
small parts.

FASTENERS. Fasteners sold by the Company include screws, bolts, nuts,
washers, rings, pins, rivets and staples. These items come in a variety of
materials, sizes, platings and shapes. The variety is driven by the end-use
requirement or specification of the fastener, such as strength, resistance to
corrosion, reusability and many other factors. The Company's sales and
purchasing departments have extensive knowledge of the available products
offered by fastener manufacturers and play an important role in assisting OEMs
to select the appropriate fastener for a given application. Some of the more
common variable characteristics of the fasteners sold by the Company include:

o Materials -- The materials used in the manufacture of fasteners
include steel, brass, aluminum, nylon, bronze, stainless steel,
titanium, copper, polypropylene, alloys and other materials. Most
of these materials come in different grades with each having a
unique set of properties.

o Sizes -- The sizes vary by length, outside diameter, depth of the
threads, threads per inch or centimeter and pitch, or angle, of the
threads.

o Platings -- Platings may be applied to enhance the properties of a
given metal, and include zinc, cadmium, chrome, nickel, organic and
other materials.

o Shapes -- The range of shapes is broad, including hex head, U-bolt,
L-bolt, shouldered, eye bolt, external tooth, internal tooth and
many others.

OTHER SMALL PARTS. The Company also distributes other small parts used by
OEMs to assemble their products. These items include standoffs, inserts, clamps,
spacers, springs, brackets, electrical connectors, small molded parts, cable
ties, plugs, hoses, fittings and other small parts. Like fasteners, these parts
come in many shapes, sizes and materials depending upon the designated end-use.
OEMs are increasingly requesting that the Company provide these parts because
they are often used during the manufacturing or assembly process in conjunction
with the fasteners supplied by the Company.

SERVICES

In connection with its sale of fasteners and other small parts, the Company
also provides a wide range of value-added services to OEMs. The OEMs' demand for
these services is driven by the reduction in costs achievable through the use of
such services. These value-added services also benefit the Company by further
integrating the Company into its customers' processes. The Company's services
include:

INVENTORY PROCUREMENT AND MANAGEMENT SYSTEMS. Increasingly,
manufacturers are outsourcing their inventory management needs to
distributors. These services range from installing a simple inventory bin
card system to developing a complete turn-key inventory management system
with full-time staff. These inventory systems are designed to meet the
specific needs of the Company's

38
<PAGE>
customers. They range in sophistication from helping the OEM set
appropriate order quantities and frequencies to delivering the correct
fastener or small part to the assembly floor on a JIT basis. In some cases,
the Company utilizes computer systems deployed at the OEM's sites to
facilitate the management of the fastener and parts inventories. Inventory
replenishment services and product consolidation services decrease the
number of invoices and vendors, lower inventory carrying cost, and allow
customers to focus on their core manufacturing business.

COMPREHENSIVE PRODUCT AVAILABILITY. OEMs have reduced their operating
costs by reducing the number of suppliers they use. The Company provides a
wide array of fasteners and other small parts and will, upon a customer's
request, stock additional parts. As a result, the Company's customers are
able to reduce the number of distributors they use.

KIT SERVICES. OEMs often request that the Company package several
fasteners or parts into a package or "kit." A common use of this service
is to supply fastener kits included with products the retail consumer is
required to assemble such as lawn mowers, bicycles and furniture. The use
of kits has also expanded into the manufacturing environment. Manufacturers
frequently desire to have several related fasteners or components arrive at
the assembly line in a single package; this ensures that all of the parts
arrive at the same time and that no part will be missed in the installation
process. This "kit" process aids the manufacturer by decreasing the
number of distributors needed and improves productivity by having the
fasteners delivered to the assembly line with the other related parts. Kit
services improve the efficiency and effectiveness of the manufacturing line
and decrease the number of stock outs and subsequent manufacturing line
stoppages.

QUALITY ASSURANCE SERVICES. These services involve the testing of
fasteners to ensure they meet the specifications stated by the
manufacturer. Although fasteners are not a significant part of the costs in
a product, they are often critical components whose failure can cause the
entire product to fail. As a result, many OEMs require strict quality
control with respect to the fasteners. Certain of the Founding Companies
have installed specialized equipment and laboratories and hired trained
technicians to perform quality control tests on some of their fastener
products. Quality assurance services lower the warranty costs of the OEMs.
The Company operates four labs to test fasteners. The labs can test
metallurgy, size consistency, corrosion and strength as well as other
properties. Additionally, two of the Founding Companies are ISO-9002
certified and the remaining three are in the process of becoming certified
under ISO-9002 or a comparable standard. The Company expects the
substantial majority of its currently uncertified locations to be ISO
compliant or certified in 1998.

PRODUCT ENHANCEMENT SERVICES. In order to meet the exacting
requirements of customers, the Company maintains relationships with vendors
that provide plating, galvanizing and coating services. These services are
used to enhance in-stock fasteners in order to meet the specific
requirements of OEMs. The ability of the Company to manage the process and
quickly respond to small orders enhances the relationship with the
Company's customers.

SUB-ASSEMBLY SERVICES. Customers may request that two or more parts
in a kit be pre-assembled into a single unit prior to being placed in the
kit. These services are closely related to the kit services offered by the
Company and are offered at the request of customers. Similar to kits, the
sub-assembly services improve the productivity of the OEM's manufacturing
line.

ENGINEERING SERVICES. Upon a customer's request, the Company will
provide advice regarding the types of fasteners to use in a product. These
services are often used by customers during early product development or
re-engineering to decrease the production cost, improve the assembly
process or enhance the product quality. The Company works with its
customers' engineering departments to select the appropriate fasteners and
components based upon the specifications of the customer. These services
often lower the customers' cost by reducing the number of fasteners
required to assemble the product, replacing expensive special fasteners
with less expensive standards or identifying different coatings to improve
quality.

EDI SERVICES. The Company offers a wide range of options with respect
to the type and level of EDI services available to its customers. In
addition to offering invoice and payment options, the

39
<PAGE>
Company can also offer its customers direct access to its current
inventory, images of fasteners with specifications, and the ability to
enter an order directly into the Company's system.

CUSTOMERS

The Company sells fasteners and other small parts to more than 2,600
customers in over 25 countries. The customers manufacture a wide variety of
products including diesel engines, locomotives, power turbines, motorcycles,
telecommunications equipment, refrigeration equipment and aerospace equipment.
For the nine months ended September 30, 1997, the Company had net sales of
$112.8 million. The Company's ten largest customers, including Cummins Engine
Company, General Electric Corporation, Harley-Davidson, Inc., the Hughes
Aircraft subsidiary of General Motors Corporation, The Trane Company, Dana
Corporation and The Boeing Company, represented approximately 45% of the
Company's net sales in the nine months ended September 30, 1997. The Company has
been selling fasteners and small parts to these customers for an average of 12
years. Cummins Engine Company and its affiliates accounted for approximately 17%
of the Company's net sales in the nine months ended September 30, 1997. No other
customer represented more than 9% of the Company's net sales in the nine months
ended September 30, 1997. Most of the Company's contracts with its customers for
the supply of fasteners and parts may be canceled by either party on no more
than 60 days notice. The Company accepts returns of fasteners and other small
parts and issues a credit in exchange for such returns. Historically, returns
have not been of an amount to materially affect the Company's business.
Approximately 8% of the Company's net sales during 1997 were to customers or
customer locations outside of the U.S. Several of the Company's customers have
international operations and some of them have requested that the Company
provide products and services to them in their foreign locations. Historically,
resource constraints have limited the Founding Companies' ability to expand
internationally and therefore the Founding Companies have not been able to
capitalize on these opportunities. However, the Company anticipates aggressively
pursuing these international opportunities.

The following table sets forth information with respect to the Founding
Companies' estimated combined net sales by end-user industry base for the nine
months ended September 30, 1997:

SALES BY INDUSTRY
(DOLLARS IN MILLIONS)

NINE MONTHS ENDED
SEPTEMBER 30, 1997
---------------------------------
PERCENTAGE
INDUSTRY NET SALES OF SALES
- ------------------------------------- ---------- -------------------
Industrial Machinery................. $ 39.8 35.3%
Aerospace............................ 24.9 22.1
Electrical Machinery & Electronics... 16.5 14.6
Motor Vehicles....................... 6.3 5.6
Fabricated Metal Products............ 2.4 2.1
Other Industries..................... 22.9 20.3
---------- ------
$112.8 100.0%
========== ======

BACKLOGS

The Company does not have any significant backlog of orders; as noted
above, most of the Company's contracts for the supply of fasteners and parts may
be canceled by either party on no more than 60 days notice.

SALES AND MARKETING

The Company utilizes a sales force comprised of 65 sales people. The
primary responsibilities of the sales force are to:

o Identify potential customers;

o Educate the customers about the Company's products, services and
potential value;

40
<PAGE>
o Manage the transition from existing vendors or systems to the
Company's systems, products and services;

o Conduct follow-up sessions to identify additional product and service
possibilities;

o Furnish product advice and options for specific customers
requirements; and

o Resolve customers' problems and concerns.

The Company expects to focus on marketing its products and services
primarily to mid- to large-size OEMs. The Company generally targets those OEMs
that could achieve significant cost savings from the products and services
offered by the Company; these would include OEMs that (i) maintain substantial
inventories of fasteners and components; (ii) utilize multiple vendors but wish
to decrease that number; (iii) experience a significant number of stockouts;
(iv) desire to improve the quality and reliability of their products; or (v)
desire to improve the efficiency and effectiveness of the manufacturing process.
The Company believes that its commitment to consistent quality and service has
enabled it to develop and maintain long-term relationships with existing
customers, while expanding its market penetration through the use of its sales
and marketing program.

DELIVERY

The Company utilizes several forms of transportation to deliver its
products to its customers depending upon the urgency and frequency of delivery,
the customer's preference and cost. The Company primarily utilizes several
common carriers to deliver products to its customers. The cost of transportation
is generally paid by the customer. The Company believes that by maintaining
relationships with several carriers, it can effectively avoid the impact caused
by any one carrier ceasing operations. The Company does not believe that it is
materially dependent on any single transportation service or carrier and that it
currently maintains good relationships with all of its common carriers. The
Company operates 24 distribution and sales facilities across the U.S.

SUPPLIERS

The fasteners and small parts sold by the Company are manufactured by over
2,000 suppliers located in more than 15 countries. The Company purchases
fasteners and small parts directly from manufacturers or, to a lesser degree,
from authorized distributors. During the nine months ended September 30, 1997,
the Company purchased no more than 5% of its fasteners and small parts from any
single source. The Company's decision to purchase from a specific supplier is
based on product specifications, quality, reliability of delivery, production
lead times and price.

The Company anticipates reviewing its supplier base after completion of the
Acquisitions and believes that by reorganizing its supplier base, it will be
able to purchase fasteners and other small parts in sufficient volumes to
achieve improved service and pricing. The Company believes that it is not
materially dependent on any single supplier and that it currently maintains good
relationships with all of its suppliers.

COMPETITION

The Company is engaged in a highly fragmented and competitive industry.
Competition is based primarily on service, quality and geographic proximity. The
Company competes with a large number of fastener distributors on a regional and
local basis, some of which may have greater financial resources than the Company
and some of which are public companies or divisions of public companies. The
Company may also face competition for acquisition candidates from these
companies, some of which have acquired fastener distribution businesses during
the past decade. Other smaller fastener distributors may also seek acquisitions
from time to time.

The Company believes that it will be able to compete effectively because of
its significant number of locations, geographic diversity, knowledgeable and
trained sales force, integrated computer systems, modern equipment, broad-based
product line, long-term customer relationships, combined purchasing volume and
operational economies of scale. The Company intends to seek to differentiate
itself from its competition in terms of service and quality by investing in
systems and equipment and by offering a broad

41
<PAGE>
range of products and services as well as through its entrepreneurial culture
and decentralized operating structure.

MANAGEMENT INFORMATION SYSTEMS

Each of the Founding Companies operates a management information system
that is used to purchase, monitor and allocate inventory throughout its
facilities. The Company believes that these systems enable it to manage
inventory costs effectively and to achieve appropriate inventory turnover rates.
All of these systems include computerized order entry, sales analysis, inventory
status, invoicing and payment, and all but one include bar-code tracking. These
systems are designed to improve productivity for both the Company and its
customers. All of the Founding Companies use EDI, through which they offer their
customers a paperless electronic process for order entry, shipment tracking,
customer billing, remittance processing and other routine matters.

In connection with developing its internal Company-wide systems following
the Offering, the Company expects to draw upon the best features of the existing
systems that have been utilized by the Founding Companies. Once the systems of
the Founding Companies are integrated, certain of the information systems will
operate over a wide area network, and the real-time information system will
allow each warehouse and sales center to share information and monitor daily
progress relating to sales activities, credit approval, inventory levels, stock
balancing, vendor returns, order fulfillment and other measures of performance.

GOVERNMENT REGULATION

The Fastener Quality Act (the "Fastener Act") was enacted on November 16,
1990 and was subsequently amended in March 1996. Due to a lack of accredited
testing facilities required under the Fastener Act, the implementation date has
been delayed until May 26, 1998. The Fastener Act is intended to protect the
public safety by deterring the introduction of non-conforming fasteners into
commerce and by improving the traceability of fasteners. Generally, the Fastener
Act covers fasteners including screws, nuts, bolts or studs with internal or
external threads and load indicating washers with nominal diameters of greater
than approximately one quarter inch, which contain metal or are held out as
meeting a standard or specification that requires through-hardening. The
Fastener Act also covers fasteners and washers that are marked with a grade
identification required by a specification or standard. An estimated 25% to 55%
of currently available fasteners meet this definition and are therefore subject
to the Fastener Act's requirement.

Fastener distributors such as the Company are subject to the Fastener Act.
The Fastener Act places responsibility on fastener manufacturers and
distributors to ensure that fasteners conform to the standards and
specifications to which the manufacturer represents it has been manufactured by
having them tested in a laboratory accredited under the Fastener Act. Persons
who significantly alter fasteners must mark the fasteners so as to permit
identification of the source of the alteration. Further, the Fastener Act
prohibits manufacturers and distributors from commingling like fasteners from
more than two different lots in the same container during packaging.

The Company currently operates four quality control labs at its facilities
and believes it will not be obligated to make any significant investment to
comply with the Fastener Act. The Company is applying for accreditation of its
laboratories under the Fastener Act. The Company anticipates that the majority
of any additional costs resulting from compliance with the Fastener Act will be
included in the prices to its customers. Some small distributors that are unable
to invest in the quality control equipment or services required to comply with
the Fastener Act may be forced to discontinue or reduce the parts of their
business that become subject to the Fastener Act.

The Company's operations are subject to various federal, state and local
laws and regulations, including those relating to worker safety and protection
of the environment. The Company is a distributor and does not generally engage
in manufacturing. As a result, environmental laws generally have a minimal
effect on its operations. The Company believes it is in substantial compliance
with applicable regulatory requirements.

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<PAGE>
EMPLOYEES

At September 30, 1997, the Company had approximately 580 employees. The
Company is a party to one collective bargaining agreement covering approximately
nine employees. The Company believes that its relationship with employees is
good.

PROPERTIES

The Company operates 24 distribution and sales facilities throughout the
United States. These facilities range in size from 500 square feet to 70,000
square feet, and generally consist of warehouse space with a small amount of
associated office space. Four of the facilities include laboratory space for
quality testing. All of the facilities are leased. The Company's leases expire
between 1998 and 2012. The Company believes that suitable replacement space will
be available as required. Additional detail regarding certain leases is
contained herein under "Certain Transactions -- Transactions Involving Certain
Officers, Directors and Stockholders -- Leases of Real Property by Founding
Companies." The Company believes that its current facilities are adequate for
its expected needs over the next several years. However, the Company may add new
facilities as a result of acquisitions or due to a customer's request for an
on-site or local facility.

The Company's corporate headquarters are located in space subject to a
short-term lease in Houston, Texas. The Company is in the process of obtaining
office space in Houston, Texas under a longer term lease for its corporate
headquarters.

LEGAL PROCEEDINGS

The Company is not a party to any material pending legal proceedings, other
than ordinary routine litigation incidental to its business that management
believes would not have a material adverse effect on its business, financial
condition or results of operations.

<PAGE>
MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth information concerning the Company's
directors and executive officers, and those persons who will become directors
and executive officers following the consummation of the Offering:

NAME AGE POSITION
- -------------------------- --- ---------------------------------------------
Mark E. Baldwin........... 44 Chairman of the Board and Chief Executive
Officer
Jack L. Fatica............ 53 President*, Chief Operating Officer* and
Director*
Brian Fontana............. 40 Senior Vice President and Chief Financial
Officer
Bruce M. Taten............ 42 Senior Vice President, Chief Administrative
Officer and General Counsel
James C. Jackson.......... 44 Vice President, Corporate Controller
Cary M. Grossman.......... 44 President and Director
Donald B. List............ 42 Director*
Mary E. McClure........... 57 Director*
Michael W. Peters......... 38 Director*
Benjamin E. Spence, Jr. .. 44 Director*
Robert M. Chiste.......... 50 Director*
Clayton K. Trier.......... 45 Director*
Jeffrey A. Pugh........... 34 Director
- ------------
* Effective as of the consummation of the Offering.

Mr. Grossman will resign as President of the Company and Mr. Pugh will resign as
a director of the Company effective as of the consummation of the Offering.

Mark E. Baldwin became Chief Executive Officer of the Company in September
1997 and became Chairman of the Board in November 1997. Mr. Baldwin has been
involved in the organization of the Company, the acquisition of the Founding
Companies and the Offering. From 1980 through August 1997, Mr. Baldwin was
employed by Keystone International, Inc., a publicly traded manufacturer of
industrial valves and controls, serving most recently as President of the
Industrial Valves & Controls Group, a division with 17 manufacturing locations
and multiple company-owned sales and distribution locations in 15 countries. Mr.
Baldwin received a B.S. in Mechanical Engineering from Duke University and a
M.B.A. from Tulane University.

Jack L. Fatica will become President, Chief Operating Officer and director
of the Company upon consummation of the Offering. Mr. Fatica has in excess of 30
years of experience in the fastener distribution business. He has been employed
by AXS or its predecessors since 1967 and currently serves as its President.

Brian Fontana became Chief Financial Officer of the Company in October
1997. From 1996 to 1997, Mr. Fontana served as Executive Vice President and
Chief Financial Officer of Prime Service, Inc., one of the largest rental
equipment companies in the United States. From 1990 to 1996, he was employed by
National Convenience Stores Incorporated, most recently as Vice President and
Chief Financial Officer. From 1985 to 1990, Mr. Fontana was employed by
Nationsbank as a Vice President of Corporate Banking and earlier by Allied Bank
of Texas as Assistant Vice President. Mr. Fontana received a B.B.A. degree in
finance from the University of Texas at Austin.

Bruce M. Taten became Vice President and General Counsel of the Company in
October 1997. From 1993 to 1997, Mr. Taten was employed by Keystone
International, Inc. most recently as Vice President and General Counsel. From
1988 to 1993, Mr. Taten practiced law at Sutherland Asbill & Brennan, a law firm

44
<PAGE>
based in Atlanta, Georgia. From 1983 to 1986, Mr. Taten practiced law with the
New York firm of Simpson, Thacher & Bartlett. Mr. Taten is a C.P.A. and received
a J.D. from Vanderbilt University and a B.S. and M.S. from Georgetown
University.

James C. Jackson became Vice President and Corporate Controller of the
Company in January 1998. From 1991 to 1998, Mr. Jackson was employed by Cooper
Industries, Inc., a publicly traded international manufacturer of electrical
products, tools and hardware and automotive products, serving most recently as
Director-Corporate Accounting & Consolidations. From 1976 to 1991, Mr. Jackson
was employed by Price Waterhouse. Mr. Jackson is a C.P.A. and received a B.B.A.
degree in accounting from Ohio University.

Cary M. Grossman is currently the President of the Company and has been a
Director of the Company since it was formed. Mr. Grossman will relinquish his
position as President upon consummation of the Offering, but will continue as a
Director. Mr. Grossman has been involved in the organization of the Company, the
acquisition of the Founding Companies and the Offering. Mr. Grossman cofounded
McFarland, Grossman & Company, Inc., an investment banking firm, in 1991 and
serves as its Chief Executive Officer. From 1977 until 1991, Mr. Grossman was
engaged in the practice of public accounting. Mr. Grossman is a C.P.A. and
received a B.B.A. in Accounting from the University of Texas.

Donald B. List will become a director of the Company upon consummation of
the Offering. Mr. List has over 20 years of experience in the fastener and
distribution business and has served as President of Alatec since 1981.

Mary E. McClure will become a director of the Company upon consummation of
the Offering. Ms. McClure cofounded Capitol in 1966 and has served as Capitol's
President since 1981. Ms. McClure has served as Chairman of the Southwest
Fastener Association and as Chairman/President of the National Fastener
Distributor Association. Ms. McClure has also been inducted into the Fastener
Hall of Fame.

Michael W. Peters will become a director of the Company upon consummation
of the Offering. Mr. Peters has over 11 years of experience in the fastener and
distribution business. He joined Maumee in 1986 and has served as its Chief
Executive Officer since July 1995.

Benjamin E. Spence, Jr. will become a director of the Company upon
consummation of the Offering. Mr. Spence has over 22 years of experience in the
fastener and distribution business and has served as President of SSL since
1986.

Robert M. Chiste will become a director of the Company upon consummation of
the Offering. Mr. Chiste has been President, Industrial Services Group, of
Philip Services Corp. since August 1997. He served as Vice Chairman of Allwaste,
Inc. ("Allwaste"), a provider of industrial and environmental services, from
May 1997 through July 1997, President and Chief Executive Officer of Allwaste
from November 1994 through July 1997 and a director of Allwaste from January
1995 through August 1997. Philip Services Corp. acquired Allwaste effective July
31, 1997. Mr. Chiste served as Chief Executive Officer and President of America
National Power, Inc., a successor company of Transco Energy Ventures Company,
from its creation in 1986 until August 1994. During the same period he served as
Senior Vice President of Transco Energy Company. Mr. Chiste also serves as a
director of Franklin Credit Management Corp., a New York-based financial
services company, and of Innovative Valve Technology, Inc.

Clayton K. Trier will become a director of the Company upon consummation of
the Offering. Mr. Trier is a private investor. In 1993, he was a founder of U.S.
Delivery Systems, Inc. ("U.S. Delivery"), a company created to consolidate the
highly fragmented local delivery industry, and Mr. Trier served as Chairman and
Chief Executive Officer of U.S. Delivery from its inception until April 1997. In
March 1996, U.S. Delivery, an NYSE-listed company at that time, was acquired by
Corporate Express, Inc., a large publicly owned office products company, and Mr.
Trier served as a director of Corporate Express, Inc. from the acquisition date
until January 1997. From 1991 to 1993, Mr. Trier was President of Trier &
Partners, Inc., a consulting firm. From 1987 through 1990, Mr. Trier served as
President and Co-Chief Executive Officer of Allwaste, a provider of industrial
and environmental services listed on the NYSE. From 1974 to 1987, Mr. Trier was
at the international accounting firm of Arthur Andersen & Co., in which he was a
partner from 1983 to 1987.

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<PAGE>
Jeffrey A. Pugh has served as a director of the Company since it was
formed, and will relinquish his position as director upon consummation of the
Offering. Mr. Pugh has been an employee with McFarland, Grossman & Company, Inc.
since 1996. From 1994 to 1995, Mr. Pugh served as Chief Financial Officer to JAC
Home Health, Inc., a home health service provider he helped found in 1993. From
1990 to 1994, Mr. Pugh served as a management consultant with the Chicago office
of Deloitte & Touche.

Directors are elected at each annual meeting of stockholders. Effective
upon consummation of the Offering the Board of Directors will be divided into
three classes of directors, with directors serving staggered three-year terms,
expiring at the annual meeting of stockholders for fiscal years 1998, 1999 and
2000, respectively. At each annual meeting of stockholders, one class of
directors will be elected for a full term of three years to succeed to that
class of directors whose terms are expiring. Messrs. List, Fatica and Chiste
will serve for initial three-year terms; Messrs. Spence, Peters and Trier will
serve for initial two-year terms and Ms. McClure, Mr. Baldwin and Mr. Grossman
will serve for initial one-year terms. Mr. Grossman is the director elected by
the holders of the Restricted Common Stock. The Company has agreed to nominate
each of the Directors from the five Founding Companies for re-election upon any
expiration of their terms occurring within five years of the consummation of the
Offering. All officers serve at the discretion of the Board of Directors,
subject to the terms of their respective employment agreements. See
"-- Employment Agreements" and "Description of Capital Stock."

