FORM 10-Q


                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

(Mark One)

|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the quarterly period ended  September 30, 1997

                                       OR

|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the transition period from ________ to ___________

Commission file number:  333-09789


                              Allstar Systems, Inc.
             (Exact name of Registrant as specified in its charter)

Delaware                                             76-0062751
(State or other jurisdiction of                      (I.R.S. Employer
incorporation or organization)                       Identification No.)

6401 Southwest Freeway
Houston, Texas  77074
(Address of principal executive offices)  (Zip code)

(713) 795-2000
(Registrant's telephone number including area code)

Not applicable (Former name, former address,  and former fiscal year, if changed
since last report)

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ____

              APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
                  PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

         Indicate by check mark whether the  registrant  has filed all documents
and reports  required  to be filed by Section 12, 13 or 15(d) of the  Securities
Exchange Act of 1934 subsequent to the  distribution of securities  under a plan
confirmed by a court. Yes ____ No ____

                   (APPLICABLE ONLY TO CORPORATE REGISTRANTS)

         Indicate the number of shares  outstanding of each of the  registrant's
classes of common stock, as of the latest practicable date.

Title                                             Outstanding

Common Stock $.01 par value                       As of September 30, 1997
per share outstanding                             4,440,125 shares

<PAGE>


Part I.  Financial Information

Item 1. Financial Statements

                     ALLSTAR SYSTEMS, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
               (In thousands, except share and par value amounts)
                                   (Unaudited)
                                                September 30,    December 31,
                                                    1997            1996
ASSETS
Current assets:
     Cash and cash equivalents
         Restricted cash                              $407             $94
                         ----------------------
         Cash                                          709             135
              ---------------------------------  ---------       ---------
              Total cash and cash equivalents        1,117             229

     Accounts receivable - trade, net               18,999          16,517
                                      ---------
     Accounts receivable - affiliates                  664             140
                                      ---------
     Inventory                                       5,005           4,862
               --------------------------------
     Deferred taxes                                    160             350
                    ---------------------------
     Deferred offering costs                           -               412
                             ------------------
     Other current asset                               253             174
                         ----------------------  ---------       ---------
              Total current assets                  26,198          22,684
                                   ------------
Property and equipment                               1,727           1,644
                      -------------------------
Other assets                                            52             392
            -----------------------------------   --------      ----------
Total                                              $27,977         $24,720
     ------------------------------------------   ========         =======

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities
     Notes payable                                  $2,954          $9,975
                   ----------------------------
     Accounts payable                                7,966           7,157
                     --------------------------
     Accrued expenses                                3,084           2,759
                     --------------------------
     Income taxes payable                             (346)            206
                         ----------------------
     Deferred service revenue                          184             296
                             ------------------  ---------       ---------
              Total current liabilities             13,842          20,393
                                       --------
     Deferred Credit - Stock warrants                  195               -
                                     ----------   ---------    -----------
Total liabilities                                   14,037          20,393
                 ------------------------------

Commitments and contingencies
Stockholders' equity:
     Preferred stock, $.01 par value, 5,000,000 shares
       authorized, no shares issued
     Common stock:
       $.01 par value, 50,000,000 shares authorized,
       2,675,000 and 4,440,125 shares issued and outstanding
       on December 31, 1996 and September 30, 1997, respectively    44     27

     Additional paid in capital                   9,973             1,479
                               -------------
     Retained earnings                            3,923             2,821
                      ----------------------   ---------       ----------
              Total stockholders' equity         13,940             4,327
                                        ----    --------       ----------
Total                                           $27,977           $24,720
     ---------------------------------------   ========          ========

                 See notes to consolidated financial statements


<PAGE>


                     ALLSTAR SYSTEMS, INC. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
               (In thousands, except share and per share amounts)
                                   (Unaudited)

                                              Three Months Ended September. 30,.

                                                           1997         1996
                                                           ----         ----

Total Revenue                                           $31,914        $29,187

Cost of sales and services                               27,777         24,669
                          --------------------------    -------         ------
Gross Profit                                              4,137          4,518
            ----------------------------------------
Selling, general and administrative expenses              3,439          3,319
                                            --------   --------       --------
Operating income                                            698          1,199
                ------------------------------------
Interest expense and other income (net)                      82            338
                                       -------------    -------        -------
Income before provision for income taxes                    616            861
                                        ------------
Provision for income taxes                                  236            362
                          --------------------------   --------       --------
Net income                                            $     380      $     499
          ------------------------------------------  =========       ========

Net income per share:
         Primary                                          $0.09          $0.19
                ------------------------------------       ====           ====
         Fully diluted                                    $0.09          $0.19
                      ------------------------------       ====           ====

Weighted average shares outstanding:
         Primary                                      4,268,664      2,675,000
                -----------------------------------   =========      =========
         Fully diluted                                4,195,991      2,675,000
                      -----------------------------   =========      =========



                                              Nine Months Ended September. 30,
                                                         1997          1996

Total Revenue                                          $90,745         $87,337

Cost of sales and services                              77,850          75,630
                          -------------------------    -------         -------
Gross Profit                                            12,895          11,707
            ---------------------------------------
Selling, general and administrative expenses            10,412           8,985
                                                      --------         -------
Operating income                                         2,483           2,722
                -----------------------------------
Interest expense and other                                 680             922
                          -------------------------   --------        --------
Income before provision for income taxes                 1,803           1,802
                                        -----------
Provision for income taxes                                 701             696
                          -------------------------   --------        --------
Net income                                             $ 1,102        $  1,106
          -----------------------------------------    =======        ========

Net income per share:
         Primary                                         $0.34           $0.41
                -----------------------------------       ====            ====
         Fully diluted                                   $0.34           $0.41
                      -----------------------------       ====            ====

Weighted average shares outstanding:
         Primary                                     3,212,059       2,675,000
                -----------------------------------  =========       =========
         Fully diluted                               3,187,569       2,675,000
                      -----------------------------  =========       =========

                 See notes to consolidated financial statements




<PAGE>


                     ALLSTAR SYSTEMS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
               (In thousands, except share and per share amounts)
                                   (Unaudited)
                                                    Nine months   Nine Months
                                                       ended         ended
                                                   September 30,  September 30,
                                                        1997         1996


Net income .............................................   $ 1,102    $ 1,106
                                                                      -------
Adjustments to reconcile net income to net cash
     provided by (used in) operating activities
     Gain of disposal of assets ........................      --          (11)
                                                                      -------
     Depreciation and amortization .....................       384        264
                                                                      -------
     Deferred taxes ....................................       190        (12)
                                                                      -------
     Deferred offering costs ...........................       412       --
                                                                      -------
Changes in assets and liabilities that provided (used) cash:
     Accounts receivable - trade, net ..................    (2,482)    (1,329)
                                                                      -------
     Accounts receivable - affiliates ..................        87         77
                                                                      -------
     Inventory .........................................      (143)    (1,580)
                                                                      -------
     Other current assets ..............................      (176)       (41)
                                                                      -------
     Accounts payable ..................................       809       (986)
                                                                      -------
     Accrued expenses ..................................       325       (901)
                                                                      -------
     Income taxes payable ..............................      (552)       404
                                                                      -------
     Deferred service revenue ..........................      (112)       (15)
                                                            -------    -------

         Net cash provided by (used in) operating
              activities ...............................      (330)    (3,024)
                                                                      -------

Cash flows from investing activities:
     Capital Expenditures ..............................      (467)      (448)
                                                                      -------
     Proceeds from sale of fixed assets ............            --         13
                                                           -------    -------

         Net cash used in investing activities: ........      (467)      (435)
                                                                      -------

Cash flows from financing activities:
     Net proceeds from sale of common stock ............     8,706       --
                                                                      -------
     Net increase (decrease) in notes payable ..........    (7,021)     3,956
--------------------------------------------------------   -------    -------

         Net cash provided by (used in) financing
              activities: ..............................     1,685      3,956
                                                                      -------

Net increase (decrease) in cash and cash
     equivalents .......................................       888        497
                                                                      -------
Cash and cash equivalents at beginning of period .......       229      1,029
                                                           -------    -------
Cash and cash equivalents at end of period .............   $ 1,117    $ 1,526
--------------------------------------------------------   =======    =======
Supplemental disclosures of cash flow information:
     Cash paid for interest ............................   $   794    $   560
                                                           =======    =======
     Cash paid for taxes ...............................   $   976    $   318
                                                           =======    =======

                 See notes to consolidated financial statements


<PAGE>


                     ALLSTAR SYSTEMS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

               (In thousands, except share and per share amounts)

1.    BASIS OF PRESENTATION

     Allstar Systems, Inc. and subsidiaries  ("Allstar"') is engaged in the sale
and service of computer and  telecommunications  hardware and software products.
Allstar's wholly owned subsidiary, Stratasoft, Inc. creates and markets software
related to the integration of computer and telephone  technologies.  In January,
1997  Allstar  formed IT  Staffing  Inc.  to  provide  temporary  and  permanent
placement  services of technical  personnel.  All operations of the business are
primarily conducted from offices located in Houston, Dallas and Austin, Texas.