The Board of Directors will establish an Audit Committee and Compensation
Committee. The Audit Committee recommends the appointment of auditors and
oversees the accounting and audit functions of the Company. The Compensation
Committee determines executive officers' and key employees' salaries and bonuses
and administers the Pentacon, Inc. 1998 Stock Plan. It is expected that Messrs.
Chiste and Trier will serve as members of the Company's Compensation Committee
and Audit Committee.

DIRECTORS' COMPENSATION

Directors who are employees of the Company do not receive additional
compensation for serving as directors. Each director who is not an employee of
the Company receives an annual fee of $16,000 paid in equal quarterly amounts.
Directors of the Company are reimbursed for out-of-pocket expenses incurred in
attending meetings of the Board of Directors or committees thereof, and for
other expenses incurred in their capacity as directors of the Company. Each
non-employee director will receive stock options to purchase 15,000 shares of
Common Stock upon election to the Board of Directors and an annual grant of
5,000 options. See "-- 1998 Stock Plan." The Company has also agreed to grant
each of Messrs. Chiste and Trier up to 10,000 shares of Common Stock pursuant to
restricted stock grants under the 1998 Stock Plan.

EXECUTIVE COMPENSATION

The Company was incorporated in March 1997 and, prior to the Offering, has
not conducted any operations other than activities related to the Acquisitions
and the Offering. The Company anticipates that during 1998 annualized base
salaries of each of its most highly compensated executive officers, Messrs.
Baldwin, Fatica, Taten and Fontana, will be $150,000 and for Mr. Jackson,
$100,000. Options for a total of 185,000, 100,000, 85,000 and 50,000 shares of
Common Stock at the initial public offering price have been granted to Messrs.
Baldwin, Taten, Fontana and Jackson, respectively. Thirty percent of the options
vest on the second anniversary of the employment agreements and the remainder
vest on the third anniversary. The Company has granted Mr. Jackson 65,000 shares
of Common Stock pursuant to a restricted stock grant under the 1998 Stock Plan.
The restrictions expire on one-third of the shares on each of the first three
anniversaries of the date of grant.

EMPLOYMENT AGREEMENTS

The Company has entered into employment agreements with each executive
officer of the Company that prohibit such officers from disclosing the Company's
confidential information and trade secrets and generally restrict these
individuals from competing with the Company for a period of two years after the
termination of their respective employment agreements. Mr. Baldwin's employment
agreement has an initial term of five years. The agreements for Messrs. Taten
and Fontana have an initial term of three years

46
<PAGE>
and the agreement for Mr. Jackson has an initial term of one year. All of the
employment agreements are terminable by the Company for "good cause" upon ten
days' written notice and without "cause" or for "good reason" by the officer
upon thirty days' written notice. All employment agreements provide that if the
officer's employment is terminated by the Company without "good cause," such
officer will be entitled to receive a lump-sum severance payment at the
effective time of termination.

The employment agreements of Messrs. Baldwin, Taten and Fontana contain
certain provisions concerning a change-in-control of the Company, including the
following: (i) in the event that the executive is not notified by the acquiring
company that it will assume the Company's obligations under the employment
agreement at least five days in advance of the transaction giving rise to the
change-in-control, the change-in-control will be deemed a termination of the
employment agreement by the Company without "cause," and the provisions of the
employment agreement governing the same will apply, except that the severance
amount otherwise payable (discussed in the preceding paragraph) shall be tripled
and the provisions which restrict competition with the Company shall not apply;
and (ii) in any change-in-control situation, such officer may elect to terminate
his employment by giving ten days' written notice prior to the anticipated
closing of the transaction giving rise to the change-in-control, which will be
deemed a termination of the employment agreement by the Company without
"cause," and the provisions of the employment agreement governing the same
will apply, except that the severance amount otherwise payable shall be doubled
and the time period during which such officer is restricted from competing with
the Company will be eliminated. The change-of-control provisions in the
employment agreements may discourage bids to acquire the Company or reduce the
amount an acquiror is willing to pay for the Company.

1998 STOCK PLAN

The Board of Directors has adopted, and the stockholders of the Company
have approved, the Pentacon, Inc. 1998 Stock Plan (the "1998 Stock Plan"). The
purpose of the 1998 Stock Plan is to provide directors, officers, key employees
and certain other persons who will be instrumental in the success of the Company
or its subsidiaries with additional incentives by increasing their proprietary
interest in the Company. The aggregate amount of Common Stock with respect to
which options may be granted may not exceed 1,700,000 shares (subject to
adjustment to reflect stock splits).

The 1998 Stock Plan will be administered by the Compensation Committee,
which will be composed primarily of non-employee directors (the "Committee").
Subject to the terms of the 1998 Stock Plan, the Committee generally determines
to whom options will be granted and the terms and conditions of option grants.
Options granted under the 1998 Stock Plan may be either non-qualified stock
options, or may qualify as incentive stock options (as used under "-- 1998
Stock Plan," "ISOs"), provided that the aggregate fair market value
(determined at the time the ISO is granted) of the Common Stock with respect to
which ISOs are exercisable for the first time by any employee during any
calendar year under all plans of the Company and any parent or subsidiary
corporation shall not exceed $100,000. No employee or consultant may receive an
option in any year to purchase more than 250,000 shares of Common Stock. The
Committee determines the period over which options become exercisable, provided
that all options become immediately exercisable upon death of the grantee or
upon a change-in-control (as defined in the 1998 Stock Plan) of the Company.

The 1998 Stock Plan also provides for automatic option grants to directors
who are not otherwise employed by the Company or its subsidiaries. Upon
commencement of service, a non-employee director will receive a non-qualified
option to purchase 15,000 shares of Common Stock, and continuing non-employee
directors annually will receive options to purchase 5,000 shares of Common
Stock. Options granted to non-employee directors are immediately exercisable in
full (subject to applicable securities laws).

Options that are not exercisable at the time of a voluntary termination of
the grantee's employment (or directorship) or in the case of a termination "for
cause" are immediately forfeited. In no event may an ISO granted to a control
person (as defined in the 1998 Stock Plan) be exercisable more than five years
from the date of grant. Each option granted to a non-employee director shall
have a term of ten years.

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<PAGE>
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), places a $1 million cap on the deductible compensation that can be
paid to certain executives of publicly traded corporations. Amounts that qualify
as "performance based" compensation under Section 162(m)(4)(C) of the Code are
exempt from the cap and do not count toward the $1 million limit. Generally,
options granted with an exercise price at least equal to the fair market value
of the shares of Common Stock on the date of grant will qualify as performance
based.

Upon exercise of a non-qualified option, the optionee generally will
recognize ordinary income in the amount of the "option spread" (the difference
between the market value of the option shares at the time of exercise and the
exercise price), and the Company is generally entitled to a corresponding tax
deduction (subject to certain withholding requirements). When an optionee sells
shares issued upon the exercise of a non-qualified stock option, the optionee
realizes a short-term or long-term capital gain or loss, depending on the length
of the holding period, but the Company is not entitled to any tax deduction in
connection with such sale.

An optionee will not be subject to federal income taxation upon the
exercise of ISOs granted under the 1998 Stock Plan, and the Company will not be
entitled to a federal income tax deduction by reason of such exercise. A sale of
shares of Common Stock acquired by exercise of an ISO that does not occur within
one year after the exercise or within two years after the grant of the option
generally will result in the recognition of long-term capital gain or loss in
the amount of the difference between the amount realized on the sale and the
exercise price, and the Company will not be entitled to any tax deduction in
connection therewith. If a sale of shares of Common Stock acquired upon exercise
of an ISO occurs within one year from the date of exercise of the option or
within two years from the date of the option grant (a "disqualifying
disposition"), the optionee generally will recognize ordinary compensation
income equal to the lesser of (i) the excess of the fair market value of the
shares on the date of exercise of the options over the exercise price, or (ii)
the excess of the amount realized on the sale of the shares over the exercise
price. Any amount realized on a disqualifying disposition in excess of the
amount treated as ordinary compensation income will be a long-term or a
short-term capital gain, depending upon the length of time the shares were held.
The Company generally will be entitled to a tax deduction on a disqualifying
disposition corresponding to the ordinary compensation income recognized by the
participant.

CERTAIN TRANSACTIONS

ORGANIZATION OF THE COMPANY

During 1997, members of the management team and certain consultants were
assembled by
McFarland, Grossman Capital Ventures II, L.C. ("MGCV") to pursue the
consolidation of the Founding Companies. MGCV, an investment entity formed to
focus on consolidations in highly fragmented industries, provided the Company
with expertise regarding the consolidation process and advanced the Company the
capital needed to pay organizational and offering expenses.

In connection therewith, on November 18, 1997, Pentacon sold 200,000,
125,000 and 125,000 shares of Common Stock to Messrs. Baldwin, Taten and
Fontana, respectively, of the Company for $0.01 per share. As a result, the
Company has recorded non-recurring, non-cash compensation charges of $4.7
million in the fourth quarter of 1997, representing the difference between the
amount paid for the shares and the estimated initial public offering price net
of a 20% marketability discount. In February 1997, the Company also granted two
consultants warrants to purchase an aggregate of 50,000 shares of Common Stock
at the lesser of $8.00 or 60% of the public offering price. The consultants
provided business and legal consulting services for the Company in connection
with its formation in the first four months of 1997.

The Company has agreed to reimburse MGCV for expenses incurred by MGCV in
connection with the Acquisitions and the Offering. The Company has agreed to pay
Donald Luke, a manager of MGCV, a success fee of $100,000 upon consummation of
the Offering. The Company will pay McFarland, Grossman & Company, Inc.
("McFarland, Grossman"), an affiliate of MGCV, customary fees in connection
with its placement of the Company's senior debt facility; the Company has also
engaged McFarland, Grossman, on

48
<PAGE>
customary terms, to provide financial advice regarding acquisitions during the
first four months after the Offering.

Simultaneously with the closing of the Offering, the Company will acquire
by merger all of the issued and outstanding capital stock of the Founding
Companies, at which time each Founding Company will become a wholly owned
subsidiary of the Company. The aggregate consideration that will be paid by the
Company to acquire the Founding Companies consists of (i) approximately $28.7
million in cash and (ii) 6,720,000 shares of Common Stock.

The following table sets forth for each Founding Company the approximate
consideration to be paid to the stockholders of the Founding Companies (i) in
cash and (ii) in shares of Common Stock, in each case subject to adjustments
through the date of the consummation of the Acquisition for the amount of
S-corporation earnings previously taxed to stockholders of certain of the
Founding Companies.

SHARES OF
CASH COMMON STOCK
--------- ------------
(IN THOUSANDS OF DOLLARS
EXCEPT SHARE AMOUNTS)
Alatec............................... $ 12,666 2,969,493
AXS.................................. 7,759 1,819,257
Maumee............................... 5,126 1,201,762
SSL.................................. 2,340 548,554
Capitol.............................. 772 180,934
--------- ------------
Total........................... $ 28,663 6,720,000
========= ============

Immediately prior to consummation of the Acquisitions, certain of the
Founding Companies will make distributions estimated to be approximately $3.7
million, representing S-corporation earnings previously taxed to their
respective stockholders. The amount of such distributions (in excess of
estimated shareholder tax liabilities for 1997 and 1998) shall be deducted from
the cash payments indicated in the table above.

In connection with the Acquisitions, and as consideration for their
interests in the Founding Companies, certain officers, directors and holders of
more than 5% of the outstanding shares of the Company, together with trusts for
which they act as trustees, will receive cash and shares of Common Stock of the
Company as follows. These amounts do not include any S-corporation
distributions.

SHARES OF
CASH COMMON STOCK
--------- ------------
(IN THOUSANDS OF DOLLARS,
EXCEPT SHARE AMOUNTS)
Donald B. List....................... $ 12,666 2,969,493
Jack L. Fatica....................... 3,423 802,656
Michael Black........................ 3,844 901,321
Benjamin E. Spence, Jr............... 1,170 232,132
Mary E. McClure...................... 661 154,898
--------- ------------
Total........................... $ 21,764 5,060,500
========= ============

The consummation of each Acquisition is subject to customary conditions.
These conditions include, among others, the accuracy on the closing date of the
Acquisitions of the representations and warranties by the Founding Companies,
their principal stockholders and by the Company; the performance by each of the
parties of their respective covenants; and the nonexistence of a material
adverse change in the results of operations, financial condition or business of
each Founding Company.

Certain of the Founding Companies have incurred indebtedness that has been
personally guaranteed by their stockholders or by entities controlled by their
stockholders. At December 31, 1997, the aggregate amount of indebtedness of
these Founding Companies that was subject to personal guarantees was
approximately $19.1 million. The Company intends to use a portion of the net
proceeds from this Offering, together with borrowings available from the
Company's anticipated revolving credit facility, to repay

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<PAGE>
substantially all of the indebtedness of the Founding Companies. Such
indebtedness also includes a $1.2 million loan from the Small Business
Administration.

The Founding Companies and Founding Company Stockholders agreed, prior to
the initial filing of the Registration Statement, to the terms of the
Acquisition Agreements. The offers and sales of Common Stock pursuant to the
Acquisition Agreements have not been registered under the Securities Act and
have been structured as private placements exempt from registration under the
Securities Act. Due to changes in market conditions and certain delays in the
consummation of the Offering, the Founding Company stockholders may have a right
under certain provisions of the Acquisition Agreements to terminate the
Acquisition Agreements. The Founding Company Stockholders have agreed, however,
not to exercise such rights and to proceed with the transactions contemplated by
the Acquisition Agreements. The decision by the Founding Company Stockholders
not to exercise any such termination rights could, arguably, impact the private
placement exemption available for the offer and sale of Common Stock pursuant to
the Acquisitions transactions. More specifically, if the offers and sales of
Common Stock pursuant to the Acquisition Agreements were deemed to be integrated
with the Offering (I.E., to be part of the public offering), a private placement
exemption from the registration requirements of the Securities Act would not be
available and certain rescission rights would be available to the Founding
Company Stockholders under the Securities Act. The Company, however, believes
that the offer and sale of Common Stock to the Founding Company Stockholders
would not be integrated with the Offering and would continue to qualify for a
private placement exemption. Furthermore, the Founding Company Stockholders will
enter into agreements with the Company pursuant to which the Founding Company
Stockholders agree (i) not to pursue any rescission rights which might be
available and (ii) to contribute any such rights to the Company in exchange for
the merger consideration payable under the Merger Agreements. There can be no
assurances that the Founding Company Stockholders' agreement to not pursue any
rescission rights will be enforceable under State securities laws. Furthermore,
Section 14 of the Securities Act provides that any provision requiring any
person acquiring securities to waive compliance with the provisions of the
Securities Act is void. The Company believes that a private placement exemption
continues to exist and would vigorously resist any efforts by the Founding
Company Stockholders to assert rescission rights or any noncompliance by the
Founding Company Stockholders with the waiver or recontribution agreements.

There can be no assurance that the conditions to the closing of the
Acquisitions will be satisfied or waived or that the agreements relating to the
Acquisitions will not be terminated prior to the closing. If any of the
Acquisitions is terminated for any reason, the Company does not intend to
consummate the Offering on the terms described herein.

Pursuant to the agreements relating to the Acquisitions, all significant
stockholders of each of the Founding Companies have agreed not to compete with
the Company for a period of five years commencing on the date of closing of the
Acquisitions.

TRANSACTIONS INVOLVING CERTAIN OFFICERS, DIRECTORS AND STOCKHOLDERS

LEASES OF REAL PROPERTY BY FOUNDING COMPANIES

Following the Acquisitions, Alatec will continue to lease its facilities
located in Chatsworth, California from Mr. List, who will become a director of
the Company upon consummation of the Offering. The lease provides for a total
annual rent of $462,840 with the term of the lease expiring in March 2012.
Alatec shall also pay taxes and utilities on the leased premises. The rent will
be adjusted in accordance with the Consumer Price Index ("CPI") subject to a
minimum of 4% and a maximum of 8%. In addition, Alatec will continue to lease
its warehouse in Fremont, California from FDR Properties, an entity controlled
and partially owned by Mr. List. This lease expires August 31, 1998 and provides
for an annual rent of $114,336. Alatec shall also pay taxes and utilities on
those premises. The Company will also continue to lease from the List Family
Trust an office and warehouse in Chatsworth, California. The lease provides for
an annual rental of $170,832 and terminates in October 2012. Alatec shall also
pay utilities and taxes on the premises. The Company believes that the rent for
each of these properties does not exceed fair market value.

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<PAGE>
Following the Acquisitions, AXS will continue to lease certain real
property located in Erie, Pennsylvania from JFJ Realty Company, an entity owned
and controlled by Jeffrey Fatica and Jack Fatica. Jack Fatica will become an
officer and director of the Company upon consummation of the Offering. The lease
for the property runs through August 2006 and provides for an annual rent of
$240,000 through August 30, 2001. Beginning September 1, 2001, the rent shall be
adjusted to fair market value as determined on February 1, 2001. Furthermore,
AXS shall pay taxes and utilities on the leased premises. In addition, following
the mergers, AXS will continue to lease certain real property located in Niles,
Illinois from the Joseph Hoyt Residual Trust and the Hoyt Family Residual Trust,
in which Mr. Hoyt has an economic and beneficial interest. The lease on this
property will expire August 30, 2006, and provides for an annual rent of
$157,500 through August 31, 2001. Beginning September 1, 2001, the rental shall
be adjusted to fair market value as determined on February 1, 2001. Furthermore,
AXS shall pay utilities and taxes on the leased premises. The Company believes
that the rent for these properties does not exceed fair market value.

Following the Acquisitions, SSL will lease certain real properties located
in Chester, South Carolina from Chester Associates, LLC, an entity owned and
controlled by Messrs. Spence and Knorr. Mr. Spence will become a director of the
Company upon the consummation of the Offering. One facility in Chester, South
Carolina will be leased for an initial five year term expiring December 31,
2002, with an option to extend the lease for an additional five year term. The
annual rent for the first year of this lease is $61,250. The rent shall increase
each subsequent year of the lease based on the CPI, not to increase more than
4%. SSL shall be responsible for utilities. Also, certain warehouse space in
South Carolina will be leased to SSL. This warehouse will be leased for an
initial five year term expiring December 31, 2002, with an option to extend for
an additional five year term. The annual rent for the first year of this lease
is $55,000, with subsequent rental rates to increase per the CPI, not to exceed
4% in any one year. SSL shall be responsible for utilities. The Company believes
that the rent for these properties does not exceed fair market value.

Following the Acquisitions, Maumee will continue to lease certain real
property located in Fort Wayne, Indiana from Mr. Black. The current lease for
the property expires March 31, 1998 and provides for an annual rental of
$312,000. In addition, Maumee is required to pay utilities and certain taxes and
assessments. The Company currently intends to renew the lease at current rates.
The Company believes such rent exceeds fair market value by approximately 30%.
Such excess rate was taken into consideration in determining the consideration
paid in connection with the acquisition of Maumee.

OTHER TRANSACTIONS

Mr. List owns approximately 50% of a supplier from which the Company
purchased approximately $1.1 million of products during the nine months ended
September 30, 1997. The Company believes all such purchases have been at fair
market prices. The Company anticipates continuing to purchase products from the
supplier in the future so long as the prices and terms remain competitive with
those of alternative suppliers.

In November 1997, Mr. Grossman and Mr. Pugh, each principals in MGCV,
became officers of Alatec in order to assist in, facilitate and expedite the
audit process in connection with the Offering. Alatec and Mr. List, its sole
stockholder, have agreed to indemnify Messrs. Grossman and Pugh against various
claims, damages, costs and expenses which might be incurred by them as officers
of Alatec, including their execution of representation letters to Alatec's
accountants.

The Company has agreed to permit Jack L. Fatica to acquire certain life
insurance policies from AXS at a price to be mutually agreed upon, which will
approximate the fair market value of the policies.

COMPANY POLICY

Any future transactions with directors, officers, employees or affiliates
of the Company are anticipated to be minimal, and must be approved in advance by
a majority of disinterested members of the Board of Directors.

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<PAGE>
PRINCIPAL STOCKHOLDERS

The following table sets forth information with respect to beneficial
ownership of the Company's Common Stock, after giving effect to the issuance of
shares of Common Stock in connection with the Acquisitions and after giving
effect to the Offering, by (i) all persons known to the Company to be the
beneficial owner of 5% or more thereof, (ii) each director and nominee for
director, (iii) each executive officer and (iv) all officers and directors as a
group. Unless otherwise indicated, the address of each such person is c/o
Pentacon, Inc., 9821 Katy Freeway, Suite 500, Houston, Texas 77024. All persons
listed have sole voting and investment power with respect to their shares unless
otherwise indicated.

SHARES BENEFICIALLY
OWNED AFTER OFFERING
---------------------
NUMBER PERCENT
--------- -------
Donald B. List(1).................... 2,969,493 20.1%
MGCV(2).............................. 2,295,000 15.6
Cary M. Grossman(3).................. 2,295,000 15.6
Michael Black........................ 901,321 6.1
Jack L. Fatica....................... 802,656 5.4
Donald L. Luke(4).................... 694,240 4.7
Michael W. Peters.................... 300,441 2.0
Benjamin E. Spence, Jr. ............. 253,332 1.7
Mark E. Baldwin...................... 200,000 1.4
Mary E. McClure(5)................... 154,898 1.1
Brian Fontana........................ 125,000 *
Bruce M. Taten....................... 125,000 *
Jeffrey A. Pugh(6)................... 113,436 *
James C. Jackson(7).................. 65,000 *
Robert M. Chiste(8).................. 35,000 *
Clayton K. Trier(8).................. 35,000 *
All officers and directors as a group
(12 persons)(9).................... 7,360,820 49.8%
- ------------
* Less than one percent.

(1) Includes an aggregate of 76,248 shares held by three trusts for the benefit
of Mr. List's minor children. Mr. List disclaims any beneficial ownership of
the shares owned by the trusts.

(2) MGCV intends to distribute to its members the Company's Common Stock MGCV
holds after the consummation of the Offering.

(3) Consists of 2,295,000 shares of Common Stock issued to MGCV. Mr. Grossman is
the President of MGCV. Of the shares of Common Stock issued to MGCV, 273,522
shares will be distributed to Mr. Grossman and 191,880 shares will be
distributed to McFarland, Grossman & Company, Inc. Mr. Grossman owns a 50%
interest in McFarland, Grossman & Company, Inc.

(4) Mr. Luke is a member of MGCV. Of the shares of Common Stock issued to MGCV,
694,240 shares will be distributed to Mr. Luke. Mr. Luke's address is 8
Greenway Plaza, Suite 1500, Houston, Texas 77046.

(5) Includes 71,759 shares of Common Stock owned by the Earl Milton McClure, Jr.
Residuary Trust of which Ms. McClure is trustee.

(6) Mr. Pugh is a member of MGCV. Of the shares of Common Stock issued to MGCV,
113,436 shares will be distributed to Mr. Pugh.

(7) Represents shares granted as restricted stock grants under the 1998 Stock
Plan.

(8) Represents options to purchase 15,000 shares exercisable within 60 days,
10,000 shares which are expected to be purchased by this individual in the
Offering and 10,000 shares granted as restricted stock grants under the 1998
Stock Plan; to the extent this individual purchases less than 10,000 shares
in the Offering, the shares granted as restricted stock grants will be
ratably reduced.

(9) Excludes Mr. Pugh who will resign effective upon the consummation of the
Offering.

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<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL

The Company's authorized capital stock consists of 50,000,000 shares of
Common Stock, par value $0.01 per share, 1,000,000 shares of Restricted Common
Stock, par value $0.01 per share and 10,000,000 shares of Preferred Stock, par
value $0.01 per share. After giving effect to the Acquisitions, there will be
9,550,000 shares of Common Stock outstanding, which will be held of record by 31
stockholders, 667,000 shares of Restricted Common Stock outstanding, which are
held of record by MGCV, and no shares of Preferred Stock outstanding. After the
closing of the Offering, 14,750,000 shares of Common Stock, including 667,000
shares of Restricted Common Stock, will be issued and outstanding and 1,100,000
shares of Common Stock will be reserved for issuance upon exercise of
outstanding options and warrants. The following summary of the terms and
provisions of the Company's capital stock does not purport to be complete and is
qualified in its entirety by reference to the Company's Second Amended and
Restated Certificate of Incorporation and Bylaws, which have been filed as
exhibits to the Company's registration statement, of which this Prospectus is a
part, and applicable law.