     A substantial  portion of Allstar's sales and services are authorized under
arrangements with product  manufacturers and Allstar's  operations are dependent
upon  maintaining  its approved status with such  manufacturers.  As a result of
these  arrangements and arrangements  with its customers,  gross profit could be
limited by the  availability  of products  or  allowance  for volume  discounts.
Furthermore,  net income  before  income  taxes  could be affected by changes in
interest rates which underlie the credit arrangements which are used for working
capital.

     The  condensed   consolidated  financial  statements  presented  herein  at
September  30,  1997  and for  the  three-month  and  nine-month  periods  ended
September 30, 1996 and 1997 are unaudited;  however,  all adjustments which are,
in the opinion of management, necessary for a fair presentation of the financial
position, results of operations and cash flows for the periods covered have been
made and are of a normal,  recurring nature.  Accounting measurements at interim
dates  inherently  involve  greater  reliance on estimates than at year end. The
results of the interim periods are not necessarily indicative of results for the
full year. The  consolidated  balance sheet at December 31, 1996 is derived from
audited  consolidated  financial statements but does not include all disclosures
required  by  generally  accepted  accounting  principles.  Although  management
believes the  disclosures  are adequate,  certain  information  and  disclosures
normally included in the notes to the financial statements has been condensed or
omitted as permitted by the rules and regulations of the Securities and Exchange
Commission.

     Accounting  Pronouncements  - In October  1995,  the  Financial  Accounting
Standards Board ("FASB") issued Statement of Financial  Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("SFAS No. 123") which determines
compensation cost using the fair value method of accounting. Allstar has elected
to continue to follow  Accounting  Principles Board Opinion No. 25,  "Accounting
for Stock Issued to Employees,"  which  determines  compensation  cost using the
intrinsic value based method of accounting.  At December 31, 1996 Allstar had no
stock  options or similar  equity  instruments  outstanding.  During the quarter
ended  September 30, 1997,  Allstar  issued stock options and  restricted  stock
under certain  incentive stock plans (see Note 3). The impact of SFAS No. 123 on
proforma earnings per share was not significant.

In February  1997, the Financial  Accounting  Standards  Board  ("FASB")  issued
Statement of Financial  Accounting  Standards No. 128, Earnings Per Share ("SFAS
128"), which is effective for periods ending after December 15, 1997,  specifies
the computation,  presentation and disclosure requirements of earnings per share
("EPS") and  supersedes  Accounting  Principles  Board  Opinion No. 15 ("APB No.
15"). SFAS 128 requires a dual presentation of basic and diluted EPS. Basic EPS,
which  excludes the impact of common stock  equivalents,  replaces  primary EPS.
Diluted EPS, which utilizes the average market price per share as opposed to the
greater of the average  market price per share or ending  market price per share
when applying the treasury stock method in determining common stock equivalents,
replaces  fully diluted EPS. Pro forma basic and diluted EPS for all  historical
periods presented,  assuming SFAS No. 128 was effective at the beginning of each
such historical period, would not be materially different than the presentations
using APB No. 15.

In September 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income,
and SFAS No.  131,  Disclosures  About  Segments  of an  Enterprise  and Related
Information.  SFAS No. 130 establishes standards for reporting and displaying of
comprehensive income and its components.  SFAS No. 131 establishes standards for
the way that public  business  enterprises  report  information  about operating
segments and related  information  in interim and annual  financial  statements.
SFAS No. 130 and 131 are  effective  for periods  beginning  after  December 15,
1997.  These three  statements  will not have any effect on the  Company's  1997
financial statements,  however, management is evaluating what, if any additional
disclosures may be required when these three statements are implemented.

2.   OPERATING LEASES

     Operating Leases - Allstar  subleases  office space from Allstar  Equities,
Inc.  ("Equities"),  a company  wholly  owned by the  principal  stockholder  of
Allstar.  In 1996,  Allstar  renewed its office  sublease  with  monthly  rental
payments  of  $31.5 in 1997 and $32 in 1998,  plus  certain  operating  expenses
through  December  1998.  Rental  expense  under  this  agreement   amounted  to
approximately  $93 and $95 during the three months ended  September 30, 1996 and
1997, respectively.

     In August,  1997 Allstar  leased  certain  facilities in Austin,  Texas and
extended it lease in Dallas,  Texas for monthly  rental  payments of $2 and $10,
respectively.  Under these and other operating leases, minimum annual rentals at
September 30, 1997 on other operating  leases amount to  approximately  $144 for
1997, $114 in 1998, $32 in 1999 and $8 in 2000.