COMMON STOCK AND RESTRICTED COMMON STOCK

The holders of Common Stock are each entitled to one vote for each share
held on all matters to which they are entitled to vote, including the election
of directors. The holders of Restricted Common Stock, voting together as a
single class, are entitled to elect one member of the Company's Board of
Directors and will be entitled to 0.25 of a vote per share on all other matters
on which the Common Stock is entitled to vote. Holders of Restricted Common
Stock are not entitled to vote on the election of any other directors. Upon
consummation of this Offering, the Board of Directors will be classified into
three classes as nearly equal in number as possible, with the term of each class
expiring on a staggered basis. The classification of the Board of Directors may
make it more difficult to change the composition of the Board of Directors and
thereby may discourage or make more difficult an attempt by a person or group to
obtain control of the Company. Cumulative voting for the election of directors
is not permitted. Any director, or the entire Board of Directors, may be removed
at any time, with cause, by 66 2/3% of the aggregate number of votes that may be
cast by the holders of outstanding shares of Common Stock and Restricted Common
Stock entitled to vote for the election of directors, provided, however, that
only the holders of the Restricted Common Stock may remove the director such
holders are entitled to elect.

Subject to the rights of any then outstanding shares of Preferred Stock,
the holders of the Common Stock are entitled to such dividends as may be
declared in the discretion of the Board of Directors out of funds legally
available therefor. See "Dividend Policy." Holders of Common Stock are
entitled to share ratably in the net assets of the Company upon liquidation
after payment or provision for all liabilities and any preferential liquidation
rights of any Preferred Stock then outstanding. The holders of Common Stock have
no preemptive rights to purchase shares of stock of the Company. Shares of
Common Stock are not subject to any redemption provisions and are not
convertible into any other securities of the Company. All outstanding shares of
Common Stock are fully paid and nonassessable.

Each share of Restricted Common Stock will automatically convert to Common
Stock on a share-for-share basis (i) in the event of a disposition of such share
of Restricted Common Stock by the holder thereof (other than a distribution
which is a distribution by a holder to its partners or beneficial owners, or a
transfer to a related party of such holder (as defined in Sections 267, 707, 318
and/or 4946 of the Internal Revenue Code of 1986, as amended)) or (ii) in the
event any person acquires beneficial ownership of 30% or more of the outstanding
shares of Common Stock. After January 1, 2003, the Board of Directors may elect
to convert any outstanding shares of Restricted Common Stock into shares of
Common Stock.

PREFERRED STOCK

The Preferred Stock may be issued from time to time by the Board of
Directors as shares of one or more classes or series. Subject to the provisions
of the Company's Second Amended and Restated Certificate of Incorporation and
limitations prescribed by law, the Board of Directors is expressly

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<PAGE>
authorized to adopt resolutions to issue the shares, to fix the number of shares
and to change the number of shares constituting any series, and to provide for
or change the voting powers, designations, preferences and relative,
participating, optional or other special rights, qualifications, limitations or
restrictions thereof, including dividend rights (including whether dividends are
cumulative), dividend rates, terms of redemption (including sinking fund
provisions), redemption prices, conversion rights and liquidation preferences of
the shares constituting any class or series of the Preferred Stock, in each case
without any further action or vote by the stockholders. The Company has no
current plans to issue any shares of Preferred Stock of any class or series.

One of the effects of undesignated Preferred Stock may be to enable the
Board of Directors to render more difficult or to discourage an attempt to
obtain control of the Company by means of a tender offer, proxy contest, merger
or otherwise, and thereby to protect the continuity of the Company's management.
The issuance of shares of Preferred Stock pursuant to the Board of Directors'
authority described above may adversely affect the rights of the holders of
Common Stock. For example, Preferred Stock issued by the Company may rank prior
to the Common Stock as to dividend rights, liquidation preference or both, may
have full or limited voting rights and may be convertible into shares of Common
Stock. Accordingly, the issuance of shares of Preferred Stock may discourage
bids for the Common Stock at a premium or may otherwise adversely affect the
market price of the Common Stock.

STATUTORY BUSINESS COMBINATION PROVISION

The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law ("Section 203"). Section 203 provides, with certain
exceptions, that a Delaware corporation may not engage in any of a broad range
of business combinations with a person or an affiliate, or an associate of such
person, who is an "interested stockholder" for a period of three years from
the date that such person became an interested stockholder unless: (i) the
transaction resulting in a person becoming an interested stockholder, or the
business combination, is approved by the Board of Directors of the corporation
before the person becomes an interested stockholder, (ii) the interested
stockholder acquired 85% or more of the outstanding voting stock of the
corporation in the same transaction that makes such person an interested
stockholder (excluding shares owned by persons who are both officers and
directors of the corporation, and shares held by certain employee stock
ownership plans), or (iii) on or after the date the person becomes an interested
stockholder, the business combination is approved by the corporation's board of
directors and by the holders of at least 66% of the corporation's outstanding
voting stock at an annual or special meeting, excluding shares owned by the
interested stockholder. Under Section 203, an "interested stockholder" is
defined as any person who is (i) the owner of 15% or more of the outstanding
voting stock of the corporation or (ii) an affiliate or associate of the
corporation and who was the owner of 15% or more of the outstanding voting stock
of the corporation at any time within the three-year period immediately prior to
the date on which it is sought to be determined whether such person is an
interested stockholder.

A corporation may, at its option, exclude itself from the coverage of
Section 203 by including in its certificate of incorporation or by-laws by
action of its stockholders to exempt itself from coverage. The Company has not
adopted such an amendment to its Second Amended and Restated Certificate of
Incorporation or Bylaws.

LIMITATION ON DIRECTORS' LIABILITIES

Pursuant to the Company's Second Amended and Restated Certificate of
Incorporation and under Delaware law, directors of the Company are not liable to
the Company or its stockholders for monetary damages for breach of fiduciary
duty, except for liability in connection with a breach of the duty of loyalty,
for acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, for dividend payments or stock repurchases
illegal under Delaware law or any transaction in which a director has derived an
improper personal benefit. The Company has entered into indemnification
agreements with its directors and executive officers which indemnify such person
to the fullest extent permitted by its Second Amended and Restated Certificate
of Incorporation, its Bylaws and the Delaware General Corporation Law. The
Company has obtained directors' and officers' liability insurance.

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<PAGE>

SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION AND BYLAW PROVISIONS

The Company's Second Amended and Restated Certificate of Incorporation and
Bylaws include provisions that may have the effect of discouraging, delaying or
preventing a change in control of the Company or an unsolicited acquisition
proposal that a stockholder might consider favorable, including a proposal that
might result in the payment of a premium over the market price for the shares
held by stockholders. These provisions are summarized in the following
paragraphs.

CLASSIFIED BOARD OF DIRECTORS. The Second Amended and Restated Certificate
of Incorporation provides for the Board of Directors to be divided into three
classes of directors serving staggered three-year terms. The classification of
the Board of Directors has the effect of requiring at least two annual
stockholders meetings, instead of one, to replace a majority of members of the
Board of Directors.

SUPERMAJORITY VOTING. The Second Amended and Restated Certificate of
Incorporation requires the approval of the holders of at least 75% of the then
outstanding shares of the Company's capital stock entitled to vote thereon on,
among other things, certain amendments to the Second Amended and Restated
Certificate of Incorporation. The Board of Directors may amend, alter, change or
repeal any bylaws without the assent or vote of the stockholders, but any bylaws
made by the Board of Directors may be altered, amended or repealed upon the
affirmative vote of at least 66 2/3% of the stock entitled to vote thereon.

AUTHORIZED BUT UNISSUED OR UNDESIGNATED CAPITAL STOCK. The Company's
authorized capital, stock will consist of 50,000,000 shares of Common Stock,
1,000,000 shares of Restricted Common Stock, and 10,000,000 shares of preferred
stock. After the Offering, the Company will have outstanding 14,750,000 shares
of Common Stock and Restricted Common Stock (assuming the Underwriters'
over-allotment options are not exercised). The authorized but unissued (and in
the case of preferred stock, undesignated) stock may be issued by the Board of
Directors in one or more transactions. In this regard, the Company's Second
Amended and Restated Certificate of Incorporation grants the Board of Directors
broad power to establish the rights and preferences of authorized and unissued
preferred stock. The issuance of shares of preferred stock pursuant to the Board
of Directors' authority described above could decrease the amount of earnings
and assets available for distribution to holders of Common Stock and adversely
affect the rights and powers, including voting rights, of such holders and may
also have the effect of delaying, deferring or preventing a change in control of
the Company. The Board of Directors does not currently intend to seek
stockholder approval prior to any issuance of preferred stock, unless otherwise
required by law.

SPECIAL MEETING OF STOCKHOLDERS. The Second Amended and Restated
Certificate of Incorporation and Bylaws provide that special meetings of
stockholders of the Company may only be called by the Chairman of the Board of
Directors upon the written request of the Board of Directors pursuant to a
resolution approved by a majority of the whole Board of Directors.

STOCKHOLDER ACTION BY WRITTEN CONSENT. The Second Amended and Restated
Certificate of Incorporation and Bylaws generally provide that any action
required or permitted by the stockholders of the Company must be effected at a
duly called annual or special meeting of the stockholders and may not be
effected by any written consent of the stockholders.

NOTICE PROCEDURES. The Bylaws establish advance notice procedures with
regard to stockholder proposals relating to the nomination of candidates for
election as director, the removal of directors and amendments to the Second
Amended and Restated Certificate of Incorporation or Bylaws to be brought before
annual meetings of stockholders of the Company. These procedures provide that
notice of such stockholder proposals must be timely given in writing to the
Secretary of the Company prior to the annual meeting. Generally, to be timely,
notice must be received at the principal executive offices of the Company not
less than 80 days prior to an annual meeting (or if fewer than 90 days' notice
or prior public disclosure of the date of the annual meeting is given or made by
the Company, not later than the tenth day following the date on which the notice
of the date of the annual meeting was mailed or such public disclosure was
made). The notice must contain certain information specified in the Bylaws,
including a brief description of the business desired to be brought before the
annual meeting and certain information concerning the stockholder submitting the
proposal.

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<PAGE>

CHARTER PROVISIONS RELATING TO RIGHTS PLAN. The Second Amended and
Restated Certificate of Incorporation authorizes the Board of Directors of the
Company to create and issue rights (the "Rights") entitling the holders
thereof to purchase from the Company shares of capital stock or other
securities. The times at which, and the terms upon which, the Rights are to be
issued may be determined by the Board of Directors and set forth in the
contracts or instruments that evidence the Rights. The authority of the Board of
Directors with respect to the Rights includes, but is not limited to, the
determination of (i) the initial purchase price per share of the capital stock
or other securities of the Company to be purchased upon exercise of the Rights,
(ii) provisions relating to the times at which and the circumstances under which
Rights may be exercised or sold or otherwise transferred, either together with
or separately from, any other securities of the Company, (iii) provisions which
adjust the number or excercise price of the Rights or amount or nature of the
securities or other property receivable upon exercise of the Rights, (iv)
provisions which deny the holder of a specified percentage of the outstanding
securities of the Company the right to exercise the Rights and/or cause the
Rights held by such holder to become void, (v) provisions which permit the
Company to redeem the Rights and (vi) the appointment of a rights agent with
respect to the Rights. If authorized by the Board of Directors, the Rights would
be intended to protect the Company's stockholders from certain non-negotiated
takeover attempts which present the risk of a change of control on terms which
may be less favorable to the Company's stockholder than would be available in a
transaction negotiated with and approved by the Board of Directors. The Board of
Directors believes that the interests of the stockholders generally are best
served if any acquisition of the Company or a substantial percentage of the
Company's Common Stock results from arm's-length negotiation and reflects the
Board of Directors' careful consideration of the proposed terms of a
transaction. In particular, the Rights if issued would be intended to help (i)
reduce the risk of coercive two-tiered, front-end loaded or partial offers which
may not offer fair value to all stockholders of the Company, (ii) deter market
accumulators who through open market or private purchases may achieve a position
of substantial influence or control without paying to stockholders a fair
control premium and (iii) deter market accumulators who are simply intereted in
putting the Company "in play."

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for the Common Stock is American
Securities Transfer & Trust, Inc.

SHARES ELIGIBLE FOR FUTURE SALE

The market price of the Common Stock could be adversely affected by the
sale of substantial amounts of Common Stock in the public market. Upon
consummation of the Offering there will be 14,750,000 shares of Common Stock
issued and outstanding. All of the 5,200,000 shares sold in the Offering, except
for shares acquired by affiliates of the Company, will be freely tradeable.

Simultaneously with the closing of the Offering, the stockholders of the
Founding Companies will receive, in the aggregate, 6,720,000 shares of Common
Stock as a portion of the consideration for their businesses. Certain other
stockholders of the Company will hold, in the aggregate, an additional 2,810,000
shares of Common Stock including 667,000 shares of Restricted Common Stock. None
of these 9,530,000 shares were issued in a transaction registered under the
Securities Act, and, accordingly, such shares may not be sold except in
transactions registered under the Securities Act or pursuant to an exemption
from registration, including the exemption contained in Rule 144 under the
Securities Act.

In general, under Rule 144 as currently in effect, a person, or persons
whose shares are aggregated, who has beneficially owned his or her shares for at
least one year, or a person who may be deemed an "affiliate" of the Company
who has beneficially owned shares for at least one year, would be entitled to
sell within any three-month period a number of shares that does not exceed the
greater of 1% of the then outstanding shares of the Common Stock or the average
weekly trading volume of the Common Stock during the four calendar weeks
preceding the date on which notice of the proposed sale is sent to the
Securities and Exchange Commission. Sales under Rule 144 are also subject to
certain manner of sale provisions, notice requirements and the availability of
current public information about the Company. A person who is not deemed to have
been an affiliate of the Company at any time for 90 days preceding a sale

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<PAGE>
and who has beneficially owned his shares for at least two years would be
entitled to sell such shares under Rule 144 without regard to the volume
limitations, manner of sale provisions, notice requirements or the availability
of current public information about the Company.

The Company has authorized the issuance of up to 1,700,000 shares of its
Common Stock in accordance with the terms of the 1998 Stock Plan. Options to
purchase 420,000 shares have been granted to certain officers of Pentacon under
the 1998 Stock Plan. It is anticipated that upon closing of the Offering the
Company will grant: (1) options to purchase 600,000 shares of Common Stock to
certain employees of the Founding Companies, (ii) options to purchase an
aggregate of 30,000 shares of Common Stock to two non-employee directors, and
(iii) 20,000 shares pursuant to restricted stock grants to two non-employee
directors. The Company intends to file a registration statement on Form S-8
under the Securities Act registering the issuance of shares upon exercise of
options granted under the 1998 Stock Plan. As a result, such shares will be
eligible for resale in the public market.

The Company currently intends to file a registration statement covering
3,350,000 additional shares of Common Stock under the Securities Act for its use
in connection with future acquisitions. These shares generally will be freely
tradeable after their issuance by persons not affiliated with the Company unless
the Company contractually restricts their resale.

The Company has issued to certain consultants warrants to purchase 50,000
shares of Common Stock with an exercise price equal to the lesser of $8.00 or
60% of the public offering price.

The Company has agreed that it will not sell or offer any shares of Common
Stock or options, rights or warrants to acquire any Common Stock for a period of
180 days after the date of this Prospectus without the prior written consent of
BT Alex. Brown Incorporated, except for shares issued (i) in connection with
acquisitions, (ii) pursuant to the exercise of options granted under the 1998
Stock Plan, and (iii) upon conversion of shares of Restricted Common Stock.
Further, the Company's directors, officers and certain stockholders who
beneficially own approximately 9,530,000 shares in the aggregate have agreed not
to directly or indirectly sell or offer for sale or otherwise dispose of any
Common Stock for a period of 180 days after the date of this Prospectus without
the prior written consent of BT Alex. Brown Incorporated. Each of the Founding
Company Stockholders, the Company's senior officers and MGCV have agreed not to
directly or indirectly sell or offer for sale or otherwise dispose of any Common
Stock for a period of one year after the date of this Prospectus without the
prior written consent of the Company.

Prior to the Offering, there has been no established trading market for the
Common Stock, and no predictions can be made as to the effect that sales of
Common Stock under Rule 144, pursuant to a registration statement, or otherwise,
or the availability of shares of Common Stock for sale, will have on the market
price prevailing from time to time. Sales of substantial amounts of Common Stock
in the public market, or the perception that such sales could occur, could
depress the prevailing market price. Such sales may also make it more difficult
for the Company to issue or sell equity securities or equity-related securities
in the future at a time and price that it deems appropriate. See "Risk
Factors -- Shares Eligible for Future Sale."

The former stockholders of the Founding Companies, after one year, and
certain officers, directors and stockholders holding in the aggregate 9,530,000
shares of Common Stock are entitled to certain rights with respect to the
registration of their shares of Common Stock under the Securities Act. If the
Company proposes to register any of its securities under the Securities Act,
such stockholders are entitled to notice of such registration and are entitled
to include, at the Company's expense, all or a portion of their shares therein,
subject to certain conditions. These registration rights will not apply to the
registration statement the Company intends to file for use in future
acquisitions.

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UNDERWRITING

Subject to the terms and conditions of an Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their representatives,
BT Alex. Brown Incorporated, Schroder & Co. Inc. and Sanders Morris Mundy Inc.
(together, the "Representatives"), have severally agreed to purchase from the
Company the following respective numbers of shares of Common Stock at the
initial public offering price less the underwriting discounts and commissions
set forth on the cover page of this Prospectus:

NUMBER OF
UNDERWRITERS SHARES
- ------------------------------------- ---------
BT Alex. Brown Incorporated.......... 1,710,000
Schroder & Co. Inc................... 1,710,000
Sanders Morris Mundy Inc............. 380,000
BancAmerica Robertson Stephens....... 120,000
Bear, Stearns & Co. Inc. ............ 120,000
Furman Selz LLC...................... 120,000
Merrill Lynch, Pierce, Fenner & Smith
Incorporated....................... 120,000
NationsBanc Montgomery Securities
LLC................................ 120,000
Robert W. Baird & Co. Incorporated... 80,000
William Blair & Company, L.L.C. ..... 80,000
GKN Securities Corp. ................ 80,000
C.L. King & Associates, Inc. ........ 80,000
Ladenburg Thalmann & Co. Inc. ....... 80,000
The Robinson-Humphrey Company, LLC... 80,000
Spencer Trask Securities
Incorporated....................... 80,000
Value Investing Partners, Inc. ...... 80,000
Suntrust Equitable Securities
Corporation........................ 80,000
Van Kasper & Company................. 80,000
---------
Total........................... 5,200,000
=========

The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all of the shares of Common Stock offered hereby if
any of such shares are purchased.

The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Common Stock to the public at the initial public
offering price set forth on the cover page of this Prospectus and to certain
dealers at such price less a concession not in excess of $0.42 per share. The
Underwriters may allow, and such dealers may re-allow, a concession not in
excess of $0.10 per share to certain other dealers. After commencement of the
initial public offering, the offering price and other selling terms may be
changed by the Representatives.

The Company has granted the Underwriters an option, exercisable not later
than 30 days after the date of this Prospectus, to purchase up to 780,000
additional shares of Common Stock at the initial public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the same
percentage thereof that the number of shares of Common Stock to be purchased by
it in the above table bears to 780,000, and the Company will be obligated,
pursuant to the option, to sell such shares to the Underwriters. The
Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of the Common Stock offered hereby. If purchased, the
Underwriters will offer such additional shares on the same terms as those on
which the 5,200,000 shares are being offered.

The Underwriting Agreement contains covenants of indemnity and contribution
between the Underwriters and the Company regarding certain liabilities,
including liabilities under the Securities Act.

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To facilitate the Offering of the Common Stock, the Underwriters may engage
in transactions that stabilize, maintain or otherwise affect the market price of
the Common Stock. Specifically, the Underwriters may over-allot shares of the
Common Stock in connection with this Offering, thereby creating a short position
in the Underwriters' syndicate account. Additionally, to cover such
over-allotments or to stabilize the market price of the Common Stock, the
Underwriters may bid for, and purchase, shares of the Common Stock in the open
market. Any of these activities may maintain the market price of the Common
Stock at a level above that which might otherwise prevail in the open market.
The Underwriters are not required to engage in these activities, and, if
commenced, any such activities may be discontinued at any time. The
Representatives, on behalf of the Underwriters, also may reclaim selling
concessions allowed to an Underwriter or dealer, if the syndicate repurchases
shares distributed by that Underwriter or dealer.

The Company has agreed that it will not sell or offer any shares of Common
Stock or options, rights or warrants to acquire any Common Stock for a period of
180 days after the date of this Prospectus without the prior written consent of
BT Alex. Brown Incorporated, except for shares issued (i) in connection with
acquisitions, (ii) pursuant to the exercise of options granted under the Stock
Plan, and (iii) upon conversion of shares of Restricted Common Stock. Further,
the Company's directors, officers and certain stockholders who beneficially own
approximately 9,530,000 shares in the aggregate have agreed not to directly or
indirectly sell or offer for sale or otherwise dispose of any Common Stock for a
period of 180 days after the date of this Prospectus without the prior written
consent of BT Alex. Brown Incorporated.

The Representatives have advised the Company that the Underwriters do not
intend to confirm sales to any account over which they exercise discretionary
authority.

An employee of BT Alex. Brown Incorporated is an investor in MGCV. Pursuant
to the terms of the limited liability company agreement of MGCV, upon completion
of this Offering, that employee will receive an aggregate of 30,000 shares of
Common Stock and $75,000 of the proceeds of this Offering. Such shares are
deemed by the National Association of Securities Dealers, Inc. (the "NASD") to
constitute underwriting compensation in connection with the Offering and,
therefore, will be restricted from sale, transfer, assignment or hypothecation
for a period of one year from the effective date of the Offering; provided,
however, that after a period of 180 days such shares may be transferred to any
member of the NASD participating in the Offering and the bona fide partners or
officers thereof.

Prior to this Offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price for the Common Stock was
determined by negotiations between the Company and the Representatives. Among
the factors considered in such negotiations were prevailing market conditions,
the results of operations of the Founding Companies in recent periods, the
market capitalization and stages of development of other companies which the
Company and the Representatives believed to be comparable to the Company,
estimates of the business potential of the Company, the present state of the
Company's development and other factors deemed relevant by the Company and the
Representatives.

LEGAL MATTERS

Certain legal matters in connection with the Common Stock being offered
hereby will be passed upon for the Company by Andrews & Kurth L.L.P. and for the
Underwriters by Baker & Botts, L.L.P.

EXPERTS

The financial statements of Pentacon, Inc., as of September 30, 1997 and
the period from inception (March 20, 1997) through September 30, 1997, the
consolidated financial statements of Alatec Products, Inc., as of September 30,
1997 and for the year ended December 31, 1995 and the period from January 1,
1997 through September 30, 1997, the financial statements of AXS Solutions,
Inc., as of December 31, 1996 and September 30, 1997 and for the years ended
December 31, 1995 and 1996 and the period from January 1, 1997 to September 30,
1997, the financial statements of Maumee Industries, Inc., as of December 31,
1996 and September 30, 1997 and for the years ended December 31, 1995 and 1996
and the period from January 1, 1997 to September 30, 1997, the financial
statements of Sales Systems, Limited, as of December 31, 1996 and September 30,
1997 and for the year ended December 31, 1996 and the period

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from January 1, 1997 to September 30, 1997 appearing in this Prospectus and
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon appearing elsewhere herein, and
are included in reliance upon such reports given upon the authority of such firm
as experts in accounting and auditing.

The consolidated financial statements of Alatec Products, Inc. as of
December 31, 1996 and for the year then ended, appearing in this Prospectus and
Registration Statement have been audited by McGladrey & Pullen, LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon such reports given upon the authority of such firm
as experts in accounting and auditing.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (together with all
amendments, schedules and exhibits thereto the "Registration Statement") under
the Securities Act with respect to the Common Stock offered hereby. This
Prospectus, filed as part of the Registration Statement, does not contain all
the information contained in the Registration Statement, certain portions of
which have been omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and the Common
Stock offered hereby, reference is made to the Registration Statement including
the exhibits and schedules thereto. Statements made in the Prospectus as to the
contents of any contract, agreement or other document are not necessarily
complete; with respect to each such contract, agreement or other document filed
as an exhibit to the Registration Statement, reference is made to the exhibit
for a more complete description of the matter involved, and each such statement
shall be deemed qualified in its entirety by such reference. The Registration
Statement and the exhibits thereto may be inspected, without charge, at the
public reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
regional offices at Citicorp Center, 500 West Madison Street, Room 1400,
Chicago, IL 60661, and 7 World Trade Center, Suite 1300, New York, NY 10048 or
on the Internet at http://www.sec.gov. Copies of such material can also be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates.

The Company intends to furnish its stockholders with annual reports
containing audited financial statements examined by an independent public
accounting firm for each fiscal year.

<PAGE>
INDEX TO FINANCIAL STATEMENTS

PAGE
------
PENTACON, INC. AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED
FINANCIAL STATEMENTS
Introduction to Unaudited Pro Forma
Combined Financial Statements...... F-2
Unaudited Pro Forma Combined
Balance Sheet...................... F-3
Unaudited Pro Forma Combined
Statement of Operations............ F-5
Notes to Unaudited Pro Forma
Combined Financial Statements...... F-7
PENTACON, INC.
Report of Independent Auditors..... F-10
Balance Sheets..................... F-11
Statements of Operations........... F-12
Statements of Stockholders'
Deficit............................ F-13
Statements of Cash Flows........... F-14
Notes to Financial Statements...... F-15

FOUNDING COMPANIES(1)
ALATEC PRODUCTS, INC.
Report of Independent Auditors..... F-18
Independent Auditor's Report....... F-19
Consolidated Balance Sheets........ F-20
Consolidated Statements of
Income............................. F-21
Consolidated Statements of
Stockholders' Equity............... F-22
Consolidated Statements of Cash
Flows.............................. F-23
Notes to Consolidated Financial
Statements......................... F-24

AXS SOLUTIONS, INC.
Report of Independent Auditors..... F-32
Balance Sheets..................... F-33
Statements of Income............... F-34
Statements of Shareholders'
Equity............................. F-35
Statements of Cash Flows........... F-36
Notes to Financial Statements...... F-37

MAUMEE INDUSTRIES, INC.
Report of Independent Auditors..... F-43
Balance Sheets..................... F-44
Statements of Operations........... F-45
Statements of Stockholders'
Deficit............................ F-46
Statements of Cash Flows........... F-47
Notes to Financial Statements...... F-48

SALES SYSTEMS, LIMITED
Report of Independent Auditors..... F-53
Balance Sheets..................... F-54
Statements of Income and Retained
Earnings........................... F-55
Statements of Cash Flows........... F-56
Notes to Financial Statements...... F-57

required.F-1

<PAGE>
PENTACON, INC. AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
BASIS OF PRESENTATION

The following unaudited pro forma combined financial statements give effect
to the acquisition by Pentacon, Inc. ("Pentacon"), of the outstanding capital
stock of (a) Alatec Products, Inc. ("Alatec"), (b) AXS Solutions, Inc.
("AXS"), (c) Capitol Bolt & Supply, Inc. ("Capitol"), (d) Maumee Industries,
Inc. ("Maumee"), and (e) Sales Systems, Limited ("SSL") (together, the
"Founding Companies"). Pentacon and the Founding Companies are hereinafter
referred to as the "Company." These acquisitions (the "Acquisitions") will
occur simultaneously with the closing of Pentacon's initial public offering (the
"Offering") and will be accounted for using the purchase method of accounting.
Alatec, one of the Founding Companies, has been identified as the accounting
acquiror because its shareholder will receive the largest portion of voting
rights of the Company.

These statements are based on the historical financial statements of
Pentacon, Inc., and the Founding Companies included elsewhere in the Prospectus.
The unaudited pro forma combined balance sheet gives effect to the Acquisitions
and the Offering as if they had occurred on December 31, 1997. The unaudited pro
forma combined statement of operations gives effect to these transactions as if
they were consummated on as of the beginning of the periods presented.

The Company has estimated the savings that it expects to be realized by
consolidating certain operations and general and administrative functions. To
the extent the owners and certain key employees of the Founding Companies have
agreed prospectively to reductions in salary, bonuses, benefits, and rent
expense paid to the owners, these reductions have been reflected in the
unaudited pro forma combined statement of operations. With respect to other
potential costs savings, the Company has not and cannot quantify these savings
until completion of the combination of the Founding Companies. It is anticipated
that these savings will be offset by the costs of being a publicly held company
and the incremental increase in costs related to the Company's new management.
However, these costs, like the savings that they offset, cannot be estimated at
this time. Neither the anticipated savings nor the anticipated costs have been
included in the pro forma combined financial information.

The pro forma adjustments are based on preliminary estimates, available
information, and certain assumptions and may be revised as additional
information becomes available. The unaudited pro forma financial data does not
purport to represent what the Company's financial position or results of
operations would actually have been if such transactions in fact had occurred on
those dates and are not representative of the Company's financial position or
results of operations for any future period. Since the Founding Companies were
not under common control or management, historical combined results may not be
comparable to, or indicative of, future performance. The unaudited pro forma
combined financial statements should be read in conjunction with the other
financial statements and notes thereto included elsewhere in this Prospectus.
See "Risk Factors" included elsewhere herein.

F-2
<PAGE>
PENTACON, INC.
PRO FORMA COMBINED BALANCE SHEETS -- UNAUDITED
DECEMBER 31, 1997
<TABLE>
<CAPTION>
MERGER
ALATEC PENTACON AXS CAPITOL MAUMEE SSL ADJUSTMENTS
------------ -------- ------------ ----------- ------------ ----------- -----------
(NOTE 4)
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash................................. $ -- $ 5,550 $ 1,748,814 $ -- $ -- $ 101,749 $ --
Accounts receivable.................. 8,607,000 -- 2,822,241 1,246,788 4,927,013 1,148,344 --
Inventory............................ 24,803,000 -- 5,448,850 1,950,005 6,555,095 2,346,057 --
Deferred taxes....................... 1,419,000 -- -- -- 137,680 -- --
Other................................ -- 2,243 18,644 58,289 42,083 18,632 --
------------ -------- ------------ ----------- ------------ ----------- -----------
Current assets....................... 34,829,000 7,793 10,038,549 3,255,082 11,661,871 3,614,782 --
Property, plant, and equipment, net.. 1,618,000 7,510 1,530,909 311,135 1,029,680 332,123 --
Deferred taxes....................... 65,000 -- -- 66,737 284,000 -- --
Intangible assets.................... -- -- 3,469,665 -- -- -- 58,500,000
Other................................ 343,000 939,870 1,111,097 4,251 -- 8,478 --
------------ -------- ------------ ----------- ------------ ----------- -----------
Total assets......................... $ 36,855,000 $955,173 $ 16,150,220 $ 3,637,205 $ 12,975,551 $ 3,955,383 $58,500,000
============ ======== ============ =========== ============ =========== ===========

PRO FORMA OFFERING AS
COMBINED ADJUSTMENTS ADJUSTED
------------- ----------- -------------
(NOTE 4)
ASSETS
Cash................................. $ 1,856,113 $ -- $ 1,856,113
Accounts receivable.................. 18,751,386 -- 18,751,386
Inventory............................ 41,103,007 -- 41,103,007
Deferred taxes....................... 1,556,680 -- 1,556,680
Other................................ 139,891 -- 139,891
------------- ----------- -------------
Current assets....................... 63,407,077 -- 63,407,077
Property, plant, and equipment, net.. 4,829,357 -- 4,829,357
Deferred taxes....................... 415,737 -- 415,737
Intangible assets.................... 61,969,665 -- 61,969,665
Other................................ 2,406,696 (939,870) 1,466,826
------------- ----------- -------------
Total assets......................... $ 133,028,532 $ (939,870) $ 132,088,662
============= =========== =============
</TABLE>
F-3
<PAGE>
PENTACON, INC.
PRO FORMA COMBINED BALANCE SHEETS -- UNAUDITED (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
ALATEC PENTACON AXS CAPITOL MAUMEE SSL
------------ ---------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
LIABILITIES
Accounts payable..................... $ 9,219,000 $ -- $ 1,790,449 $ 760,368 $ 4,543,265 $ 1,048,562
Accrued expenses..................... 4,809,000 180,200 368,307 171,976 2,151,088 39,819
Notes payable and current portion of
capital lease obligations.......... 195,000 -- 378,055 479,758 5,527,360 720,928
Due to related parties............... 127,000 892,690 3,164,453 -- 997,181 5,020,139
------------ ---------- ------------ ----------- ------------ -----------
Current liabilities.................. 14,350,000 1,072,890 5,701,264 1,412,102 13,218,894 6,829,448
Loan payable......................... 9,968,000 -- -- -- -- 182,567
Capital lease obligations............ 1,480,000 -- 891,818 -- 255,708 --
Due to related parties............... 2,528,000 -- 324,483 -- -- 174,088
------------ ---------- ------------ ----------- ------------ -----------
13,976,000 -- 1,216,301 -- 255,708 356,655
STOCKHOLDERS' EQUITY
Common stock......................... 1,450,000 28,300 5,705,972 67,574 691,000 6,400
Additional paid-in capital........... -- 4,680,050 -- 195,184 -- --
Retained earnings.................... 9,769,000 (4,826,067) 3,526,683 2,063,575 (619,501) 1,810,078
Treasury stock....................... (2,690,000) -- -- (101,230) (570,550) (5,047,198)
------------ ---------- ------------ ----------- ------------ -----------
8,529,000 (117,717) 9,232,655 2,225,103 (499,051) (3,230,720)
------------ ---------- ------------ ----------- ------------ -----------
Total liabilities and stockholders'
equity............................. $ 36,855,000 $ 955,173 $ 16,150,220 $ 3,637,205 $ 12,975,551 $ 3,955,383
============ ========== ============ =========== ============ ===========

MERGER PRO FORMA OFFERING AS
ADJUSTMENTS COMBINED ADJUSTMENTS ADJUSTED
----------- ------------- ----------- -------------
(NOTE 4) (NOTE 4)
LIABILITIES
Accounts payable..................... $ -- $ 17,361,644 $ -- $ 17,361,644
Accrued expenses..................... -- 7,720,390 -- 7,720,390
Notes payable and current portion of
capital lease obligations.......... -- 7,301,101 (6,923,046) 378,055
Due to related parties............... (3,076,152) 7,125,311 (1,957,190) 5,168,121
----------- ------------- ----------- -------------
Current liabilities.................. (3,076,152) 39,508,446 (8,880,236) 30,628,210
Loan payable......................... -- 10,150,567 (7,333,159) 2,817,408
Capital lease obligations............ -- 2,627,526 -- 2,627,526
Due to related parties............... 28,662,387 31,688,958 (28,836,475) 2,852,483
----------- ------------- ----------- -------------
28,662,387 44,467,051 (36,169,634) 8,297,417
STOCKHOLDERS' EQUITY
Common stock......................... (7,853,746) 95,500 52,000 147,500
Additional paid-in capital........... 34,313,301 39,188,535 44,058,000 83,246,535
Retained earnings.................... (1,954,768) 9,769,000 -- 9,769,000
Treasury stock....................... 8,408,978 -- -- --
----------- ------------- ----------- -------------
32,913,765 49,053,035 44,110,000 93,163,035
----------- ------------- ----------- -------------
Total liabilities and stockholders'
equity............................. $58,500,000 $ 133,028,532 $ (939,870) $ 132,088,662
=========== ============= =========== =============
</TABLE>
F-4
<PAGE>
PENTACON, INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS -- UNAUDITED
THREE MONTHS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
MERGER
ALATEC PENTACON AXS CAPITOL MAUMEE SSL ADJUSTMENTS
------------ ---------- ----------- ----------- ------------ ----------- -----------
(NOTE 5)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............................ $ 14,501,616 $ -- $ 7,412,348 $ 2,839,281 $ 10,541,994 $ 3,746,387 $ --
Cost of sales........................ 8,554,019 -- 4,986,304 1,941,300 7,432,716 2,452,853 --
------------ ---------- ----------- ----------- ------------ ----------- -----------
Gross profit......................... 5,947,597 -- 2,426,044 897,981 3,109,278 1,293,534 --
Operating expenses................... 5,416,922 4,785,670 1,797,575 931,491 2,145,830 1,367,336 (946,045)
Goodwill amortization................ -- -- -- -- -- -- 365,625
------------ ---------- ----------- ----------- ------------ ----------- -----------
Operating income..................... 530,675 (4,785,670) 628,469 (33,510) 963,448 (73,802) 580,420
Other income (expense)............... -- -- (38,007) 6,912 10,814 -- --
Interest expense..................... (294,732) -- (36,132) -- (200,071) (21,064) --
Interest income...................... 12,304 -- -- -- -- -- --
------------ ---------- ----------- ----------- ------------ ----------- -----------
(282,428) -- (74,139) 6,912 (189,257) (21,064) --
------------ ---------- ----------- ----------- ------------ ----------- -----------
Income before taxes.................. 248,247 (4,785,670) 554,330 (26,598) 774,191 (94,866) 580,420
Income tax provision................. 103,436 -- 23,566 324,890 -- 489,336
------------ ---------- ----------- ----------- ------------ ----------- -----------
Net income (loss).................... $ 144,811 $(4,785,670) $ 554,330 $ (50,164) $ 449,301 $ (94,866) $ 91,084
============ ========== =========== =========== ============ =========== ===========
Net income per share.................
Shares used in computing net income
per share (Note 5.(6)).............
</TABLE>
PRO FORMA OFFERING AS
COMBINED ADJUSTMENTS ADJUSTED
------------ ----------- ------------
(NOTE 5)
Net sales........................... $ 39,041,626 $ -- $ 39,041,626
Cost of sales....................... 25,367,192 -- 25,367,192
------------ ----------- ------------
Gross profit........................ 13,674,434 -- 13,674,434
Operating expenses.................. 15,498,779 (4,680,000) 10,818,779
Goodwill amortization............... 365,625 -- 365,625
------------ ----------- ------------
Operating income.................... (2,189,970) 4,680,000 2,490,030
Other income (expense).............. (20,281) -- (20,281)
Interest expense.................... (551,999) 331,149 (220,850)
Interest income..................... 12,304 -- 12,304
------------ ----------- ------------
(559,976) 331,149 (228,827)
------------ ----------- ------------
Income before taxes................. (2,749,946) 5,011,149 2,261,203
Income tax provision................ 941,228 135,771 1,076,999
------------ ----------- ------------
Net income (loss)................... $ (3,691,174) $ 4,875,378 $ 1,184,204
============ =========== ============
Net income per share................ $ 0.08
============
Shares used in computing net income
per share (Note 5.(6))............ 14,770,000
============

F-5
<PAGE>
PENTACON, INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS -- UNAUDITED
TWELVE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
ALATEC PENTACON AXS CAPITOL MAUMEE SSL
------------ -------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net sales............................ $ 53,754,416 $ -- $ 30,568,652 $ 11,537,257 $ 34,544,665 $ 15,712,070
Cost of sales........................ 32,083,788 -- 20,882,705 8,023,274 25,080,111 10,588,938
------------ -------- ------------ ------------ ------------ ------------
Gross profit......................... 21,670,628 -- 9,685,947 3,513,983 9,464,554 5,123,132
Operating expenses................... 15,145,074 17,597 6,875,915 3,249,632 8,139,229 4,658,244
Goodwill amortization................ -- -- -- -- -- --
------------ -------- ------------ ------------ ------------ ------------
Operating income..................... 6,525,554 (17,597) 2,810,032 264,351 1,325,325 464,888
Other expense........................ -- -- (124,611) -- (23,680) --
Other income......................... -- -- 22,226 40,625 8,162 17,912
Interest expense..................... (1,244,941) -- (278,247) (37,422) (748,549) (123,329)
Interest income...................... 40,740 -- -- -- (2,754) --
------------ -------- ------------ ------------ ------------ ------------
(1,204,201) -- (380,632) 3,203 (766,821) (105,417)
------------ -------- ------------ ------------ ------------ ------------
Income before taxes.................. 5,321,353 (17,597) 2,429,400 267,554 558,504 359,471
Income tax provision................. 2,176,481 -- -- 86,786 231,602 --
------------ -------- ------------ ------------ ------------ ------------
Net income (loss).................... $ 3,144,872 $(17,597) $ 2,429,400 $ 180,768 $ 326,902 $ 359,471
============ ======== ============ ============ ============ ============
Net income per share.................
Shares used in computing net income
per share (Note 5.(6)).............

MERGER PRO FORMA OFFERING AS
ADJUSTMENTS COMBINED ADJUSTMENTS ADJUSTED
----------- ------------- ----------- -------------
(NOTE 5) (NOTE 5)
Net sales............................ $ -- $ 146,117,060 $ -- $ 146,117,060
Cost of sales........................ -- 96,658,816 -- 96,658,816
----------- ------------- ----------- -------------
Gross profit......................... -- 49,458,244 -- 49,458,244
Operating expenses................... (2,534,267) 35,551,424 -- 35,551,424
Goodwill amortization................ 1,462,500 1,462,500 -- 1,462,500
----------- ------------- ----------- -------------
Operating income..................... 1,071,767 12,444,320 -- 12,444,320
Other expense........................ -- (148,291) -- (148,291)
Other income......................... -- 88,925 -- 88,925
Interest expense..................... -- (2,432,488) 1,544,760 (887,728)
Interest income...................... -- 37,986 -- 37,986
----------- ------------- ----------- -------------
-- (2,453,868) 1,544,760 (909,108)
----------- ------------- ----------- -------------
Income before taxes.................. 1,071,767 9,990,452 1,544,760 11,535,212
Income tax provision................. 2,207,987 4,702,856 633,352 5,336,208
----------- ------------- ----------- -------------
Net income (loss).................... $(1,136,220) $ 5,287,596 $ 911,408 $ 6,199,004
=========== ============= =========== =============
Net income per share................. $ 0.42
=============
Shares used in computing net income
per share (Note 5.(6))............. 14,770,000
=============
</TABLE>
F-6

<PAGE>
PENTACON, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)

1. BUSINESS

Pentacon, Inc. was organized on March 20, 1997 to (i) become a leading
domestic and international value-added distributor of fasteners and other small
parts to original equipment manufacturers ("OEMs"), (ii) provide related
inventory management services to OEMs and others, and (iii) pursue the
consolidation of the highly-fragmented fastener distribution industry. Pentacon
has conducted no operations to date and will acquire the Founding Companies
simultaneously with the consummation of the Offering.

2. HISTORICAL FINANCIAL STATEMENTS

The historical financial statements represent the financial position and
results of operations of Pentacon and the Founding Companies and were derived
from the respective financial statements. The Company selected a fiscal year-end
of September 30. The Founding Companies have been presented for the twelve
months ended September 30, 1997, except for Capitol, which has been presented
for the twelve months ended August 31, 1997, and as of and for the three months
ended December 31, 1997.

3. ACQUISITION OF FOUNDING COMPANIES

Concurrent with the closing of the Offering, Pentacon will acquire all of
the capital stock of the Founding Companies. The acquisition will be accounted
for using the purchase method of accounting, and Alatec has been identified as
the accounting acquiror.

The following table sets forth for each Founding Company the estimated
consideration to be paid to its common stockholders (a) in cash and (b) in
shares of common stock. The estimated consideration is subject to certain
adjustments at and following closing.

SHARES OF
CASH COMMON STOCK
--------- -------------
(DOLLARS IN THOUSANDS)
Alatec............................... $ 12,666 2,969,493
AXS.................................. 7,759 1,819,257
Capitol.............................. 772 180,934
Maumee............................... 5,126 1,201,762
SSL.................................. 2,340 548,554
--------- -------------
Total......................... $ 28,663 6,720,000
========= =============

F-7
<PAGE>
PENTACON, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

4. UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS
<TABLE>
<CAPTION>
MERGER OFFERING
(a) (b) ADJUSTMENTS (c) (d) ADJUSTMENTS
------------ ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Cash................................. $ -- $ -- $ -- $ 44,110,000 $ (44,110,000) $ --
Other assets......................... -- -- -- (939,870) -- (939,870)
Intangibles.......................... -- 58,500,000 58,500,000 -- -- --
Notes payable and current portion of
capital lease obligations.......... -- -- -- -- 6,923,046 6,923,046
Due to related parties............... 3,076,152 -- 3,076,152 939,870 1,017,320 1,957,190
Loan payable......................... -- -- -- -- 7,333,159 7,333,159
Due to related parties............... (3,076,152) (25,586,235) (28,662,387) -- 28,836,475 28,836,475
Common stock......................... -- 7,853,746 7,853,746 (52,000) -- (52,000)
Additional paid-in capital........... -- (34,313,301) (34,313,301) (44,058,000) -- (44,058,000)
Retained earnings.................... -- 1,954,768 1,954,768 -- -- --
Treasury stock....................... -- (8,408,978) (8,408,978) -- -- --
------------ ------------- ------------- ------------- ------------- -------------
$ -- $ -- $ -- $ -- $ -- $ --
============ ============= ============= ============= ============= =============
</TABLE>
- ------------
(a) Reflects the reclass of cumulative S-Corporation earnings that will be
repaid with the cash portion of the purchase consideration as accrued at
December 31, 1997.

(b) Records the purchase of the Founding Companies consisting of $28.7 million
in cash and 6,720,000 shares of common stock to the Founding Companies,
2,295,000 shares of common stock held by McFarland, Grossman Capital
Ventures II, L.C. ("MGCV") and 225,000 of the 450,000 shares issued to
management for a total estimated purchase price of $102.6 million (based on
an estimated fair value per share which represents a marketability discount
of 20% from the initial public offering price) resulting in excess purchase
price over the fair market value of assets acquired of $58.5 million. The
Company has utilized a 20% discount for marketability in valuing the stock
issued in connection with the Acquisitions. Discounts for marketability are
subject to many factors which may be interpreted differently by different
parties. Any difference between the 20% marketability discount used by the
Company and a nominal discount rate would be immaterial to the financial
position and future results of operation of the Company.

(c) Records the proceeds of $44.1 million from the issuance of 5,200,000 shares
of common stock, net of estimated offering costs of $7.9 million (based on
an initial public offering price of $10.00).

(d) Records cash portion of the consideration to be paid to the stockholders of
the Founding Companies in connection with the Acquisitions and the repayment
of certain debt obligations with the proceeds of this offering.

F-8
<PAGE>
PENTACON, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

5. UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS ADJUSTMENTS

Twelve months ended September 30, 1997 and three months ended December 31,
1997:

(1) Adjusts salaries, bonuses, benefits, and lease expense amounts to
reflect those established in contractual agreements between the
Company and certain owners and key employees of the Founding
Companies.

(2) Records pro forma goodwill amortization using a 40-year estimated
life.

(3) Reflects the reduction in interest expense attributed to obligations
retired with proceeds from the Offering.

(4) Adjusts the provision for federal and state income taxes to an
estimated 41% effective tax rate for the Company before the effect of
non-deductible goodwill.

(5) Reflects the elimination of the non-recurring, non-cash compensation
charge of $4.7 million recorded by Pentacon, Inc. during the three
months ended December 31, 1997 related to Common Stock issued to
management of the Company. Contemporaneously with the Offering, a
non-cash, non-recurring charge of approximately $1.8 million will be
recorded to reflect compensation related to the revaluation of 225,000
of the 450,000 shares of Common Stock issued to management in November
1997.

(6) Includes (i) 2,830,000 shares issued by Pentacon, Inc. prior to the
Offering (including 535,000 shares issued to management and
directors), (ii) 6,720,000 shares to be issued to the stockholders of
the Founding Companies in connection with the Acquisitions, (iii)
5,200,000 shares to be issued in connection with the Offering
(excluding the over-allotment), (iv) the effect of the 50,000 warrants
with an assumed exercise price of the lesser of $8.00 per share or 60%
of the initial public offering price using the treasury stock method.
Excludes 1,050,000 shares of common stock subject to options to be
granted in connection with the Offering at an exercise price equal to
the initial public offering price.

F-9
<PAGE>
REPORT OF INDEPENDENT AUDITORS

Board of Directors
Pentacon, Inc.