3.    INCENTIVE STOCK PLANS

     In  September  1996  Allstar  adopted  the 1996  Incentive  Stock Plan (the
"Incentive  Plan") and the 1996  Non-Employee  Director  Stock  Option Plan (the
"Director Plan"). Under the Incentive Plan, Allstar's Compensation Committee may
grant up to  417,500  shares of common  stock,  which  have  been  reserved  for
issuance,  to certain key employees of Allstar.  The Incentive Plan provides for
the granting of incentive awards in the form of stock options, restricted stock,
phantom stock,  stock bonuses and cash bonuses in accordance with the provisions
of the plan. Additionally,  no shares may be granted after the tenth anniversary
of the Incentive Plan's adoption.  Allstar has reserved for issuance,  under the
Director Plan, 100,000 shares of common stock,  subject to certain  antidilution
adjustments.  The Director Plan provides for a one-time  option by newly elected
directors to purchase up to 5,000 common  shares,  after which each  director is
entitled to receive an option to purchase  up to 2,000  common  shares upon each
date of re-election to Allstar's  Board of Directors.  Options granted under the
Director Plan have an exercise  price equal to the fair market value on the date
of grant and  generally  expire ten years after the grant date.  As of September
30, 1997 incentive stock options totaling 80, 000 shares have been issued to key
employees.  The exercise  price of all of the stock  option  grants is $6.00 per
share and the stock  option  grants will vest  ratably over the five year period
ending July 7, 2002. In addition,  an incentive  award in the form of restricted
stock was granted for 14,286  shares  which will vest  ratably over the two year
period ending July 7, 1999.

4.    INITIAL PUBLIC OFFERING

     On July 7, 1997 Allstar  completed an initial public  offering of 1,765,125
shares of  Allstar's  common  stock and  received  proceeds  of  $8,706,  net of
expenses.

     In connection  with a public  offering of the Company's  common stock,  the
Company has sold to the Representatives of the underwriters warrants to purchase
176,750  shares of the Company's  common stock at an exercise price of $9.60 per
share.  The warrants will be exercisable  for the period  beginning July 7, 1998
until July 7, 2002.  The warrants  were issued as  additional  compensation  for
their services in connection with the sale of the company's common stock.  Using
the  Black-Scholes  pricing model,  the Company has valued the warrants at $195.
The value of the warrants has been treated as  underwriting  costs in connection
with the offering and charged  against paid in capital..  A deferred  credit has
been  established to offset the charge to paid in capital.  Upon the exercise or
expiration of the warrants the deferred credit will be added to paid in capital.

5.   LITIGATION

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

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

6.   RELATED-PARTY TRANSACTIONS

Allstar  has from time to time made  payments  on  behalf  of  Equities  and the
Company's principal  stockholders for taxes,  property and equipment.  Effective
July 1, 1996,  Allstar and its principal  stockholder  entered into a promissory
note to repay certain advances,  which were  approximately $173 at July 1, 1996,
in equal annual installments of principal and interest, from August 1997 through
2001.  This note bears  interest at 9% per year.  Also  effective  July 1, 1996,
Allstar and Equities entered into a promissory note whereby Equities would repay
the balance of amounts advanced,  which were approximately $387 at July 1, 1996,
in monthly  installments  of $6.5,  including  interest,  from July 1996 through
November  1998 with a final  payment of $275 due on December 1, 1998.  This note
bears interest at 9% per year. The principal amounts as of December 31, 1996 are
classified  as Accounts  receivable -  affiliates  and Other assets based on the
repayment terms of the promissory  notes. The principal  amounts as of September
30,  1997 are  classified  as  Accounts  receivable  -  affiliates  based on the
expectation of repayment within one year. At December 31, 1996 and September 30,
1997, Allstar  receivables from these affiliates  amounted to approximately $501
and $535, respectively.


Item 2.  Management's  Discussion and Analysis of Financial  Condition
         and Results of Operation

                              ALLSTAR SYSTEMS. INC.
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

       The  following  discussion is qualified in its entirety by, and should be
read in  conjunction  with,  the Company's  Consolidated  Financial  Statements,
including the Notes thereto.

OVERVIEW

       The Company is engaged in the business of reselling computer hardware and
software  products and  providing  related  services.  In addition,  the Company
derives  revenue from  providing IT Services to purchasers of Computer  Products
and other customers. The Company operates Computer Products and IT Services from
offices in  Houston,  Austin and  Dallas,  Texas.  In 1994,  the  Company  began
offering Telecom Systems in its Houston office and during the quarter ended June
30, 1997 commenced  offering Telecom Systems in its Dallas office. In the fourth
quarter of 1995, the Company acquired and began marketing CTI Software. To date,
most of its revenue has been derived from Computer  Products  sales.  During the
quarter ended September 30, 1997,  Computer  Products  totaled 87.0% of revenues
while IT Services,  Telecom Systems and CTI Software totaled 8.5%, 2.5% and 2.0%
of revenues, respectively.