We have audited the accompanying balance sheet of Pentacon, Inc. (the
"Company"), as of September 30, 1997 and the related statement of operations,
stockholders' deficit, and cash flows for the period from inception (March 20,
1997) through September 30, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.

We conducted our audit in accordance with 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 audit provides 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 Pentacon, Inc., as of
September 30, 1997, and the results of its operations and cash flows for the
period from inception (March 20, 1997) through September 30, 1997, in conformity
with generally accepted accounting principles.

ERNST & YOUNG LLP

Houston, Texas
October 16, 1997

F-10
<PAGE>
PENTACON, INC.
BALANCE SHEETS

SEPTEMBER 30, DECEMBER 31,
1997 1997
------------- -----------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents.......... $ 1,050 $ 5,550
Prepaid expenses and other current
assets............................ -- 2,243
------------- -----------
Total current assets.................... 1,050 7,793
Deferred offering costs................. 268,138 939,870
Property and equipment.................. 7,210 7,510
------------- -----------
Total assets............................ $ 276,398 $ 955,173
============= ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accrued expenses................... $ -- $ 180,200
Amounts due to stockholder......... 292,945 892,690
------------- -----------
Total current liabilities..... 292,945 1,072,890
Commitments and contingencies
Stockholders' deficit:
Preferred stock, $0.01 par value,
10,000,000 shares authorized, -0-
outstanding....................... -- --
Common stock, $0.01 par value,
51,000,000 shares authorized,
2,380,000 and 2,830,000
outstanding at September 30, 1997,
and December 31, 1997,
respectively...................... 23,800 28,300
Paid-in capital.................... 50 4,680,050
Accumulated deficit, net of
subscriptions receivable.......... (40,397) (4,826,067)
------------- -----------
Total stockholders' deficit............. (16,547) (117,717)
------------- -----------
Total liabilities and stockholders'
deficit............................... $ 276,398 $ 955,173
============= ===========

SEE ACCOMPANYING NOTES.

F-11
<PAGE>
PENTACON, INC.
STATEMENTS OF OPERATIONS

PERIOD FROM
INCEPTION
(MARCH 20, 1997) THREE MONTHS
THROUGH ENDED
SEPTEMBER 30, DECEMBER 31,
1997 1997
---------------- --------------
(UNAUDITED)
Net sales............................ $-- $ --
Selling, general, and administrative
expenses........................... 17,597 (4,785,670)
---------------- --------------
Loss before income taxes............. (17,597) (4,785,670)
Income tax expense................... -- --
---------------- --------------
Net loss...................... $(17,597) $ (4,785,670)
================ ==============

SEE ACCOMPANYING NOTES.

F-12
<PAGE>
PENTACON, INC.
STATEMENTS OF STOCKHOLDER'S DEFICIT
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
---------------------- SUBSCRIPTIONS PAID-IN ACCUMULATED STOCKHOLDERS
SHARES AMOUNT RECEIVABLE CAPITAL DEFICIT DEFICIT
----------- --------- ------------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Initial capitalization............... 2,380,000 $ 23,800 $ (22,800) $ -- $ -- $ 1,000
Issuance of warrants................. -- -- -- 50 -- 50
Net loss............................. -- -- -- -- (17,597) (17,597)
----------- --------- ------------- ------------ ----------- -------------
Balance at September 30, 1997........ 2,380,000 23,800 (22,800) 50 (17,597) (16,547)
Sale of common stock to officers
(unaudited)........................ 450,000 4,500 -- 4,680,000 -- 4,684,500
Net loss (unaudited)................. -- -- -- -- (4,785,670) (4,785,670)
----------- --------- ------------- ------------ ----------- -------------
Balance at December 31, 1997
(unaudited)........................ 2,830,000 $ 28,300 $ (22,800) $ 4,680,050 $(4,803,267) $ 117,717
=========== ========= ============= ============ =========== =============
</TABLE>
SEE ACCOMPANYING NOTES.

F-13
<PAGE>
PENTACON, INC.
STATEMENTS OF CASH FLOWS

PERIOD FROM
INCEPTION
(MARCH 20, 1997) THREE MONTHS
THROUGH ENDED
SEPTEMBER 30, DECEMBER 31,
1997 1997
---------------- --------------
(UNAUDITED)
OPERATING ACTIVITIES
Net loss........................... $ (17,597) $ (4,785,670)
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Depreciation and
amortization............... -- 395
Deferred offering costs....... (268,138) (671,732)
Stock compensation............ -- 4,680,000
Prepaid expenses and other
current assets............. -- (2,243)
Amounts due to stockholder.... 292,945 599,745
Accrued expenses.............. -- 180,200
---------------- --------------
Net cash provided by operating
activities....................... 7,210 695

INVESTING ACTIVITIES
Capital expenditures............... (7,210) (695)
---------------- --------------
Net cash used in investing
activities....................... (7,210) (695)

FINANCING ACTIVITIES
Proceeds from sale of common stock
and warrants..................... 1,050 4,500
---------------- --------------
Net cash provided by financing
activities....................... 1,050 4,500
---------------- --------------
Net increase in cash............... 1,050 4,500
Cash and cash equivalents at
beginning of period.............. -- 1,050
---------------- --------------
Cash and cash equivalents at end of
period........................... $ 1,050 $ 5,550
================ ==============

SEE ACCOMPANYING NOTES.

F-14
<PAGE>
PENTACON, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997

1. BUSINESS AND ORGANIZATION

Pentacon, Inc., a Delaware corporation ("Pentacon" or the "Company"),
was organized on March 20, 1997 to (i) become a leading domestic and
international value-added distributor of fasteners and other small parts to
original equipment manufacturers ("OEMs"), (ii) provide related inventory
management services to OEMs and others, and (iii) pursue the consolidation of
the highly-fragmented fastener distribution industry. Pentacon intends to
acquire five businesses (the "Acquisitions") and contemporaneously complete an
initial public offering (the "Offering") of its common stock.

Pentacon has not conducted any operations, and all activities to date have
related to the Offering and the Acquisitions. Initial capitalization of the
Company by McFarland, Grossman Capital Ventures II, L.C. ("MGCV"), was $1,000.
All expenditures to date have been funded by MGCV, on behalf of the Company. As
of September 30, 1997, costs of approximately $268,138 have been paid by MGCV on
behalf of the Company in connection with the Offering. Pentacon has treated
these costs as deferred offering costs. Pentacon is dependent upon the Offering
to execute the pending Acquisitions and to repay MGCV. The Company has agreed to
pay Donald Luke, a manager of MGCV, a success fee of $100,000 upon consummation
of the Offering. There is no assurance that the pending Acquisitions discussed
below will be completed or that Pentacon will be able to generate future
operating revenues.

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 in the financial statements. Actual
results could differ from those estimates.

INCOME TAXES

The Company has incurred a net operating loss since inception of which a
100% valuation allowance has been established for financial reporting purposes.
Accordingly no deferred tax asset has been recorded.

UNAUDITED INTERIM INFORMATION

The financial information for the three months ended December 31, 1997 has
not been audited by independent accountants. Certain information and footnote
disclosures normally included in the financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
from the unaudited interim financial information. In the opinion of management
of the Company, the unaudited interim financial information includes all
adjustments, consisting only of normal recurring adjusments, necessary for a
fair presentation. Results of operations for the interim periods are not
necessarily indicative of the results of operations for the respective full
years.

2. STOCKHOLDERS' EQUITY

COMMON STOCK

Pentacon has entered into agreements whereby the total shares and warrants
to purchase shares of common stock of Pentacon held by MGCV, certain consultants
to MGCV, and management of the Company, will represent approximately 30% of the
total shares outstanding immediately before completion of the Offering. Of these
shares, certain members of management will hold 4.7% of the total shares
outstanding immediately before completion of the Offering and MGCV will hold the
remaining shares. Based on these agreements and the estimated total shares to be
outstanding upon completion of the Offering, the shares presented herein have
been restated to effect a 2,380-for-one stock split and an increase in
authorized shares of common stock to 50,000,000 voting shares and 1,000,000
non-voting shares.

In connection with the organization and initial capitalization of Pentacon,
the Company issued 2,380,000 shares of common stock to MGCV. In November 1997,
management of the Company acquired

F-15
<PAGE>
PENTACON, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
450,000 shares of common stock for $0.01 per share. As a result of the issuance
of the 450,000 shares, the Company will record a nonrecurring, non-cash
compensation charge in November 1997 of approximately $4.7 million, based on an
estimated Offering price to the public net of a 20% marketability discount.

RESTRICTED COMMON STOCK

In December 1997, MGCV exchanged 667,000 shares of Common Stock for an
equal number of shares of restricted voting common stock ("Restricted Common
Stock"). The holder of Restricted Common Stock is entitled to elect one member
of the Company's Board of Directors and to 0.25 of one vote for each share held
on all other matters on which such holder is entitled to vote.

Each share of Restricted Common Stock will automatically convert into
Common Stock on a share-for-share basis (a) in the event of a disposition of
such share of Restricted Common Stock by the holder thereof (other than a
disposition which is a distribution by a holder to its partners or beneficial
owners or a transfer to a related party of such holder (as defined)), (b) in the
event any person acquires beneficial ownership of 30% or more of the outstanding
shares of Common Stock of the Company, or (c) in the event any person acquires
30% or more of the total number of outstanding shares of Common Stock.

After January 1, 2003, the Corporation may elect to convert any outstanding
shares of Restricted Common Stock into shares of Common Stock.

WARRANTS

At the date of the Company's organization, warrants were issued for 50,000
shares of common stock with an exercise price equal to the lesser of $8 per
share or 60% of the initial public offering price. These warrants were issued to
legal and investment advisors for a total of $50. As the Company was subject to
significant uncertainties, the value of the warrants and their underlying shares
was de minimus at that date and no value beyond the consideration received has
been assigned to them. The warrants may be exercised up to four years after the
consummation of the Offering.

STOCK PLAN

The board of directors of the Company has adopted the Pentacon, Inc. 1998
Stock Plan (the "Plan"). The Company anticipates that upon or shortly after
the consummation of its Offering, it will have granted options to purchase up to
approximately 1.0 million shares of common stock. Subsequent to September 30,
1997, the Company has granted certain members of management options for 420,000
shares of common stock and intends to grant additional options for 600,000
shares of common stock with the exercise prices to be equal to the Offering
price. It is not expected that existing management team will be granted
additional options under the 1998 Stock Option Plan and, in any event, such
persons should not be issued additional options under the 1998 Stock Option Plan
for several years following the Offering. It is expected that substantially all
of the additional options available to be granted during this time period will
be awarded to various employees of the Founding Companies. The Company will
account for options issued to employees and nonemployee directors under the Plan
in accordance with APB Opinion No. 25 and, accordingly, no compensation cost
will be recognized to the extent that shares are issued at the fair market value
as of the date of grant. The Company will provide the pro forma disclosure of
net earnings per share in the notes to the financial statements as if the fair
value-based method of accounting has been applied to awards as required by
Statement of Financial Standard No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION.

3. NEW ACCOUNTING PRONOUNCEMENT

In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, EARNINGS PER SHARE. For the Company, SFAS No. 128 will be effective for the
first quarter ended December 31, 1997. SFAS No. 128 simplifies the standards
required under current accounting rules for computing earnings per share and
replaces the presentation of primary earnings per share and fully diluted
earnings per share with a

F-16
<PAGE>
PENTACON, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

presentation of basic earnings per share ("basic EPS") and diluted earnings
per share ("diluted EPS"). Basic EPS excludes dilution and is determined by
dividing income available to common stockholders by the weighted-average number
of common shares outstanding during the period. Diluted EPS reflects the
potential dilution that could occur if securities and other contracts to issue
common stock were exercised or converted into common stock. Diluted EPS is
computed similarly to fully diluted earnings per share under current accounting
rules. The implementation of SFAS No. 128 is not expected to have a material
effect on the Company's earnings per share as determined under current
accounting rules.

4. EVENT SUBSEQUENT TO THE DATE OF AUDITOR'S REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS (UNAUDITED):

Wholly-owned subsidiaries of Pentacon, Inc. have signed definitive
agreements to acquire by merger or share exchange five companies ("Founding
Companies") to be effective contemporaneously with the Offering. The companies
to be acquired are Alatec Products, Inc., AXS Solutions, Inc., Capitol Bolt &
Supply, Inc., Maumee Industries, Inc., and Sales Systems, Limited. The aggregate
consideration that will be paid by Pentacon to acquire the Founding Companies is
approximately $28.7 million in cash and 6,720,000 shares of Common Stock.

In December 1997, the Company filed a registration statement on Form S-1
for the sale of its common stock.

The Company has received a commitment from a bank for a credit facility of
$50 million. The bank has also committed to use its best efforts to form a
syndicate for an additional $25 million credit facility. The Company intends to
use such facilities for working capital, payoff of indebtedness of the Founding
Companies, and acquisitions. The credit facilities will be subject to customary
drawing conditions and the completion of negotiations with the lender and the
execution of appropriate loan documentation.

In January 1998, the Company has agreed to grant options for 80,000 shares
of Common Stock at the initial public offering price.

In January 1998, MGCV made a restricted stock grant of 65,000 shares to an
employee of the Company and agreed to make restricted stock grants of 20,000
shares in the aggregate to two non-employee directors. The total of 85,000
shares will vest ratably over three years. The Company will recognize
approximately $680,000 of compensation expense ratably over three years, based
on an estimated initial public offering price net of a twenty percent
marketability discount.

F-17

<PAGE>
REPORT OF INDEPENDENT AUDITORS

Pentacon, Inc.
and
Board of Directors
Alatec Products, Inc.

We have audited the accompanying consolidated balance sheet of Alatec
Products, Inc., as of September 30, 1997, and the related statements of income,
stockholders' equity, and cash flows for the year ended December 31, 1995 and
the period from January 1, 1997 through September 30, 1997. 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Alatec
Products, Inc., as of September 30, 1997, and the results of its operations and
its cash flows for the year ended December 31, 1995 and the period from January
1, 1997 through September 30, 1997, in conformity with generally accepted
accounting principles.

ERNST & YOUNG LLP

Houston, Texas
November 21, 1997, except for Note 3,
as to which the date is November 26, 1997

F-18
<PAGE>
INDEPENDENT AUDITOR'S REPORT

To the Board of Directors
Alatec Products, Inc.
Chatsworth, California

We have audited the accompanying consolidated balance sheet of Alatec
Products, Inc., as of December 31, 1996, and the related statements of income,
stockholders' equity and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Alatec
Products, Inc., as of December 31, 1996, and the results of its operations and
its cash flows for the year then ended in conformity with generally accepted
accounting principles.

McGLADREY & PULLEN, LLP

Pasadena, California
November 21, 1997, except for Note 3,
as to which the date is November 26, 1997

F-19
<PAGE>
ALATEC PRODUCTS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
1996 1997 1997
------------ ------------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash............................... $ 256,000 $ 733,000 $ --
Receivables, less allowance for
doubtful accounts of $118,000,
$173,000, and $290,536........... 5,304,000 7,892,000 8,607,000
Inventory.......................... 19,615,000 22,951,000 24,803,000
Deferred taxes..................... 1,457,000 1,420,000 1,419,000
------------ ------------- ------------
Total current assets.......... 26,632,000 32,996,000 34,829,000
Property under capital lease, leasehold
improvements and equipment, net....... 1,583,000 1,578,000 1,618,000
Other assets:
Deferred taxes..................... 32,000 65,000 65,000
Security deposits and other........ 272,000 272,000 343,000
------------ ------------- ------------
Total other assets............ 304,000 337,000 408,000
------------ ------------- ------------
Total assets.................. $ 28,519,000 $ 34,911,000 $ 36,855,000
============ ============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of note payable
to related party................. $ -- $ 158,000 $ 158,000
Current maturities of long-term
debt............................. 169,000 169,000 127,000
Current maturities of obligation
under capital lease.............. 32,000 37,000 37,000
Accounts payable................... 5,771,000 7,521,000 9,219,000
Income taxes payable............... 2,668,000 3,594,000 3,647,000
Accrued compensation and
commissions...................... 556,000 866,000 687,000
Other accrued expenses............. 306,000 496,000 475,000
------------ ------------- ------------
Total current liabilities..... 9,502,000 12,841,000 14,350,000
Subordinated note payable to related
party, less current maturities........ 776,000 2,529,000 2,528,000
Revolving line of credit................ 8,800,000 9,500,000 9,800,000
Long-term debt, less current
maturities............................ 294,000 168,000 168,000
Obligation under capital lease, less
current maturities.................... 1,517,000 1,489,000 1,480,000
------------ ------------- ------------
Total liabilities............. 20,889,000 26,527,000 28,326,000
Commitments and contingencies
Stockholders' equity:
Common stock, $10 par value;
authorized 2,500,000 shares;
issued 100 shares (pre
stock-split) in 1996 and 145,000
shares in 1997................... 1,000 1,450,000 1,450,000
Treasury stock, 51,290 shares at
cost............................. -- (2,690,000) (2,690,000)
Additional paid-in capital......... 24,000 -- --
Retained earnings.................. 7,605,000 9,624,000 9,769,000
------------ ------------- ------------
Total stockholders' equity.... 7,630,000 8,384,000 8,529,000
------------ ------------- ------------
Total liabilities and
stockholders' equity....... $ 28,519,000 $ 34,911,000 $ 36,855,000
============ ============= ============
</TABLE>
SEE ACCOMPANYING NOTES.

F-20
<PAGE>
ALATEC PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
JANUARY 1,
YEAR ENDED DECEMBER 31, 1997 THROUGH THREE MONTHS ENDED DECEMBER 31,
------------------------------ SEPTEMBER 30, ------------------------------
1995 1996 1997 1996 1997
-------------- -------------- ------------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales............................... $ 41,204,000 $ 44,726,000 $ 42,296,000 $ 11,458,000 $ 14,502,000
Cost of goods sold...................... 26,196,000 26,707,000 25,114,000 6,970,000 8,554,000
-------------- -------------- ------------- -------------- --------------
Gross profit............................ 15,008,000 18,019,000 17,182,000 4,488,000 5,948,000
Selling, general and administrative
expenses.............................. 11,285,000 12,818,000 11,664,000 3,481,000 5,417,000
-------------- -------------- ------------- -------------- --------------
Operating income........................ 3,723,000 5,201,000 5,518,000 1,007,000 531,000
Interest expense........................ (1,235,000) (1,118,000) (1,015,000) (230,000) (295,000)
Interest income......................... 22,000 56,000 26,000 15,000 12,000
Other expense........................... (91,000) -- -- -- --
-------------- -------------- ------------- -------------- --------------
Income before income taxes.............. 2,419,000 4,139,000 4,529,000 792,000 248,000
Provision for income taxes.............. 995,000 1,628,000 1,860,000 317,000 103,000
-------------- -------------- ------------- -------------- --------------
Net income.............................. $ 1,424,000 $ 2,511,000 $ 2,669,000 $ 475,000 $ 145,000
============== ============== ============= ============== ==============
</TABLE>
SEE ACCOMPANYING NOTES.

F-21
<PAGE>
ALATEC PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TREASURY STOCK AT COST
----------------------- PAID-IN ------------------------- RETAINED
SHARES AMOUNT CAPITAL SHARES AMOUNT EARNINGS
--------- ------------ ---------- --------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1994............. 100 $ 1,000 $ 24,000 -- $ -- $ 3,670,000
Net income...................... -- -- -- -- -- 1,424,000
--------- ------------ ---------- --------- -------------- ------------
Balance, December 31, 1995........... 100 1,000 24,000 -- -- 5,094,000
Net income...................... -- -- -- -- -- 2,511,000
--------- ------------ ---------- --------- -------------- ------------
Balance, December 31, 1996........... 100 1,000 24,000 -- -- 7,605,000
Shares issued and shares
repurchased................... 45 -- 776,000 (51) (2,690,000) --
Stock-split (1,000 to 1)........ 144,855 1,449,000 (800,000) (51,239) -- (650,000)
Net income...................... -- -- -- -- -- 2,669,000
--------- ------------ ---------- --------- -------------- ------------
Balance, September 30, 1997.......... 145,000 1,450,000 -- (51,290) (2,690,000) 9,624,000
Net income (unaudited).......... -- -- -- -- -- 145,000
--------- ------------ ---------- --------- -------------- ------------
Balance, December 31, 1997
(unaudited)........................ 145,000 $ 1,450,000 $ -- (51,290) $ (2,690,000) $ 9,769,000
========= ============ ========== ========= ============== ============
</TABLE>
SEE ACCOMPANYING NOTES.

F-22
<PAGE>
ALATEC PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
JANUARY 1,
1997 THROUGH THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER DECEMBER 31,
-------------------------- 30, --------------------------
1995 1996 1997 1996 1997
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income.......................... $ 1,424,000 $ 2,511,000 $2,669,000 $ 475,000 $ 145,000
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and
amortization................. 271,000 180,000 129,000 45,000 45,000
Deferred taxes................. (173,000) (372,000) 4,000 (378,000) 1,000
Loss on disposal of asset...... 14,000 -- -- -- --
Changes in operating assets and
liabilities:
Accounts receivable........ (612,000) 847,000 (2,588,000) 1,879,000 (715,000)
Inventory.................. (2,502,000) (5,567,000) (3,336,000) (1,671,000) (1,852,000)
Other receivables.......... -- (31,000) -- -- --
Accounts payable and
accrued expenses......... 501,000 2,023,000 3,176,000 (390,000) 1,551,000
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in)
operating activities.............. (1,077,000) (409,000) 54,000 (40,000) (825,000)
INVESTING ACTIVITIES
Collections of note receivable...... -- 42,000 -- -- --
(Investment in) return of security
deposits and other assets......... 6,000 (251,000) -- (239,000) (71,000)
Purchase of leasehold improvements
and equipment..................... (89,000) (114,000) (138,000) (48,000) (85,000)
Proceeds from sale of assets........ 13,000 -- 14,000 -- --
------------ ------------ ------------ ------------ ------------
Net cash used in investing
activities........................ (70,000) (323,000) (124,000) (287,000) (156,000)
FINANCING ACTIVITIES
Principal payments on long-term
debt.............................. (128,000) (169,000) (127,000) (42,000) (42,000)
Net advances on revolving line of
credit............................ 1,175,000 1,063,000 700,000 225,000 300,000
Principal payments on obligation
under capital lease............... (20,000) (23,000) (23,000) (8,000) (9,000)
Repayment on stockholder note....... -- -- (3,000) 1,000 (1,000)
------------ ------------ ------------ ------------ ------------
Net cash provided by financing
activities........................ 1,027,000 871,000 547,000 176,000 248,000
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in cash..... (120,000) 139,000 477,000 (151,000) (733,000)
Cash at beginning of period......... 237,000 117,000 256,000 407,000 733,000
------------ ------------ ------------ ------------ ------------
Cash at end of period............... $ 117,000 $ 256,000 $ 733,000 $ 256,000 $ --
============ ============ ============ ============ ============
Cash paid during the period for:
Interest....................... $ 899,000 $ 1,029,000 $ 829,000
============ ============ ============
Income taxes................... $ 715,000 $ 404,000 $ 930,000
============ ============ ============
</TABLE>
SEE ACCOMPANYING NOTES.

F-23
<PAGE>
ALATEC PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997

1. DESCRIPTION OF THE BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF THE BUSINESS

Alatec Products, Inc. (the "Company") is a wholesale distributor of
industrial and aerospace fasteners throughout the United States, Canada, Europe,
South America, and the Far East. Sales to the aerospace and defense industries
represent a significant portion of the Company's total annual sales. The
Company's corporate headquarters are based in Chatsworth, California, and it has
regional sales offices in six states.

PRINCIPLES OF CONSOLIDATION

The financial statements include the accounts of the Company's wholly owned
subsidiaries, Trace Alatec Supply Company, Inc.; Alatec Race, Inc.; Alatec
Fastener and Component Group, Inc.; Alatec Cable Harness and Assembly Division,
Inc.; and Alatec International Sales, Inc., a foreign international sales
corporation. All significant intercompany accounts and transactions have been
eliminated.

CONCENTRATIONS OF CREDIT RISK

The Company distributes industrial and aerospace fasteners to manufacturers
in a wide variety of industries including the aerospace and defense industries.
Credit is extended based on an evaluation of the customer's financial condition
and collateral is typically not required. Credit losses are provided for in the
financial statements through a charge to operations. Credit losses have been
consistently within management's expectations. Provisions for bad debts and
accounts receivable write-offs have not been significant.