         The  Company's  Computer  Products  division  sells a wide  variety  of
computer  hardware and software  products  available from over 600 manufacturers
and suppliers.  The Company's  products  include  desktop and laptop  computers,
monitors,   printers  and  other  peripheral   devices,   operating  system  and
application  software,  network  products and mid-range host and server systems.
The  Company is an  authorized  reseller  of  products  from a number of leading
manufacturers of computer hardware, software and networking equipment.

         Generally,  Computer Products sales are made on a purchase order basis,
with few  on-going  commitments  to  purchase  from its  customers.  On  certain
occasions,  large "roll-out" orders are received with delivery  scheduled over a
longer term,  such as six to nine months,  while normal  orders are received and
delivered  to the  customers  usually  within  approximately  thirty days of the
receipt of the order. Because of this pattern of sales and delivery, the Company
normally does not have a significant backlog of computer product sales.

         IT Services are provided by the Company  both in  conjunction  with and
separately from its Computer Products sales. The Company typically prices its IT
Services on a time and  materials  basis or under  fixed fee service  contracts,
depending on customer  preference and the level of service commitment  required.
In  markets  where  the  Company  does not  maintain  branch  offices,  it often
subcontracts for necessary technical personnel,  particularly where required for
larger scope or prolonged duration contracts.  The Company's IT Services include
information systems support,  authorized  warranty service,  hardware repair and
maintenance  services,  complex network  diagnostic  services,  end user support
services  and software  diagnostic  services.  The Company also offers  complete
outsourcing  of a  customer's  computer  and network  management  and  technical
support needs on a contract basis. In addition,  the Company provides  temporary
and permanent staffing services.

         To support and maintain  the quality of these  services and to maintain
vendor  accreditation  necessary to resell and service its  significant  product
lines, the Company's  technical staff  participate in various  certification and
authorization   programs  sponsored  by  hardware   manufacturers  and  software
suppliers.  The Company's  ability to attract and retain qualified  professional
and technical  personnel is critical to the success of its IT Services business.
The most  significant  portion of the costs  associated  with the delivery of IT
Services are of  personnel  costs.  Therefore,  in order to be  successful,  the
Company's billable rates must be in excess of the personnel costs and its margin
is dependent upon  maintaining  high  utilization of its service  personnel.  In
addition,  the competition for high quality personnel has generally  intensified
causing the Company's, along with other IT Service providers, personnel costs to
increase. The Company's costs of goods and services includes the personnel costs
of its billable technical staff.

         While the Company has service contracts with its larger customers, many
of these  contracts  are project based or are  terminable  on  relatively  short
notice.

         Through the Telecom Systems division, the Company markets, installs and
services  business  telephone  systems,  including large PBX systems and smaller
"key systems"',  along with a variety of related products including hardware and
software  products for data and voice  integration,  wide area  connectivity and
telephone system networking, wireless communications and video conferencing.

         The  Company  develops  and markets  proprietary  CTI  Software,  which
integrates business telephone systems and networked computer systems,  under the
trade name  "Stratasoft."'  Basic products  offered by the Company are typically
customized  to suit a  customer's  particular  needs and are often  bundled with
computer hardware supplied by the Company at the customer's request.  Stratasoft
products  include  software  for  call  center  management,  both  in-bound  and
out-bound, as well as interactive voice response software.

         The Company  believes  that each of its four  separate  businesses  are
complementary  to each other and allow the  Company to offer a broader  range of
integrated products and services in order to satisfy its customers'  information
and  communication  technology  requirements  than many of its competitors.  The
Company's  strategy  is to  maintain  and  expand  its  relationships  with  its
customers by satisfying a greater portion of these requirements.

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

         The Company's  overall gross margin has ranged  between 12.3% and 13.3%
for the three year period ended  December 31, 1996.  During any period,  overall
gross margin may vary  significantly  because of the mix of the various products
and services revenues realized by the Company during any such period.  While the
Company  endeavors to  strengthen  its computer  products  sales on a continuing
basis,  the  Company is  endeavoring  to grow its  higher  margin  products  and
services at a higher rate than Computer Products thereby  increasing its overall
gross margins.