The Company maintains its cash in bank deposit accounts which, at times,
may exceed federally insured limits. The Company has not experienced any losses
in such accounts. The Company believes it is not exposed to any significant
credit risk on cash maintained in bank deposit accounts.

USE OF ESTIMATES

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

INVENTORIES

Inventories consist primarily of industrial and aerospace fasteners and
related hardware held for sale and are valued at the lower of cost (first-in,
first-out method) or market.

PROPERTY UNDER CAPITAL LEASES, LEASEHOLD IMPROVEMENTS, AND EQUIPMENT

Leasehold improvements, buildings acquired under capital leases, and
equipment are recorded at cost. Depreciation is computed using straight-line and
primarily accelerated methods over useful lives ranging from 5 to 20 years.
Leasehold improvements and buildings acquired under capital leases are amortized
over the lesser of the life of the lease or the life of the improvements.

The amortization expense on assets acquired under capital leases is
included with depreciation expense on owned assets.

CASH EQUIVALENTS

For purposes of reporting cash flows, the Company considers all highly
liquid debt instruments purchased with a maturity of three months or less to be
cash equivalents.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of accounts receivable, prepaid expenses, and accounts
payable approximate fair values due to the short-term maturities of these
instruments. The carrying value of the Company's debt facilities and capital
lease agreements approximates fair value because the rates on such facilities
are

F-24
<PAGE>
ALATEC PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
variable, based on current market, or are at fixed rates currently available to
the Company. The rate of the subordinated note payable to stockholder (discussed
in Note 4 and Note 7) is less than the market rate currently available to the
Company; however, the difference between the carrying value of this note and the
fair value is not significant.

NET SALES RECOGNITION

Net sales are recognized upon shipment of the product to the customer.
Adjustments to arrive at net sales are primarily allowances for discounts and
returns.

EXPORT SALES

The Company recorded export sales of $8,847,000, $8,875,000, and $9,434,000
in the years ended December 31, 1995 and 1996 and the period from January 1,
1997 through September 30, 1997, respectively. The Company has export sales
through its foreign sales corporation to Canada, Europe, South America, and the
Far East of which no country or region is individually significant.

ACCOUNTING FOR LONG-LIVED ASSETS

In March 1995, the FASB issued Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of,
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. Statement No. 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The Company adopted Statement No.
121 in the first quarter of 1996 and the effect of adoption had no impact on the
financial statements.

INCOME TAXES

Income taxes have been provided using the liability method in accordance
with FASB Statement No. 109, ACCOUNTING FOR INCOME TAXES. Under this method,
deferred tax assets and liabilities are determined based on differences between
the financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse.

FISCAL YEAR

In 1997, the Company changed its fiscal year-end from December 31 to
September 30.

UNAUDITED INTERIM INFORMATION

The financial information for the three months ended December 31, 1996 and
1997 has not been audited by independent accountants. Certain information and
footnote disclosures normally included in the financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted from the unaudited interim financial information. In the opinion of
management of the Company, the unaudited interim financial information includes
all adjustments, consisting only of normal recurring adjustments, necessary for
a fair presentation. Results of operations for the interim periods are not
necessarily indicative of the results of operations for the respective full
years.

In January 1998, the Company came to a final settlement agreement with the
Internal Revenue Service with regards to all outstanding items under audit
including the issues related to the inventory issues. The amount of the
settlement, which did not include any penalties, was within amounts accrued in
the financial statements at September 30, 1997. (See Note 8)

F-25
<PAGE>
ALATEC PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. PROPERTY AND EQUIPMENT

Property under capital leases, leasehold improvements, and equipment
consist of:

DECEMBER 31, SEPTEMBER 30,
1996 1997
------------- --------------
Automobile equipment................. $ 181,000 $ 181,000
Leasehold improvements............... 201,000 208,000
Office equipment..................... 299,000 327,000
Warehouse equipment.................. 290,000 312,000
Computer equipment................... 674,000 741,000
Buildings acquired under capital
leases............................... 1,637,000 1,637,000
------------- --------------
3,282,000 3,406,000
Less accumulated depreciation,
including amortization of assets
acquired under capital leases...... 1,699,000 1,828,000
------------- --------------
$ 1,583,000 $1,578,000
============= ==============

3. REVOLVING LINE OF CREDIT

The revolving line of credit represents borrowings under a $13.3 million
line of credit with a bank. This facility expires in June 1999. At September 30,
1997, unused credit available under this facility was $3,000,000. The Company
has classified all borrowings outstanding under its line of credit as a
long-term liability as it intends to maintain borrowings of at least $9.5
million during 1998. The Company may borrow amounts against 80% of eligible
trade receivables and 50% of eligible inventory, up to $7,000,000. The note
provides for interest at the prime rate (8.5% at September 30, 1997) and is
collateralized by inventory, accounts receivable, equipment and the personal
guarantee of a stockholder. The credit agreement also provides for standby
letters of credit of up to $100,000. At September 30, 1997, there were no
amounts outstanding on the letters of credit. The credit agreement contains
certain restrictive financial covenants including, but not limited to, minimum
working capital requirements and dividend restrictions. As of September 30,
1997, the Company was in compliance with the financial covenants. However, at
September 30, 1997, the Company was not in compliance with certain nonfinancial
covenants relating to providing information and notice of defined transactions
and events to the bank. The bank has provided a written waiver for these
covenant violations and management believes that the Company will be in
compliance with these covenants in future periods.

F-26
<PAGE>
ALATEC PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

4. LONG-TERM DEBT

Long-term debt consisted of the following:

DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
Note payable to a bank, secured by a
vehicle costing $32,850, with monthly
payments of $507, including interest
at 9.99%, maturing June 1999.......... $ 13,000 $ 9,000
Note payable to a bank, secured by
accounts receivable, inventory and
equipment, with monthly payments of
$13,646 plus interest at .75% over the
bank's prime rate (8.5% at September
30, 1997), maturing September 1999.... 450,000 328,000
Note payable to a stockholder,
unsecured, due February 1998, with
interest payable monthly at 9%,
subordinated to all senior bank
debt.................................. 776,000 --
Note payable to a former stockholder,
secured by assets of the corporation,
due November 2024, with interest
payable monthly at 5.64%, subordinated
to all senior bank debt............... -- 2,687,000
------------ -------------
1,239,000 3,024,000
Less current maturities................. 169,000 327,000
------------ -------------
$1,070,000 $ 2,697,000
============ =============

As discussed in Note 7, the $776,000 note payable to a stockholder was
cancelled in exchange for 45 shares (pre stock-split) of common stock.

The aggregate maturities required on long-term debt at September 30, 1997
(not including the revolving line of credit) are due in future years as follows:

Fiscal year ending:
1998............................... $ 327,000
1999............................... 334,000
2000............................... 174,000
2001............................... 182,000
2002............................... 191,000
Thereafter......................... 1,816,000
------------
$ 3,024,000
============

F-27
<PAGE>
ALATEC PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5. LEASE COMMITMENTS

The Company leases a portion of its facilities, equipment, and vehicles
under noncancelable capital and operating lease agreements. In April 1992, the
Company entered into a capital lease with a stockholder for its Chatsworth
facilities with an original cost of $1,637,000. Monthly installments, subject to
Consumer Price Index adjustments and including interest at 11.6%, are required
through March 2012. Additionally, the Company leases a smaller facility from the
stockholder under an operating lease.

Future minimum lease payments under the capital and operating leases,
together with the present value of the net minimum lease payments, as of
September 30, 1997 are as follows:
<TABLE>
<CAPTION>
RELATED-PARTY
------------------------
CAPITAL OPERATING
LEASE LEASES OTHER TOTAL
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Fiscal year ending:
1998............................ $ 212,000 $ 457,000 $ 268,000 $ 937,000
1999............................ 212,000 352,000 246,000 810,000
2000............................ 212,000 352,000 220,000 784,000
2001............................ 212,000 352,000 173,000 737,000
2002............................ 215,000 349,000 43,000 607,000
Thereafter...................... 2,135,000 3,082,000 -- 5,217,000
---------- ---------- ---------- ------------
Total minimum lease payments.... 3,198,000 $4,944,000 $ 950,000 $ 9,092,000
========== ========== ============
Less amount representing interest.... 1,672,000
----------
Present value of net minimum lease
payments........................... 1,526,000
Current maturities................... 37,000
----------
Long-term portion.................... $1,489,000
==========
</TABLE>
Total rental and interest expense charged to operations for the nine months
ended September 30, 1997 and the years ended December 31, 1996 and 1995 was
approximately $640,000, $778,000, and $697,000, respectively, including amounts
to related parties of $451,000, $359,000, and $322,000, respectively.

6. 401(K) PLAN

The Company has a defined contribution 401(k) plan (the "Plan") for
substantially all of the Company's full-time employees. The Company may make
discretionary contributions and, in addition, may match participants'
contributions. The Company contributed $80,000, $99,000, and $80,000 in matching
contributions to the plan for the nine months ended September 30, 1997 and the
years ended December 31, 1996 and 1995, respectively. Additionally, in 1997, the
Board of Directors approved a $300,000 discretionary contribution to the Plan.
Accordingly, the contribution was accrued and expensed as of September 30, 1997.

7. RELATED-PARTY TRANSACTIONS

EQUITY TRANSACTIONS

At December 31, 1996, the Company was a closely held corporation and all of
the outstanding common stock was owned by immediate family members. During May
1997, certain equity transactions occurred simultaneously. The Company issued 45
shares (pre stock-split) of common stock in exchange for the cancellation of a
stockholder note payable of $776,000. Simultaneously, the Company purchased as
treasury stock 51.29 shares (pre stock split) of common stock representing all
of the shares of common

F-28
<PAGE>
ALATEC PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

stock held by one of the family members in exchange for a note payable in the
original amount of $2,690,000. The terms of these notes payable are described
below.

NOTES PAYABLE AND RECEIVABLE

As discussed above, the Company had a 9%, $776,000 note payable to a
stockholder at December 31, 1996. At September 30, 1997, the Company had a
5.64%, $2,687,000 note payable to a former stockholder and current Director, due
November 2024. The note is subordinated to all senior bank debt and is
guaranteed by the President and sole remaining stockholder of the Company. The
note contains provisions that upon the death of the former stockholder, the note
will be terminated and the related debt will be cancelled. During the years
ended December 31, 1995 and 1996 and the nine months ended September 30, 1997,
interest expense of $70,000, $69,000, and $50,000, respectively, was incurred on
these notes.

In addition, the Company has a non-interest-bearing receivable from a
stockholder of $9,000 as of December 31, 1996 and accrued rents and interest due
to a stockholder of $88,000 as of December 31, 1996. These balances are included
in receivables and other accrued expenses, respectively.

DEBT GUARANTEE

The U.S. Small Business Administration ("SBA") has issued a Secured
Business Disaster Loan to a related party for earthquake repairs and
improvements to the Chatsworth facility, which is owned by a stockholder and
leased to the Company. The Company is identified as a co-borrower; however, the
Company has reflected this as a contingent liability similar to a debt
guarantee. The remaining balance on the SBA loan was $1,255,231 and $1,217,000
at December 31, 1996 and at September 30, 1997, respectively. The debt matures
in August 2024. No amount of this debt is recorded in the accompanying financial
statements.

RELATED PARTY PURCHASES

The Company purchased approximately $1,100,000, $1,386,000, and $1,100,000
in 1995, 1996, and during the period from January 1, 1997 through September 30,
1997, respectively, from a supplier which is 50% owned by the principal
stockholder. Additionally, the Company owed $136,000, $209,000, and $154,000 for
the respective periods related to goods purchased for resale classified as
accounts payable in the balance sheet.

8. CONTINGENCIES

INCOME TAX EXAMINATION

The Company's federal income tax returns for the year ended January 31,
1995 are currently being examined by the Internal Revenue Service (the "IRS").
No notices of deficiency have been issued. The Internal Revenue Service has
proposed the capitalization of certain repairs to the Company's Chatsworth
facilities, which sustained earthquake damage, rather than to treat them as
deductible expenses in the year incurred, capitalization of freight costs and
adjustments for certain other nondeductible accrued expenses. The Company has
recorded an adjustment of approximately $120,000 for these known deficiencies as
a result of the examination. $116,000 of this adjustment is reflected in the
1996 tax provision and approximately $4,000 in the 1997 tax provision. The
Company has reached an understanding that resolves all open issues on the audit;
however, this understanding is subject to final IRS approval. There can be no
assurance that there will be no additional assessments; however, management
believes that any additional assessment would not be material.

During 1997, the Company detected that it had erroneously omitted certain
amounts of inventory from its financial statements for federal and state income
tax purposes for tax years ending December 31, 1995 and 1996. The Company
anticipates filing amended returns for 1996 and certain prior periods and has
accrued the tax liability and related interest totaling approximately $2,568,000
and $2,225,000 in 1997 and

F-29
<PAGE>
ALATEC PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1996, respectively. No underpayment or late payment penalties have been accrued
in the financial statements based on preliminary discussions with the IRS
indicating that no penalties would be assessed. If assessed, these penalties
could be as much as $850,000. Based on management's discussion with the IRS, it
is their opinion that no significant penalties will be assessed, and management
believes it will be successful in settling this issue with the Internal Revenue
Service and state taxing authorities within the amounts accrued in the financial
statements.

9. INCOME TAXES

Components of income tax expense are as follows:

JANUARY 1,
1997
YEAR ENDED DECEMBER 31, THROUGH
-------------------------- SEPTEMBER 30,
1995 1996 1997
------------ ------------ --------------
Currently paid or payable:
Federal........................ $ 1,049,000 $ 1,611,000 $1,496,000
State.......................... 119,000 389,000 360,000
------------ ------------ --------------
1,168,000 2,000,000 1,856,000
Deferred:
Federal........................ (157,000) (357,000) 3,000
State.......................... (16,000) (15,000) 1,000
------------ ------------ --------------
(173,000) (372,000) 4,000
------------ ------------ --------------
$ 995,000 $ 1,628,000 $1,860,000
============ ============ ==============

The net deferred tax assets (liabilities) consist of the following:

NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------- --------------
Deferred tax assets:
Receivables allowance.............. $ 47,000 $ 75,000
Inventory allowance................ 562,000 632,000
Accrued expenses................... 239,000 243,000
Equipment.......................... 32,000 198,000
Uniform cost capitalization........ 618,000 583,000
------------- --------------
1,498,000 1,731,000
------------- --------------
Deferred tax liabilities, other...... (9,000) (246,000)
------------- --------------
$ 1,489,000 $1,485,000
============= ==============
Net deferred taxes consist of the
following:
Current assets....................... $ 1,457,000 $1,420,000
Noncurrent assets.................... 32,000 65,000
------------- --------------
$ 1,489,000 $1,485,000
============= ==============

F-30
<PAGE>
ALATEC PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company's effective tax rate varied from the federal statutory tax rate
during the nine months ended September 30, 1997 and the years ended December 31,
1996 and 1995 for the following reasons:

YEAR ENDED DECEMBER JANUARY 1,
31, 1997 THROUGH
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- -------------
Expected income tax rate................ 34.0% 34.0% 34.0%
International export sales partially
exempt from federal income taxes (FSC
benefit).............................. (9.2) (4.4) (2.6)
State taxes, net of federal benefit..... 7.3 7.7 7.2
Adjustment to reflect proposed IRS audit
settlement............................ -- 6.0 0.2
Nondeductible expenses.................. 4.3 2.1 1.0
Other................................... 4.7 (6.1) 1.3
--------- --------- -------------
Effective tax rate...................... 41.1% 39.3% 41.1%
========= ========= =============

10. STOCKHOLDERS' EQUITY

In May 1997, the Company's Board of Directors (the "Board") authorized an
increase in the authorized shares of common stock from 2,500 shares to 2,500,000
shares. Concurrently, the Board approved a 1,000 for 1 stock-split.

11. SUBSEQUENT EVENT (UNAUDITED)

In December 1997, the Company and its stockholder entered into a definitive
agreement with a wholly owned subsidiary of Pentacon, Inc., which among other
things calls for the merger of the Company with the Pentacon, Inc. subsidiary.

F-31

<PAGE>
REPORT OF INDEPENDENT AUDITORS

Pentacon, Inc. and
The Board of Directors
AXS Solutions, Inc.

We have audited the accompanying balance sheets of AXS Solutions, Inc. as
of December 31, 1996 and September 30, 1997, and the related statements of
income, shareholders' equity, and cash flows for each of the two years in the
period ended December 31, 1996 and the period from January 1, 1997 through
September 30, 1997. 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.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of AXS Solutions, Inc. at
December 31, 1996 and September 30, 1997, and the results of its operations and
its cash flows for each of the two years in the period ended December 31, 1996
and the period from January 1, 1997 through September 30, 1997, in conformity
with generally accepted accounting principles.

ERNST & YOUNG LLP

Houston, Texas
November 7, 1997

F-32
<PAGE>
AXS SOLUTIONS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
1996 1997 1997
------------ ------------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......... $ 3,487,371 $ 2,777,160 $ 1,748,814
Accounts receivable -- net of
allowance for doubtful accounts
of $91,500, $105,000, and
$90,000.......................... 3,710,420 3,160,537 2,822,241
Inventory.......................... 4,952,648 5,323,516 5,448,850
Prepaid expenses and other current
assets........................... 66,839 27,737 18,644
Receivable from shareholder........ 169,476 169,476 --
------------ ------------- ------------
Total current assets.................... 12,386,754 11,458,426 10,038,549
Property and equipment:
Building and improvements.......... 192,763 212,437 195,997
Machinery and equipment............ 2,162,291 2,220,002 2,241,162
Assets under capital lease......... 1,058,589 1,058,589 1,058,589
------------ ------------- ------------
Total cost.............................. 3,413,643 3,491,028 3,495,748
Less: accumulated depreciation and
amortization..................... (1,719,540) (1,890,382) (1,964,839)
------------ ------------- ------------
1,694,103 1,600,646 1,530,909
Goodwill................................ 3,118,414 3,058,310 3,038,275
Non-compete agreement................... 537,050 457,805 431,390
Cash surrender value of life
insurance............................. 617,196 654,198 660,802
Other................................... 336,832 454,867 450,295
------------ ------------- ------------
Total assets............................ $ 18,690,349 $ 17,684,252 $ 16,150,220
============ ============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Demand note payable................ $ 3,300,000 $ 1,939,000 $ 300,000
Accounts payable................... 1,878,235 1,919,913 1,790,449
Accrued expenses and other current
liabilities...................... 713,010 467,432 368,307
Shareholder distribution payable... -- 2,713,162 3,076,152
Current portion of long-term debt
to former shareholder............ 70,199 76,451 88,301
Current portion of capital lease
obligation....................... 53,215 76,420 78,055
------------ ------------- ------------
Total current liabilities............... 6,014,659 7,192,378 5,701,264
Long-term debt to former shareholder,
less current portion.................. 423,715 347,264 324,483
Capital lease obligation, less current
portion............................... 988,375 911,955 891,818
Commitments and contingencies
Shareholders' equity:
Common stock:
AXS Solutions, Inc. class A
voting common stock, no par
value, authorized 1,000
shares, issued and
outstanding, 100 shares.... 55,785 55,785 55,785
AXS Solutions, Inc. class B
nonvoting common stock, no
par value, authorized
99,000 shares, issued and
outstanding, 9,900
shares..................... 5,522,687 5,650,187 5,650,187
Retained earnings.................. 5,685,128 3,526,683 3,526,683
------------ ------------- ------------
Total shareholders' equity.............. 11,263,600 9,232,655 9,232,655
------------ ------------- ------------
Total liabilities and shareholders'
equity................................ $ 18,690,349 $ 17,684,252 $ 16,150,220
============ ============= ============
</TABLE>
SEE ACCOMPANYING NOTES.

F-33
<PAGE>
AXS SOLUTIONS, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
NINE-MONTHS THREE MONTHS ENDED
YEAR ENDED YEAR ENDED ENDED DECEMBER 31,
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, --------------------------
1995 1996 1997 1996 1997
------------ ------------ ------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales............................... $ 20,227,664 $ 23,176,615 $ 22,002,438 $ 8,566,214 $ 7,412,348
Cost of goods sold...................... 12,993,622 15,052,732 15,275,990 5,606,715 4,986,304
------------ ------------ ------------- ------------ ------------
Gross profit............................ 7,234,042 8,123,883 6,726,448 2,959,499 2,426,044
Selling, general and administrative
expenses.............................. 4,709,974 5,647,019 4,979,848 1,896,068 1,797,575
------------ ------------ ------------- ------------ ------------
Operating income........................ 2,524,068 2,476,864 1,746,600 1,063,431 628,469
Interest expense........................ (289,310) (326,785) (207,766) (70,482) (35,873)
Other income (expense).................. 232,747 19,619 7,513 (109,897) (38,007)
------------ ------------ ------------- ------------ ------------
Net income.............................. $ 2,467,505 $ 2,169,698 $ 1,546,347 $ 883,052 $ 554,589
============ ============ ============= ============ ============
</TABLE>
SEE ACCOMPANYING NOTES.

F-34
<PAGE>
AXS SOLUTIONS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
------------------------------------
AXS SOLUTIONS, INC.
---------------------- CHAMPION RETAINED
CLASS A CLASS B BOLT CORP. EARNINGS TOTAL
------- ------------ ----------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1995.............. $ -- $ -- $ 378,472 $ 5,350,075 $ 5,728,547
Net income.............................. -- -- -- 2,467,505 2,467,505
Shareholder distributions............... -- -- -- (3,294,756) (3,294,756)
------- ------------ ----------- -------------- --------------
Balance at December 31, 1995............ -- -- 378,472 4,522,824 4,901,296
Net income.............................. -- -- -- 2,169,698 2,169,698
Issuance of AXS Solutions, Inc. Common
Stock (80 Shares Voting Common and
7,920 Nonvoting Common) in exchange
for all of Champion Bolt Corp. Common
Stock................................. 3,785 374,687 (378,472) -- --
Purchase of Hoyt Fastener Corp. in
exchange for AXS Solutions, Inc.
Common Stock (20 Shares Voting Common
and 1,980 Shares Nonvoting Common).... 52,000 5,148,000 -- -- 5,200,000
Shareholder distributions............... -- -- -- (1,007,394) (1,007,394)
------- ------------ ----------- -------------- --------------
Balance at December 31, 1996............ 55,785 5,522,687 -- 5,685,128 11,263,600
Net income.............................. -- -- -- 1,546,347 1,546,347
Transfer of 75 Nonvoting Common Shares
from existing shareholders in exchange
for acquired customers................ -- 127,500 -- -- 127,500
Shareholder distributions............... -- -- -- (991,630) (991,630)
Distribution of cumulative S-Corporation
earnings.............................. -- -- -- (2,713,162) (2,713,162)
------- ------------ ----------- -------------- --------------
Balance at September 30, 1997........... 55,785 5,650,187 -- 3,526,683 9,232,655
Net income (unaudited).................. -- -- -- 554,589 554,589
Distributions of cumulative
S-Corporation earnings (unaudited).... -- -- -- (554,589) (554,589)
------- ------------ ----------- -------------- --------------
Balance at December 31, 1997
(unaudited)........................... $55,785 $ 5,650,187 $ -- $ 3,526,683 $ 9,232,655
======= ============ =========== ============== ==============
</TABLE>
SEE ACCOMPANYING NOTES.