       Manufacturers of many of the computer products resold by the Company have
consistently  reduced unit prices near the end of a product's  life cycle,  most
frequently  following the introduction of newer, more advanced models. While the
major  manufacturers  of  computer  products  have a policy of  providing  price
protection to resellers when prices are reduced,  on occasion,  and particularly
during  1994,  manufacturers  introduced  new models of their  products and then
reduced  the  price  of,  or  discontinued,   the  older  models  without  price
protection.  In these  instances,  the Company  often sells the older  models at
reduced prices, which adversely affects gross margin.

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

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

       The Company  manages  its  inventory  in order to minimize  the amount of
inventory held for resale and the risk of inventory  obsolescence  and decreases
in market value. The Company attempts to maintain a level of inventory  required
to reach  only its near  term  delivery  requirements  by  relying  on the ready
availability  of products from its  principal  suppliers.  Manufacturers  of the
Company's major products  generally provide price protection,  which reduces the
Company's exposure to decreases in prices. In addition,  its suppliers generally
allow for  returns of excess  inventory,  which,  on a limited  basis,  are made
without material restocking fees.

       This Form 10-Q contains forward looking statements that involve risks and
uncertainties.  The Company's actual results may differ  significantly  from the
results  discussed  in the forward  looking  statements.  Such  forward  looking
statements include risks and uncertainties.  Such risks and uncertainties,  many
of which are not within the control of the Company, may cause the actual results
to  differ  materially  from  the  results  discussed  in  the  forward  looking
statements,  including, but not limited to, the Company's ability to execute and
implement its plans and strategies  and /or control the economic  environment in
which the Company it operates.


       The  following  table sets  forth,  for the  periods  indicated,  certain
financial data derived from the Company's consolidated  statements of operations
and indicates the percentage of total revenue for each item.

<TABLE>
<CAPTION>

                                    Three months ended September 30,            Nine months ended September 30,
                                      1997                  1996                    1997                 1996
                                     Amount     %     Amount     %      Amount     %      Amount    %
                                     ------    ---    ------    ---     ------    ---     ------   ---
<S>     <C>    <C>    <C>    <C>    <C>    <C>    <C>    <C>

Revenue(1)
   Computer Products.......         $27,767          $25,589    87.7   $78,620    86.6    $78,115 889.4
   IT Services.............           2,696    8.5     2,022     6.9     7,413     8.2      5,740   6.6
   Telecom systems.........             801    2.5     1,113     3.8     3,038     3.4      2,511   2.9
   CTI Software............             650    2.0       463     1.6     1,674     1.8        971   1.1
     Total revenue.........          31,914  100.0    29,187   100.0    90,745   100.0     87,337 100.0

Gross Profit
   Computer Products.......           2,879   10.4     3,447    13.5     8,602    10.9      8,674  11.1
   IT Services.............             843   31.3       450    22.3     2,725    36.8      1,592  27.7
   Telecom Systems.........             183   22.8       416    37.3       820    27.0        969  38.6
   CTI Software............             232   35.7       205    44.3       748    44.7        472  48.6
     Total Gross Profit....           4,137   13.0     4,518    15.5    12,895    14.2     11,707  13.4

Selling, general and
   administrative expense..           3,439   10.8     3,319    11.4    10,412    11.5      8,985  10.3
Operating income...........             698    2.2     1,199     4.1     2,483     2.7      2,722   3.1
Interest expense (net of
   other income)...........              82    0.3       338     1.2       680     0.7        920   1.1
Income before provision
   for income taxes........             616    1.9       861     2.9     1,803     2.0      1,802   2.1
Provision (benefit) for
   income taxes............             237    0.7       362     1.2       701     0.8        696   0.8
Net Income.................         $   380    1.2   $   499     1.7 $   1,102     1.2    $ 1,106   1.3

Earnings per share.........           $0.09            $0.19             $0.34              $0.41
                                       ====             ====              ====               ====

Weighted average shares
   outstanding.............       4,268,664        2,675,000         3,212,059          2,675,000
                                  =========        =========         =========          =========
</TABLE>

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

Three Months Ended September 30, 1997 Compared To Three Months
Ended September 30, 1996