F-35
<PAGE>
AXS SOLUTIONS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE-MONTHS THREE MONTHS ENDED
YEAR ENDED YEAR ENDED ENDED DECEMBER 31,
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, -------------------------
1995 1996 1997 1996 1997
------------ ------------ ------------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income........................... $ 2,467,505 $ 2,169,698 $ 1,546,347 $ 883,052 $ 554,589
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization.... 250,887 326,550 373,095 124,539 120,907
Loss on disposal of fixed
assets......................... 50,371 6,299 -- -- --
Gain on sale of fixed assets..... (232,747) -- -- -- --
Increase in cash surrender value
of officers' life insurance.... (59,529) (58,393) (37,002) (14,599) (6,604)
Changes in operating assets and
liabilities:
Accounts receivable......... 284,696 (712,179) 549,883 46,347 338,296
Inventory................... 1,237,850 759,041 (370,868) (193,660) (125,334)
Prepaid expenses and other
current assets............ (38,803) (16,531) 39,102 (70,717) 9,093
Receivable from
shareholder............... -- (169,476) -- 78,127 169,476
Other....................... (82,856) 611 6,714 -- 4,572
Accounts payable............ (450,351) 150,587 41,678 45,908 (129,464)
Accrued expenses and other
current liabilities....... (50,335) 1,511 (245,578) (296,930) (99,125)
------------ ------------ ------------- ----------- ------------
Net cash provided by operating
activities......................... 3,376,688 2,457,718 1,903,371 602,067 836,406
INVESTING ACTIVITIES
Purchases of property and
equipment............................ (210,567) (152,223) (137,538) (10,381) (4,720)
Proceeds from sale of fixed assets... -- 25,300 -- -- --
Cash acquired during acquisition of
Hoyt Fastener Corp. ............... -- 416,743 -- -- --
------------ ------------ ------------- ----------- ------------
Net cash (used in) provided by
investing activities............... (210,567) 289,820 (137,538) (10,381) (4,720)
FINANCING ACTIVITIES
Proceeds from demand note payable.... 19,850,000 23,500,000 12,589,000 -- 1,044,000
Payments on demand note payable...... (18,950,000) (23,300,000) (13,950,000) (200,000) (2,683,000)
Payments on long-term debt to former
shareholder........................ (58,487) (84,541) (70,199) (19,231) (10,931)
Payments on capital lease
obligation......................... -- (16,999) (53,215) (11,373) (18,502)
Shareholder distributions............ (3,294,756) (1,007,394) (991,630) -- (191,599)
------------ ------------ ------------- ----------- ------------
Net cash used in financing
activities......................... (2,453,243) (908,934) (2,476,044) (230,604) (1,860,032)
------------ ------------ ------------- ----------- ------------
Net increase (decrease) in cash and
cash equivalents................... 712,878 1,838,604 (710,211) 361,082 (1,028,346)
Cash and cash equivalents at
beginning of period................ 935,889 1,648,767 3,487,371 3,126,289 2,777,160
------------ ------------ ------------- ----------- ------------
Cash and cash equivalents at end of
period............................. $ 1,648,767 $ 3,487,371 $ 2,777,160 $ 3,487,371 $ 1,748,814
============ ============ ============= =========== ============
SUPPLEMENTARY CASH FLOW DATA:
- -------------------------------------
Interest paid........................ $ 284,796 $ 323,753 $ 217,305
============ ============ =============
</TABLE>
SIGNIFICANT NON-CASH TRANSACTIONS
- -------------------------------------
1995: Sale of fixed assets in
exchange for note
receivable of $250,000
1996: Incurred capital lease
obligation for $1,058,589
Acquisition of Hoyt
Fastener Corp. in exchange
for $5,200,000 of AXS
Solutions, Inc. common
stock (net assets of
$1,638,130, net of cash
acquired of $416,743)
1997: Transferred 75 nonvoting
common shares ($127,500)
from existing shareholder
in exchange for acquired
customers
Accrual of S-Corporation
distribution of $2,713,162
Three Months Ended December 31,
1997 (unaudited):
Accrual of S-Corporation
distribution of $362,990

SEE ACCOMPANYING NOTES.

F-36
<PAGE>
AXS SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997

1. BUSINESS AND BASIS OF PRESENTATION

AXS Solutions, Inc. ("AXS Solutions") is a wholesaler and distributor of
threaded fastener products, including nuts, bolts, washers and screws, to
customers located predominantly in the Northeastern and Midwestern United
States. AXS Solutions was incorporated on August 19, 1996. On August 31, 1996,
the shareholders of Champion Bolt Corp. ("Champion Bolt") surrendered all of
their shares of common stock of Champion Bolt in exchange for shares of both
voting and non-voting common stock of AXS Solutions. There was deemed to be no
change of control as a result of this transaction. Subsequently, the Champion
Bolt shares were cancelled for no consideration.

AXS Solutions then acquired all of the common stock of Hoyt Fastener Corp.
("Hoyt Fastener") in exchange for shares of both voting and non-voting common
stock of AXS Solutions. This acquisition was accounted for using the purchase
method of accounting and, accordingly, the purchase price (approximately $5.2
million based on an independent valuation) has been allocated to the assets
purchased and the liabilities assumed based upon the fair values at the date of
acquisition. Goodwill of approximately $3,145,000 was recorded as a result of
this acquisition. The Hoyt Fastener shares were also subsequently cancelled. The
operating results of the acquired business, Hoyt Fastener, have been included in
the income statement from the date of the acquisition.

The financial statements presented herein represent the operating results
of Champion Bolt for the period from January 1, 1995 through August 31, 1996 and
the operating results of AXS Solutions for the period from September 1, 1996
through September 30, 1997. The reference to "Company" in these financial
statements includes such presentation.

The following unaudited results of operations have been prepared assuming
the acquisition had occurred on January 1, 1995. These results are not
necessarily indicative of results of future operations nor of results that would
have occurred had the acquisitions been consummated as of January 1, 1995:

1995 1996
-------------- --------------
Net sales............................... $ 27,332,285 $ 28,044,941
Net income.............................. $ 2,803,676 $ 2,428,068

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

INVENTORY

Inventory consists of product held for resale and is stated at the lower of
cost or market, with cost determined using the first-in, first-out (FIFO) method
of inventory valuation.

PROPERTY AND EQUIPMENT

Property and equipment is stated at cost. Depreciation is provided on the
straight-line method over the respective estimated useful lives of the assets
ranging from 5 to 40 years. The capital lease is amortized over the estimated
useful life of the asset or lease term, as appropriate, using the straight-line
method. Depreciation expense includes amortization of assets recorded under the
capital lease. Accumulated amortization for the capital lease was $35,288 and
$114,686 at December 31, 1996 and September 30, 1997, respectively.

NON-COMPETE AGREEMENT

The cost of the non-compete agreement is being amortized over 10 years, the
term of the covenant. Accumulated amortization amounted to $519,495 and $598,740
at December 31, 1996 and September 30, 1997, respectively.

F-37
<PAGE>
AXS SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

GOODWILL

Goodwill is being amortized over a period of 40 years. Accumulated
amortization amounted to $26,713 and $86,817 at December 31, 1996 and September
30, 1997, respectively.

CASH EQUIVALENTS

The Company considers all investments purchased with a maturity of three
months or less to be cash equivalents.

INCOME TAXES

The Company is a Subchapter S Corporation and as such, its stockholders are
taxed directly on all income.

NET SALES RECOGNITION

Net sales are recognized upon shipment of the product to the customer.
Adjustments to arrive at net sales are primarily related to discounts.

USE OF ESTIMATES

CONCENTRATION OF CREDIT RISK

The Company performs credit evaluations of its customers and generally does
not require collateral. The Company maintains an allowance for doubtful accounts
based upon the expected collectibility of all accounts receivable. One customer
accounted for approximately 55%, 50% and 45% of revenues for 1995, 1996 and the
period from January 1, 1997 through September 30, 1997, respectively. At
December 31, 1996 and September 30, 1997, accounts receivable balances related
to this customer represented approximately 34% and 28% of total accounts
receivable, respectively.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of accounts receivable, prepaid expenses, and accounts
payable approximate fair values due to the short-term maturities of these
instruments. The carrying value of the Company's debt facilities and capital
lease agreements approximate fair value because the rates on such facilities are
variable, based on current market or are at fixed rates currently available to
the Company.

ACCOUNTING FOR LONG-LIVED ASSETS

In March 1995, the FASB issued Statement No. 121, ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF,
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. Statement No. 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The Company adopted Statement No.
121 in the first quarter of 1996 and the effect of adoption had no impact on the
financial statements.

FISCAL YEAR

In 1997, the Company changed its fiscal year end from December 31 to
September 30.

UNAUDITED INTERIM INFORMATION

The financial information for the three months ended December 31, 1996 and
1997 has not been audited by independent accountants. Certain information and
footnote disclosures normally included in the

F-38
<PAGE>
AXS SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted from the unaudited interim financial
information. In the opinion of management of the Company, the unaudited interim
financial information includes all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation. Results of operations
for the interim periods are not necessarily indicative of the results of
operations for the respective full years.

3. DEBT

Long-term debt consists of the following:

DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
Non-interest bearing obligation payable
to a former shareholder for
non-compete agreement, payable in
monthly payments of $10,000 through
January 15, 2002. Implicit interest of
8.5%.................................. $493,914 $ 423,715
Less current portion.................... 70,199 76,451
------------ -------------
$423,715 $ 347,264
============ =============

Scheduled maturities on long-term debt for each of the next five years as
of September 30, 1997 are as follows:

Year ending September 30, 1998.......... $ 76,451
1999....... 94,092
2000....... 102,409
2001....... 111,461
2002....... 39,302
----------
$ 423,715
==========

The Company has a demand note payable with a bank up to a maximum of
$3,000,000, with interest payable at the prime rate. The demand note payable is
guaranteed by separate balances with this bank of two of the four voting
shareholders of the Company. At December 31, 1996, the Company had exceeded its
borrowing limit by $300,000 as a result of making a year end tax payment. The
excess borrowings were repaid in early January 1997.

In addition, at September 30, 1997 the Company has an available letter of
credit of approximately $50,000 for inventory purchases.

4. LEASES

The Company is obligated under a noncancelable lease with a related party
which expires August 31, 2006. Under this lease, the lessor of warehouse and
office space in Erie, Pennsylvania is a partnership composed of two of the four
voting shareholders of the Company. The Company is also obligated under
noncancelable operating leases for certain automobiles and warehouse equipment.
Future minimum annual operating lease payments under all noncancelable leases as
of September 30, 1997 are as follows:

Year ending September 30, 1998....... $ 264,177
1999.... 253,180
2000.... 241,818
2001.... 240,285
2002.... 240,000
Thereafter........................... 940,000

F-39
<PAGE>
AXS SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Rent expense was approximately $288,000, $258,000 and $188,000 for 1995,
1996 and the period from January 1, 1997 through September 30, 1997,
respectively.

The Company is also obligated under a capital lease with a related party
which expires August 31, 2006. Under this lease, the lessor of warehouse and
office space in Niles, Illinois includes family residual trusts which represent
two of the four voting shareholders of the Company.

Future minimum annual capital lease payments as of September 30, 1997 are
as follows:

TOTAL
------------
Year ending September 30, 1998....... $ 157,500
1999.... 157,500
2000.... 157,500
2001.... 157,500
2002.... 157,500
Thereafter......................... 630,000
------------
Total minimum lease payments......... 1,417,500
Amount representing interest......... 429,125
------------
Present value of minimum lease
payments............................. 988,375
Current maturities................... 76,420
------------
Long-term portion.................... $ 911,955
============

5. EMPLOYEE BENEFIT PLANS

The Company maintains a non-contributory defined-benefit pension plan
covering all of its employees. The benefits are based on years of service and
the employee's compensation during the entire period of employment. The
Company's funding policy is to contribute annually the amount necessary to meet
minimum funding standards of ERISA. Plan assets are invested primarily in
corporate stocks and government securities.

The following table sets forth the plan's funded status and amounts
recognized in the Company's respective balance sheets:

DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
Actuarial present value of benefit
obligations:
Vested............................. $ (352,039) $(406,538)
Non-vested......................... (37,690) (34,920)
------------ -------------
Accumulated benefit obligations......... $ (389,729) $(441,458)
============ =============
Projected benefit obligation............ $ (503,184) $(559,125)
Plan assets at fair value............... 714,701 806,946
------------ -------------
Plan assets in excess of projected
benefit obligation.................... 211,517 247,821
Unrecognized net transition
obligation............................ 2,005 1,671
Unrecognized net gain from past
experience different from that assumed
and effects of changes in
assumptions........................... (108,110) (156,660)
------------ -------------
Prepaid pension cost.................... $ 105,412 $ 92,832
============ =============

F-40
<PAGE>
AXS SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The prepaid pension costs are recorded in other noncurrent assets on each
of the respective balance sheets.

Net pension expense was comprised of the following:
<TABLE>
<CAPTION>
PERIOD FROM
YEARS ENDED JANUARY 1, 1997
DECEMBER 31, TO SEPTEMBER 30,
---------------------- ----------------
1995 1996 1997
---------- ---------- ----------------
<S> <C> <C> <C>
Service cost............................ $ 43,376 $ 43,219 $ 39,305
Interest cost on projected benefit
obligation............................ 31,594 34,419 37,739
Actual return on plan assets............ (86,202) (46,590) (114,545)
Net amortization and deferral........... 52,751 (2,978) 18,921
---------- ---------- ----------------
$ 41,519 $ 28,070 $ (18,580)
========== ========== ================
</TABLE>
The assumptions used in these calculations were as follows for each of the
periods presented:

Weighted average discount rate.......... 7.5%
Rate of increase in compensation
levels................................ 3%
Expected long-term rate of return on
assets................................ 8%
Employee turnover....................... None
Mortality Table......................... 1983 GAM

The Company also sponsors two defined contribution plans under Section
401(k) of the Code. The first plan covers all eligible Pennsylvania employees of
the Company, and participants are permitted to make elective pretax deferrals up
to 20% of their compensation. Under this plan, the Company has the ability to
make additional discretionary contributions allocated to the participants as a
flat dollar amount or in proportion to their compensation. The second plan
covers all eligible Illinois employees of the Company, and participants are
permitted to make elective pretax deferrals up to a set percentage of their
compensation (to be determined by the Company) as well as post-tax contributions
subject to IRS limitations. Under this plan, the Company has the ability to make
additional discretionary contributions allocated to the participants in
proportion to their compensation. The Company contributed approximately $0,
$19,200, and $9,600 to these plans for 1995, 1996, and the period January 1,
1997 through September 30, 1997, respectively.

6. RELATED PARTIES

The Company has a receivable from a shareholder which represents an excess
S Corporation distribution which is expected to be paid back to the Company by
December 31, 1997.

The shareholder distribution payable is a result of the Company declaring a
dividend in 1997 in the amount equal to the total undistributed S Corporation
accumulated earnings of the Company as of September 30, 1997.

7. COMMITMENTS AND CONTINGENCIES

Under terms of the Shareholders Agreement, upon the death or withdrawal of
a shareholder, the Company has the option to purchase that shareholder's
non-voting shares at the purchase price as defined in the Shareholders
Agreement. The remaining shareholders then have the option to purchase the
remaining decedent/withdrawn shareholder's non-voting shares at the purchase
price as defined in the Shareholders Agreement. If any of the decedent/withdrawn
shareholder's non-voting shares remain, the decedent/withdrawn shareholder's
estate has the option to require the Company to redeem such non-voting shares at
the purchase price as defined in the Shareholders Agreement.

F-41
<PAGE>
AXS SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Upon the death or withdrawal of a shareholder, the Company is required to
redeem the voting shares of the decedent/withdrawn shareholder at the purchase
price as defined in the Shareholders Agreement.

8. SUBSEQUENT EVENT (UNAUDITED)

In December 1997, the Company and its shareholders entered into a
definitive agreement with a wholly-owned subsidiary of Pentacon, Inc. which
among other things calls for the merger of the Company with the Pentacon, Inc.
subsidiary.

F-42

<PAGE>
REPORT OF INDEPENDENT AUDITORS

Pentacon, Inc.
and
Board of Directors
Maumee Industries, Inc.

We have audited the accompanying balance sheets of Maumee Industries, Inc.
(the "Company"), as of December 31, 1996 and September 30, 1997, and the
related statements of operations, stockholders' deficit, and cash flows for each
of the two years in the period ended December 31, 1996 and the period from
January 1, 1997 through September 30, 1997. 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.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Maumee Industries, Inc., at
December 31, 1996 and September 30, 1997, and the results of its operations and
its cash flows for each of the two years in the period ended December 31, 1996
and the period from January 1, 1997 through September 30, 1997, in conformity
with generally accepted accounting principles.

ERNST & YOUNG LLP

Houston, Texas
October 15, 1997

F-43
<PAGE>
MAUMEE INDUSTRIES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER
DECEMBER 31, SEPTEMBER 30, 31,
1996 1997 1997
------------ ------------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Accounts receivable, less allowance
of $45,000, $70,000, and
$70,000.......................... $ 3,421,509 $ 5,200,253 $ 4,927,013
Inventories........................ 4,265,628 6,524,717 6,555,095
Prepaid expenses and other
assets........................... 26,562 24,362 42,083
Deferred income taxes.............. 165,000 139,000 137,680
------------ ------------- -----------
Total current assets.................... 7,878,699 11,888,332 11,661,871
Deferred income taxes................... 329,000 284,000 284,000
Property and equipment, at cost:
Machinery and equipment............ 2,367,139 2,781,709 2,888,083
Leasehold improvements............. 399,301 440,516 477,991
------------ ------------- -----------
2,766,440 3,222,225 3,366,074
Less accumulated depreciation and
amortization.......................... 1,994,219 2,247,242 (2,336,394)
------------ ------------- -----------
772,221 974,983 1,029,680
------------ ------------- -----------
Total assets............................ $ 8,979,920 $ 13,147,315 $12,975,551
============ ============= ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Bank overdraft..................... $ 403,811 $ 1,001,999 $ 1,187,087
Accounts payable................... 2,800,950 3,965,264 3,356,178
Income taxes payable............... 513,744 708,744 1,086,768
Accrued expenses................... 505,634 1,141,654 1,064,320
Notes payable...................... 5,605,357 5,855,550 5,419,595
Notes payable to principal
stockholder...................... 997,181 997,181 997,181
Current portion of capital lease
obligations...................... 39,412 154,291 107,765
------------ ------------- -----------
Total current liabilities............... 10,866,089 13,824,683 13,218,894
Long-term portion of capital lease
obligations........................... 146,496 270,984 255,708
------------ ------------- -----------
Total liabilities....................... 11,012,585 14,095,667 13,474,602
Commitments and contingencies
Stockholders' deficit:
Common stock, no par value:
Authorized shares -- 2,830
Issued shares -- 318
Outstanding shares -- 103.5 in
1996 and 318 in 1997....... 41,000 691,000 691,000
Accumulated deficit..................... (1,503,115) (1,068,802) (619,501)
------------ ------------- -----------
(1,462,115) (377,802) 71,499
Less treasury stock -- 77 shares in 1996
and 218 shares in 1997, at cost....... 570,550 570,550 570,550
------------ ------------- -----------
Total stockholders' deficit............. (2,032,665) (948,352) (499,051)
------------ ------------- -----------
Total liabilities and stockholders'
deficit............................... $ 8,979,920 $ 13,147,315 $12,975,551
============ ============= ===========
</TABLE>
SEE ACCOMPANYING NOTES.

F-44
<PAGE>
MAUMEE INDUSTRIES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1,
YEARS ENDED 1997 THREE MONTHS ENDED
DECEMBER 31, THROUGH DECEMBER 31,
-------------------------- SEPTEMBER 30, -------------------------
1995 1996 1997 1996 1997
------------ ------------ ------------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales............................... $ 20,582,200 $ 26,234,653 $27,472,902 $ 7,071,763 $ 10,541,994
Cost of sales........................... 16,099,808 19,712,909 19,557,148 5,522,964 7,432,716
------------ ------------ ------------- ----------- ------------
Gross profit............................ 4,482,392 6,521,744 7,915,754 1,548,799 3,109,278
Selling and administrative expenses..... 4,626,153 5,277,107 6,628,643 1,510,586 2,145,830
------------ ------------ ------------- ----------- ------------
Operating income (loss)................. (143,761) 1,244,637 1,287,111 38,213 963,448
Interest expense........................ (572,387) (585,090) (547,274) (201,277) (200,071)
Other income (expense).................. 2,578 (23,680) 10,476 (28,748) 10,814
------------ ------------ ------------- ----------- ------------
Income (loss) before taxes.............. (713,570) 635,867 750,313 (191,812) 774,191
Income tax expense (benefit)............ (250,000) 304,000 316,000 (84,397) 324,890
------------ ------------ ------------- ----------- ------------
Net income (loss)....................... $ (463,570) $ 331,867 $ 434,313 $ (107,415) $ 449,301
============ ============ ============= =========== ============
</TABLE>
SEE ACCOMPANYING NOTES.

F-45
<PAGE>
MAUMEE INDUSTRIES, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK TOTAL
------------------- --------------------- ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT DEFICIT DEFICIT
------ ---------- ------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994......... 103.5 $ 41,000 (77 ) $ (570,550) $(1,371,412) $ (1,900,962)
Net loss............................. -- -- -- -- (463,570) (463,570)
------ ---------- ------ ------------ ----------- -------------
Balance at December 31, 1995......... 103.5 41,000 (77 ) (570,550) (1,834,982) (2,364,532)
Net income........................... -- -- -- -- 331,867 331,867
------ ---------- ------ ------------ ----------- -------------
Balance at December 31, 1996......... 103.5 41,000 (77 ) (570,550) (1,503,115) (2,032,665)
Stock split (2.83 for 1)............. 189.5 -- (141 ) -- -- --
Net income........................... -- -- -- -- 434,313 434,313
Issuance of common stock............. 25 650,000 -- -- -- 650,000
------ ---------- ------ ------------ ----------- -------------
Balance at September 30, 1997........ 318 691,000 (218 ) (570,550) (1,068,802) (948,352)
Net income (unaudited)............... -- -- -- -- 449,301 449,301
------ ---------- ------ ------------ ----------- -------------
Balance at December 31, 1997
(unaudited)........................ 318 $ 691,000 (218 ) $ (570,550) $ (619,501) $ (499,051)
====== ========== ====== ============ =========== =============
</TABLE>
SEE ACCOMPANYING NOTES.

F-46
<PAGE>
MAUMEE INDUSTRIES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1,
1997 THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, THROUGH DECEMBER 31,
------------------------------- SEPTEMBER 30, ----------------------------
1995 1996 1997 1996 1997
-------------- --------------- -------------- -------------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss).................. $ (463,570) $ 331,867 $ 434,313 $ (107,415) $ 449,301
Adjustments to reconcile net income
(loss) to net cash used in
operating activities:
Depreciation and
amortization............... 358,681 327,945 316,823 20,060 89,152
Issuance of common stock for
compensation............... -- -- 650,000 -- --
(Gain) or loss on disposal of
equipment.................. (1,283) 28,290 (8,980) -- --
Deferred income taxes......... (22,000) (448,000) 71,000 (491,132) 1,320
Changes in operating assets
and liabilities:
Accounts receivable...... (453,257) (725,349) (1,778,744) (159,116) 273,240
Inventories.............. (480,392) (1,328,228) (2,259,089) (1,040,258) (30,378)
Prepaid expenses and
other assets.......... (23,164) 12,912 2,200 41,496 (17,721)
Income tax receivable.... (239,150) 239,150 -- -- --
Accounts payable......... 762,714 866,783 1,164,314 1,436,806 (609,086)
Income taxes payable..... (36,653) 501,700 195,000 367,616 378,024
Accrued expenses......... (27,593) 160,410 636,020 279,845 (77,334)
-------------- --------------- -------------- -------------- ------------
Net cash (used in) provided by
operating activities............. (625,667) (32,520) (577,143) 347,902 456,518
INVESTING ACTIVITIES
Capital expenditures............... (204,581) (133,704) (210,968) (2,327) (143,849)
Proceeds from sale of equipment.... 2,367 1,342 59,200 -- --
-------------- --------------- -------------- -------------- ------------
Net cash used in investing
activities....................... (202,214) (132,362) (151,768) (2,327) (143,849)
FINANCING ACTIVITIES
Bank overdraft..................... (548,755) (100,295) 598,188 (232,696) 185,088
Payments on capital leases......... (26,475) (48,764) (119,472) (12,000) (61,802)
Proceeds from revolving line of
credit........................... 6,000,200 10,042,100 20,464,195 2,510,879 6,821,955
Payments on revolving line of
credit........................... (4,396,709) (10,003,263) (20,504,163) (2,554,008) (7,200,160)
Proceeds from notes payable........ 50,000 467,796 424,000 -- --
Payments on notes payable.......... (250,380) (192,692) (133,837) (57,750) (57,750)
-------------- --------------- -------------- -------------- ------------
Net cash provided by (used in)
financing activities............. 827,881 164,882 728,911 (345,575) (312,669)
Net increase (decrease) in cash.... -- -- -- -- --
Cash at beginning of period........ -- -- -- -- --
-------------- --------------- -------------- -------------- ------------
Cash at end of period.............. $ -- $ -- $ -- $ -- $ --
============== =============== ============== ============== ============
</TABLE>
SEE ACCOMPANYING NOTES.

F-47
<PAGE>
MAUMEE INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

Maumee Industries, Inc. (the "Company") is engaged in the wholesale
distribution of fasteners and nonfastener small parts primarily to
Midwestern-based manufacturers in the automotive industry. For the years ended
December 31, 1995, 1996, and the period from January 1, 1997 through September
30, 1997, net sales to two customers approximated $18,000,000, $23,100,000, and
$21,800,000, respectively. In relation to these customers, approximately
$4,300,000 was included in accounts receivable at September 30, 1997.

NET SALE RECOGNITION

Net sales are recognized upon shipment of the product to the customer.
Adjustments to arrive at net sales are primarily related to discounts.

INVENTORIES

Inventories consist of goods held for resale and are valued at the lower of
cost (first-in, first-out method) or market.

EQUIPMENT AND LEASEHOLD IMPROVEMENTS

Equipment and leasehold improvements are stated on the cost basis.
Equipment is depreciated using accelerated depreciation methods based on
estimated useful lives ranging from three to ten years. Leasehold improvements
are amortized using the straight-line method over the lesser of the estimated
useful lives of the assets or the term of the related lease.

USE OF ESTIMATES

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

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of accounts receivable, prepaid expenses, and accounts
payable approximate fair value due to the short-term maturities of these
instruments. The carrying value of the Company's debt facilities and capital
lease agreements approximates fair value because the rates on such facilities
are variable, based on current market, or are at fixed rates currently available
to the Company.

ACCOUNTING FOR LONG-LIVED ASSETS

INCOME TAXES

Income taxes have been provided using the liability method in accordance
with FASB Statement No. 109, ACCOUNTING FOR INCOME TAXES.

F-48
<PAGE>
MAUMEE INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

FISCAL YEAR

In 1997, the Company changed its fiscal year end from December 31 to
September 30.

UNAUDITED INTERIM INFORMATION

2. NOTES PAYABLE

At September 30, 1997, the Company has a bank line of credit under which
the Company may borrow up to $7,700,000. At September 30, 1997, the unused
portion of the line of credit was $2,194,032. Borrowings under this line of
credit bear interest at 1.5% over the bank's base rate (10% at September 30,
1997) and expire on May 31, 2000. The line of credit is collateralized by
substantially all of the Company's assets, including equipment, general
intangibles, inventory, receivables, and any balance in the collateral account.
The Company's principal stockholder has guaranteed the line of credit. The line
of credit agreement includes provisions for maintenance of minimum net worth and
restrictions on capital expenditures. The Company was in compliance with these
financial covenants at September 30, 1997.

At September 30, 1997, the Company has a special accommodation/over advance
note payable to a bank. The note is payable on demand and accrues interest at
the bank's base rate plus 2.5% (11% at September 30, 1997). If no demand is
made, the note is payable in 18 monthly installments of $16,667 plus interest,
beginning June 1, 1997. There was $233,332 outstanding on this note at September
30, 1997.

At September 30, 1997, the Company has an equipment loan payable to a bank.
The loan is payable on demand and accrues interest at the bank's base rate plus
1.5% (10% at September 30, 1997). If demand is not made, the note is payable in
48 monthly installments of $2,583, plus interest. There was $116,250 outstanding
on this note at September 30, 1997.

Equipment purchased from the proceeds of the installment notes is pledged
as collateral on the respective loans.

The Company made interest payments of approximately $453,000, $531,000 and
$529,000 for the years ended December 31, 1995 and 1996 and for the period from
January 1, 1997 through September 30, 1997, respectively.

3. NOTE PAYABLE TO STOCKHOLDER

At September 30, 1997, the Company has notes payable to the principal
stockholder. The notes payable represent amounts advanced to the Company by the
principal stockholder. The notes require monthly interest payments at rates
ranging from 6.5% to 13.8% with principal payable upon demand. Interest payments
for the years ended December 31, 1995 and 1996 and for the period from January
1, 1997 through September 30, 1997 was approximately $45,377, $0, and $56,000,
respectively.

F-49
<PAGE>
MAUMEE INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

4. CAPITAL LEASE OBLIGATIONS

The Company has entered into capital lease arrangements to finance the
purchase of machinery and equipment. Future minimum payments under these
agreements as of September 30, 1997 are as follows:

1998................................. $ 189,251
1999................................. 134,959
2000................................. 91,196
2001................................. 53,532
2002................................. 39,237
----------
Total minimum lease payments......... 508,175
Amount representing interest......... 82,900
----------
Present value of minimum lease
payments............................. 425,275
Current maturities................... 154,291
----------
Long-term portion.................... $ 270,984
==========

The cost of assets held under capital leases as of September 30, 1997 and
December 31, 1996 was $619,987 and $261,149, respectively. Amortization of
equipment acquired under capital lease arrangements is included in depreciation
and amortization expense.

5. COMMITMENTS

The Company leases certain of its facilities and equipment under
noncancelable operating leases. Rent expense for the years ended December 31,
1995 and 1996 and the period from January 1, 1997 through September 30, 1997 was
$138,000, $174,000, and $120,000, respectively. Lease commitments at September
30, 1997 for long-term noncancelable operating leases are as follows:

1998................................. $ 278,299
1999................................. 82,486
2000................................. 43,040
----------
$ 403,825
==========

6. INCOME TAXES

Significant components of the provision for income taxes are as follows:

PERIOD FROM
JANUARY 1,
1997
YEARS ENDED DECEMBER 31, THROUGH
-------------------------- SEPTEMBER 30,
1995 1996 1997
------------ ------------ -------------
Current:
Federal..................... $ (183,000) $ 591,000 $ 192,000
State....................... (45,000) 161,000 53,000
------------ ------------ -------------
(228,000) 752,000 245,000
Deferred:
Federal..................... (22,000) (448,000) 71,000
------------ ------------ -------------
$ (250,000) $ 304,000 $ 316,000
============ ============ =============

F-50
<PAGE>
MAUMEE INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The reconciliation of the income tax expense computed at U.S. federal
statutory tax rates to the reported tax expense is as follows:

PERIOD FROM
JANUARY 1,
1997
YEARS ENDED DECEMBER 31, THROUGH
-------------------------- SEPTEMBER 30,
1995 1996 1997
------------ ------------ -------------
Expected income tax expense (benefit)
at 34%............................. $ (242,615) $ 216,194 $ 255,106
State income taxes, net of federal
benefit............................ (36,099) 36,444 43,428
Non-deductible expenses.............. 2,662 26,050 17,466
Other................................ 26,052 25,312 --
------------ ------------ -------------
Reported total income tax expense
(benefit).......................... $ (250,000) $ 304,000 $ 316,000
============ ============ =============

The Company paid $59,076, $-0- and $50,000 of income taxes for the years
ended December 31, 1995 and 1996 and the period from January 1, 1997 through
September 30, 1997, respectively.

Deferred income taxes reflect the net effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and amounts used for income tax purposes. The components of the
deferred tax assets are as follows:

DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
Deferred tax assets:
Change in inventory estimate....... $378,834 $ 284,125
Nondeductible accruals:
Accrued interest.............. 21,496 21,496
Pension....................... 53,986 53,558
Other.............................. 39,684 63,821
------------ -------------
Total deferred tax assets............... $494,000 $ 423,000
============ =============

7. EMPLOYEE RETIREMENT PLANS

The Company maintains a defined contribution pension plan for all eligible
full-time employees. All contributions to the plan are made by the Company at an
amount equal to 7% of each participant's annual salary. The plan provides for
100% vesting of values accumulated for the employee after six years of service.

The Company also sponsors an employee savings plan under Section 401(k) of
the Internal Revenue Code which covers substantially all full-time employees.
The plan allows for both employee and Company contributions. The Company
contribution consists of a matching contribution of 50% of employee
contributions, up to 6% of eligible employee compensation.

Employees vest immediately in their contribution and vest in the Company
contribution over a six-year period of service.

F-51
<PAGE>
MAUMEE INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The following is a summary of employee retirement plan expense for the
years ended December 31, 1995 and 1996 and the period from January 1, 1997
through September 30, 1997.

DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1995 1996 1997
------------ ------------ -------------
Defined contribution pension plan.. $106,917 $104,819 $ 103,520
401(k) matching contribution....... 26,694 33,183 32,690
------------ ------------ -------------
Total.............................. $133,611 $138,002 $ 136,210
============ ============ =============

8. RELATED PARTY TRANSACTIONS

The Company leases its main building facility from Maumee Properties, which
is owned by the primary shareholder and president. Annual rental expense under
the lease amounted to $312,000 for the years ended December 31, 1995 and 1996,
respectively, and $234,000 for the period from January 1, 1997 through September
30, 1997.

The Company rents an airplane from Summit Transportation, which is owned by
the primary shareholder and president. The related expense for use of the
airplane amounted to $-0- and $46,028 for the years ended December 31, 1995 and
1996, respectively, and $4,171 for the nine months ended September 30, 1997.

9. COMMON STOCK

On September 30, 1997, the Company executed a share split of 2.83 ordinary
shares for each authorized ordinary share.

On September 30, 1997, pursuant to an agreement in July 1997 and subsequent
to the aforementioned share split, 25 shares of common stock were issued to the
chief executive officer. The issuance of the common stock resulted in a
compensation charge to the Company of $650,000 based on an independent valuation
of the Company.

10. SUBSEQUENT EVENTS (UNAUDITED)

In December 1997, Maumee Industries, Inc., and its shareholders entered
into a definitive agreement with a wholly owned subsidiary of Pentacon, Inc.,
which among other things calls for the merger of Maumee Industries, Inc., with
the Pentacon, Inc., subsidiary.

F-52

<PAGE>
REPORT OF INDEPENDENT AUDITORS

Pentacon, Inc.
and
Board of Directors
Sales Systems, Limited

We have audited the balance sheets of Sales Systems, Limited (the
"Company"), as of December 31, 1996 and September 30, 1997, and the related
statements of income and retained earnings and cash flows for the year ended
December 31, 1996 and the period from January 1, 1997 through September 30,
1997. 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.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Sales Systems, Limited, at
December 31, 1996 and September 30, 1997, and the results of its operations and
its cash flows for the year ended December 31, 1996 and the period from January
1, 1997 through September 30, 1997, in conformity with generally accepted
accounting principles.

ERNST & YOUNG LLP

Houston, Texas
October 20, 1997

F-53
<PAGE>
SALES SYSTEMS, LIMITED
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
1996 1997 1997
------------ ------------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash............................... $ 63,755 $ -- $ 101,749
Trade accounts receivable, less
allowance for doubtful accounts
of $38,000 at December 31, 1996,
September 30, 1997, and December
31, 1997......................... 1,129,433 1,090,628 1,148,344
Inventories........................ 2,723,660 2,255,465 2,346,057
Prepaid expenses and other current
assets........................... -- 6,589 18,632
------------ ------------- ------------
Total current assets.................... 3,916,848 3,352,682 3,614,782
Property, plant, and equipment:
Fixtures and equipment............. 1,030,403 1,123,795 1,151,546
Automotive equipment............... 82,151 82,151 82,151
------------ ------------- ------------
1,112,554 1,205,946 1,233,697
Less accumulated depreciation........... (778,625) (859,976) (901,574)
------------ ------------- ------------
333,929 345,970 332,123
Other assets............................ 8,477 27,109 8,478
------------ ------------- ------------
Total assets............................ $4,259,254 $ 3,725,761 $ 3,955,383
============ ============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable....................... $1,250,000 $ 342,347 $ 645,592
Note payable to former
shareholders..................... -- -- 5,000,000
Trade accounts payable and accrued
expenses......................... 943,109 980,922 1,048,561
Accrued salaries, wages, payroll
expenses, and commissions........ 138,804 60,484 39,819
Advances payable................... 40,000 -- --
Current maturities of unsecured
notes to officers................ 22,670 23,890 20,139
Current maturities of long-term
debt............................. 78,823 77,850 75,336
------------ ------------- ------------
Total current liabilities............... 2,473,406 1,485,493 6,829,447
Long-term debt, less current
maturities............................ 257,176 199,967 182,567
Unsecured notes to officers, less
current maturities.................... 194,228 176,154 174,088
------------ ------------- ------------
Total liabilities....................... 2,924,810 1,861,614 7,186,102
Shareholders' equity:
Common stock, $100 par value:
Authorized shares -- 100
Issued and outstanding
shares -- 64............... 6,400 6,400 6,400
Retained earnings.................. 1,375,242 1,904,945 1,810,079
------------ ------------- ------------
1,381,642 1,911,345 1,816,479
Less 14 at September 30, 1997 and 47
shares at
December 31, 1997 shares of treasury
stock at cost......................... (47,198) (47,198) (5,047,198)
------------ ------------- ------------
Total shareholders' equity (deficit).... 1,334,444 1,864,147 (3,230,719)
------------ ------------- ------------
Total liabilities and shareholders'
equity................................ $4,259,254 $ 3,725,761 $ 3,955,383
============ ============= ============
</TABLE>
SEE ACCOMPANYING NOTES.

F-54
<PAGE>
SALES SYSTEMS, LIMITED
STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1997 THREE MONTHS ENDED
YEAR ENDED THROUGH DECEMBER 31
DECEMBER 31, SEPTEMBER 30, --------------------------
1996 1997 1996 1997
------------ --------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net sales............................... $ 15,663,326 $11,987,479 $ 3,724,591 $ 3,746,387
Cost of goods sales..................... 10,495,123 8,056,780 2,532,158 2,452,853
------------ --------------- ------------ ------------
Gross profit............................ 5,168,203 3,930,699 1,192,433 1,293,534
Selling, general, and administrative
expenses.............................. 4,598,895 3,096,934 1,561,310 1,367,336
------------ --------------- ------------ ------------
Operating income (loss)................. 569,308 833,765 (368,877) (73,802)
Interest expense........................ (106,799) (95,162) (28,167) (21,064)
Other income............................ 17,912 -- 17,912 --
------------ --------------- ------------ ------------
Net income (loss)....................... 480,421 738,603 (379,132) (94,866)
Retained earnings at beginning of
period................................ 1,114,575 1,375,242 1,790,848 1,904,945
Distributions to shareholders........... (219,754) (208,900) (36,474) --
------------ --------------- ------------ ------------
Retained earnings at end of period...... $ 1,375,242 $ 1,904,945 $ 1,375,242 $ 1,810,079
============ =============== ============ ============
</TABLE>
SEE ACCOMPANYING NOTES.

F-55
<PAGE>
SALES SYSTEMS, LIMITED
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1997 THREE MONTHS ENDED
YEAR ENDED THROUGH DECEMBER 31,
DECEMBER 31, SEPTEMBER 30, --------------------------
1996 1997 1996 1997
------------ --------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)....................... $ 480,421 $ 738,603 $ (379,132) $ (94,866)
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating activities:
Depreciation....................... 94,668 81,351 48,137 41,598
Loss on sale of equipment.......... 1,052 -- -- --
Change in operating assets and
liabilities:
Trade accounts receivable..... (343,571) 38,805 372,465 (57,716)
Inventories................... (518,271) 468,195 (201,941 (90,592)
Prepaid expenses and other
current assets............. -- (6,589) -- (12,043)
Other assets.................. -- (18,632) (891) 18,631
Trade accounts payable and
accrued expenses........... 28,375 37,813 (456,914) 67,639
Accrued salaries, wages, and
payroll withholdings....... 102,289 (78,320) 105,216 (20,665)
Advances payable.............. 40,000 (40,000) 40,000 --
------------ --------------- ------------ ------------
Net cash provided by (used in) operating
activities............................ (115,037) 1,221,226 (473,060) (148,014)
INVESTING ACTIVITIES
Capital expenditures.................... (216,869) (93,392) (146,502) (27,751)
------------ --------------- ------------ ------------
Net cash used in investing activities... (216,869) (93,392) (146,502) (27,751)
FINANCING ACTIVITIES
Distributions paid to shareholders...... (219,754) (208,900) (36,474) --
Borrowings on term loans................ 61,582 -- 40,328 --
Payments on term loans.................. (91,523) (75,036) (10,537) (25,731)
Net borrowings (repayments) on line of
credit................................ 525,555 (907,653) 690,000 303,245
Other................................... (992) -- -- --
------------ --------------- ------------ ------------
Net cash provided by (used in) financing
activities............................ 274,868 (1,191,589) 683,317 277,514
------------ --------------- ------------ ------------
Increase (decrease) in cash............. (57,038) (63,755) 63,755 101,749
Cash at beginning of period............. 120,793 63,755 -- --
------------ --------------- ------------ ------------
Cash at end of period................... $ 63,755 $ -- $ 63,755 $ 101,749
============ =============== ============ ============
</TABLE>
SEE ACCOMPANYING NOTES.

F-56
<PAGE>
SALES SYSTEMS, LIMITED
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

COMPANY DESCRIPTION

Sales Systems, Limited (the "Company") is a wholesaler and distributor of
industrial fasteners, primarily to manufacturers in the eastern United States.

INVENTORIES

Inventories consist of goods held for resale and are stated at the lower of
cost or market using the first-in, first-out method.

PROPERTY, PLANT, AND EQUIPMENT

Property, plant, and equipment are recorded at cost. Depreciation and
amortization expense, including amounts related to capital leases, is calculated
by accelerated methods over the estimated useful lives of the assets, which vary
from three to eight years.

NET SALES RECOGNITION

Net sales are recognized upon shipment of the product to the customer.
Adjustments to arrive at net sales are primarily for discounts.

INCOME TAXES

Effective January 1, 1995, the Company made an election to be taxed as an S
corporation for federal purposes and for the majority of states in which the
Company operates. Correspondingly, tax liabilities subsequent to this date
related to the Company's ongoing operations will generally be the responsibility
of the individual shareholders.

STATEMENT OF CASH FLOWS

Cash paid for interest during the year ended December 31, 1996 and the
period from January 1, 1997 through September 30, 1997 was $106,799 and $95,167,
respectively.

USE OF ESTIMATES

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

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of accounts receivable, prepaid expenses, and accounts
payable approximate fair values due to the short-term maturities of these
instruments. The carrying value of the Company's debt facilities approximates
fair value because the rates on such facilities are variable, based on current
market, or are at fixed rates currently available to the Company.

ACCOUNTING FOR LONG-LIVED ASSETS

F-57
<PAGE>
SALES SYSTEMS, LIMITED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

FISCAL YEAR

In 1997, the Company changed its fiscal year end from December 31 to
September 30.

UNAUDITED INTERIM INFORMATION

2. CONCENTRATION OF CREDIT RISK AND SALES TO LARGEST CUSTOMERS

Sales to the Company's two largest customers were approximately $9,500,000,
or 60.6% of net sales, for the year ended December 31, 1996. Sales to the
Company's four largest customers were approximately $9,400,000, or 78.7% of net
sales, for the period January 1, 1997 through September 30, 1997.

The related accounts receivable balances were $442,545 and $538,940 as of
December 31, 1996 and September 30, 1997, respectively.

3. FINANCING ARRANGEMENTS

NOTE PAYABLE

The Company has a $1,250,000 line of credit agreement with a bank. The line
of credit matures on June 1, 1998, subject to automatic renewals thereof on an
annual basis unless a contrary notice is delivered by either party within a
prescribed period. The line of credit is secured by accounts receivable and
inventory, and is guaranteed by the Company's shareholders. The line of credit
bears interest at the New York prime rate (8.5% at September 30, 1997). At
September 30, 1997, there were available amounts of $907,626 to be borrowed
under the line of credit.

The agreement includes certain restrictive covenants with respect to, among
other matters, distributions paid to shareholders, purchase or redemption of the
Company's stock, mergers or consolidated transactions, asset dispositions, and
the incurrence of additional debt. It also includes additional financial
covenants related to the maintenance of net worth, working capital, and net
income levels along with a limitation on annual capital expenditures. At
September 30, 1997 the Company was in compliance with these covenants.

F-58
<PAGE>
SALES SYSTEMS, LIMITED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

LONG-TERM DEBT

DECEMBER 31, SEPTEMBER 30,
1996 1997
------------- --------------
Note payable to bank requiring
monthly principal payments of
$4,167 plus interest at a variable
rate (9.25% at September 30, 1997);
due January 2003, secured by
equipment, furniture and fixtures,
accounts receivable, and
inventory.......................... $ 254,167 $ 216,667
Notes payable to bank requiring
monthly payments totaling $2,462
including interest at 8.2% -- 8.5%;
maturing January 2002, secured by
equipment.......................... 71,176 53,715
Notes payable to bank requiring
monthly payments totaling $418
including interest at 7.75%;
maturing March 1999; secured by a
vehicle............................ 10,656 7,435
------------- --------------
335,999 277,817
Less current portion................. 78,823 77,850
------------- --------------
Long-term debt, net of current
portion............................ $ 257,176 $ 199,967
============= ==============

The aggregate annual principal maturities of long-term debt for each of the
next five years are as follows:

1998................................. $ 77,850
1999................................. 60,782
2000................................. 59,313
2001................................. 58,616
2002................................. 21,256
----------
$ 277,817
==========

4. LEASES AND TRANSACTIONS WITH RELATED PARTIES

The Company leases an Allentown warehouse and office facility under an
informal lease arrangement, presently requiring monthly payments of $6,631.

The Company leases a South Carolina warehouse and office facility under an
informal lease arrangement with a partnership whose partners are the
shareholders of the Company. This partnership advanced $40,000 to the Company
during 1996, which was repaid during 1997.

Rent expense for these facilities for the year ended December 31, 1996 and
the period from January 1, 1997 through September 30, 1997 was $165,500 and
$144,000, respectively.

5. PENSION PLAN

The Company has a qualified profit sharing plan covering substantially all
employees with at least one year of service. Employee 401(k) contributions are
permitted and the Company is committed to contribute $1 for each $1 of employee
contributions, up to 6% of the employee's salary. The matching contributions
were $134,772 and $95,971 for the year ended December 31, 1996 and the period
from January 1, 1997 through September 30, 1997, respectively.

There were no discretionary contributions made by the Company for the year
ended December 31, 1996 and the period from January 1, 1997 through September
30, 1997.

F-59
<PAGE>
SALES SYSTEMS, LIMITED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

6. RELATED PARTY TRANSACTIONS

The Company has 10% unsecured subordinated notes to certain officers
totaling $174,087 as of September 30, 1997. The Company also has an unsecured
note payable to an officer requiring monthly payments of $2,079, including
interest at 7% through October 1998, totaling $25,957 as of September 30, 1997.

7. SUBSEQUENT EVENT (UNAUDITED)

In December 1997, Sales Systems, Limited, and its shareholders entered into
a definitive agreement with a wholly owned subsidiary of Pentacon, Inc., which
among other things calls for the merger of the Company with the Pentacon, Inc.,
subsidiary.

In October 1997, the Company entered into an agreement whereby the Company
purchased 30 shares of common stock from two shareholders for two promissory
notes totaling $5.0 million. The purchase price was based on an offer received
by the Company to purchase all of the common stock of the Company for cash.
Payment of the promissory notes are conditioned upon the occurrence of the
above-named acquisition and resulting initial public offering and if not
completed by March 15, 1998 the notes will be void and the shares will revert
back to the original owners.

F-60

<PAGE>
================================================================================
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY
TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER
TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY
JURISDICTION IN WHICH 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 INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.

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

TABLE OF CONTENTS

PAGE
Prospectus Summary...................... 3
Risk Factors............................ 10
The Company............................. 15
Use of Proceeds......................... 17
Dividend Policy......................... 17
Capitalization.......................... 18
Dilution................................ 19
Selected Financial Data................. 20
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 22
Business................................ 35
Management.............................. 44
Certain Transactions.................... 48
Principal Stockholders.................. 52
Description of Capital Stock............ 53
Shares Eligible for Future Sale......... 56
Underwriting............................ 58
Legal Matters........................... 59
Experts................................. 59
Additional Information.................. 60
Index to Financial Statements........... F-1

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

UNTIL APRIL 3, 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS 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.

5,200,000 SHARES
PENTACON, INC.
(LOGO)
COMMON STOCK
_____________________

PROSPECTUS
_____________________

BT ALEX. BROWN
SCHRODER & CO. INC.
SANDERS MORRIS MUNDY

March 9, 1998

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