       TOTAL  REVENUE.  All of the  Company's  business  units,  except  Telecom
Systems,  increased  revenues  over the prior year's  comparable  period.  Total
revenue  increased by $2.7 million (9.3%) from $29.2 million in 1996 compared to
$31.9 million in 1997.  Revenue from Computer Products increased by $2.2 million
(8.5%)  from  $25.6  million  in 1996 to $27.8  million  in 1997.  Revenue  from
Computer  Products as a percentage of total revenue decreased 0.7% from 87.7% in
1996 to 87.0% in 1997.  Revenue from IT Services increased $674,000 (33.3%) from
$2.0 million in 1996 to $2.7 million in 1997 because of the continued  expansion
of its  billable  technical  staff,  together  with an emphasis on higher  level
service  offerings  to the  Company's  customers.  Revenue from IT Services as a
percentage  of  total  revenue  increased  from  6.9% in  1996 to 8.5% of  total
revenues in 1997.  Revenue from Telecom  Systems  decreased by $312,000  (28.0%)
from $1.1 million in 1996 to $801,000 in 1997.  The decrease in Telecom  Systems
revenue was primarily the result of the Company's inability to obtain orders for
system  installations  from new  customers  together  with  construction  delays
associated with the  installation of two systems.  These systems are expected to
be  installed in the  succeeding  quarter.  Revenue  from  Telecom  Systems as a
percentage of total  revenue  decreased  from 3.8% in 1996 to 2.5% in 1997.  CTI
Software revenue increased by $187,000 (40.4%) from $463,000 in 1996 to $650,000
in 1997.  The growth in CTI  Software  revenues was  primarily  due to increased
marketing efforts which resulted in the addition of new customers.  Revenue from
CTI Software,  as a percentage of total revenue,  increased from 1.6% in 1996 to
2.0% in 1997.

       GROSS PROFIT. Gross profit decreased by $381,000 (8.4%) from $4.5 million
in 1996 to $4.1 million in 1997 and gross margin decreased from 15.5% in 1996 to
13.0% in 1997.  The gross margin for Computer  Products  decreased from 13.5% in
1996 to 10.4% in 1997,  which was  primarily  the result of lower unit prices on
the products  sold,  intensified  competition  and higher freight costs due to a
work stoppage affecting one of the Company's freight carriers.  The gross profit
from IT  Services  increased  87.3% from  $450,000  in 1996 to $842,000 in 1997.
Gross margin  increased  from 22.3% in 1996 to 31.3% in 1997.  This  increase in
gross margin was primarily attributable to the replacement of less profitable IT
Services  business  with  more  profitable  business  from new and  existing  IT
Services  customers.  Additionally,  the prices  being  charged for services are
generally  higher in the 1997  period  compared to the 1996  period,  due to the
relative  scarcity  of  qualified  technical  staff  in the  computing  services
industry.  In 1996 the  Company  commenced  the  implementation  of a program to
replace less profitable hardware  maintenance and repair services with a variety
of services that were expected to generate  higher gross  margins.  This program
resulted in the elimination of certain IT Services customer  relationships which
had been  producing  lower than  average  gross  margin.  The loss of this lower
margin  revenue was offset by revenues  from new IT Services  customers and from
existing customers at higher gross margins. The gross margin for Telecom Systems
sales decreased from 37.3% in 1996 to 22.8% in 1997, reflecting the commencement
of Telecom  Systems  operations in the Company's  Dallas  office,  lower product
margins and higher  installation costs than are normally  incurred.  The Company
treats its costs  associated  with its  technical  staff as parts of the cost of
sales. Due to the relatively  fixed nature of technical staff costs,  when lower
revenues are  realized,  cost of sales,  expressed as a percentage  of revenues,
increases  proportionately.  The gross  margin for CTI Software  decreased  from
44.3%  in 1996 to 35.7% in the  1997  due to  higher  installation  costs on its
products.

       SELLING,  GENERAL  AND  ADMINISTRATIVE  EXPENSES .  Selling,  general and
administrative  expenses  increased by $120,000 (3.6%) from $3.3 million in 1996
to $3.4 million in 1997. As a percentage of total revenue,  selling, general and
administrative  expenses decreased from 11.4% in 1996 to 10.8% in 1997. While no
single  component  of selling,  general and  administrative  expenses  increased
significantly,  as a percentage of revenues,  commission  expense decreased from
3.0% of revenues in the 1996 period to 2.7% of revenues in the 1997 period. This
decrease was the result of the lower gross profits and gross margins realized by
the Company in the 1997 period..

       OPERATING  INCOME.  Operating  income  decreased by $501,000 (41.8%) from
$1.2 million in 1996 to $698,000 in 1997 due to lower gross profits and slightly
higher selling, general and administrative expenses.  Operating income decreased
as a percentage of total revenue from 4.1% in 1996 to 2.2% in 1997.

       INTEREST  EXPENSE (NET OF OTHER INCOME).  Interest  expense (net of other
income) decreased  $256,000 from $338,000 during 1996 period compared to $82,000
in the 1997 period.  This reflects the repayment of a substantial portion of the
Company's short-term debt during the 1997 period. The repayment was accomplished
by  applying  all of the net  proceeds  from  the  sale of  common  stock to the
repayment of the Company's debt.

       NET INCOME.  Net  income,  after a provision  for income  taxes  totaling
$236,000 (reflecting an effective tax rate of 38.3% in 1997 compared to 42.0% in
1996), decreased by $119,000 from $499,000 in 1996 to $380,000 in 1997.



<PAGE>


Nine Months Ended  September 30, 1997 Compared To The Nine Months
Ended September 30, 1996

       TOTAL REVENUE.  Total revenue increased by $3.4 million (3.9%) from $87.3
million in the nine months ended September 30, 1996 to $90.7 million in the 1997
period. Revenue from Computer Products,  which comprised 86.6% of total revenue,
increased by $505,000 (0.6%).  Revenue from Computer Products as a percentage of
total revenue  decreased 2.8% from 89.4% in 1996 to 86.6% in 1997.  Revenue from
IT Services  increased by $1.7 million (29.1%) from $5.7 million in 1996 to $7.4
million in 1997  because  of the  Company's  implementation  of a program at the
beginning of 1996 to replace less  profitable  hardware  maintenance  and repair
services  with a variety of  services  that were  expected  to  generate  higher
revenues.  This  program  resulted  in the  elimination  of certain IT  Services
customer relationships which had been producing lower than average gross margin.
The loss of this lower margin revenue has been offset,  however, by sales to new
IT Services customers and to existing customers in the 1997 period, generally at
higher  gross  margins than those  earned on sales to the former  customers.  IT
Services  revenues also increased because of the expansion of its sale force and
billable  technical  staff,  together  with an emphasis on higher level  service
offerings to the Company's  customers.  Revenue from IT Services as a percentage
of total  revenue  increased  from  6.6% in 1996 to 8.2% in 1997.  Revenue  from
Telecom  Systems  increased  by $527,000  (21.0%)  from $2.5 million in the nine
months ended September 30, 1996 to $3.0 million in the 1997 period. The increase
in Telecom Systems revenue was primarily the result of hiring  additional  sales
personnel and expanding marketing efforts, which resulted in the addition of new
customers.  Revenue  from  Telecom  Systems  as a  percentage  of total  revenue
increased from 2.9% in the 1996 period to 3.4% in the 1997 period.  CTI Software
revenue  increased by $703,000  (72.4%)  from  $971,000 in the nine months ended
September  30,  1996 to $1.7  million  in the 1997  period.  The  growth  in CTI
Software  revenues  was  primarily  due to  increased  marketing  efforts  which
resulted in the  addition of new  customers.  Revenue  from CTI  Software,  as a
percentage of total revenue,  increased from 1.1% in the 1996 period to 1.8 % in
the 1997 period.

       GROSS PROFIT.  Gross profit  increased by $1.2 million (10.1%) from $11.7
million in the nine months ended September 30, 1996 to $12.9 million in the nine
months ended September 30, 1997,  while gross margin increased from 13.4% in the
1996 period to 14.2% in the 1997 period.  The gross margin for Computer Products
decreased from 11.1% in the nine months ended September 30, 1996 to 10.9% in the
1997 period, which was primarily a result of lower prices and profit margins due
to competitive  factors and higher freight costs.  Gross profit from IT Services
increased  $1.1  million  (71.2%)  from $1.6  million in the 1996 period to $2.7
million in the 1997  period.  The gross margin from IT Services  increased  from
27.7% in the nine  months  ended  September  30,  1996 to 36.8%  during the 1997
period.  As  noted  above,  this  increase  was  primarily  attributable  to the
replacement  of less  profitable  IT  Services  business  with  more  profitable
business from new and existing IT Services customers.  Gross profit from Telecom
Systems decreased by $149,000 (15.4%) from $969,000 in 1996 to $820,000 in 1997.
The gross  margin for Telecom  Systems  sales  decreased  from 38.6% in the 1996
period to 27.0% in the 1997  period,  reflecting  the  commencement  of  Telecom
Systems  operations in the Company's  Dallas office,  lower product  margins and
higher  installation  costs than are  normally  incurred.  Gross profit from CTI
Software  increased  $276,000 (58.5%) from $472,000 in 1996 to $748,000 in 1997.
The gross margin for CTI Software  decreased from 48.6% in the nine months ended
September 30, 1996 to 44.7% in the 1997 period,  which was primarily a result of
increased  spending on technical staff related to new product  installation  and
development.

       SELLING,  GENERAL  AND  ADMINISTRATIVE  EXPENSES.  Selling,  general  and
administrative  expenses  increased by $1.4 million (15.9%) from $9.0 million in
the nine months ended September 30, 1996 to $10.4 million in the 1997 period. As
a percentage of total  revenue,  selling,  general and  administrative  expenses
increased  from  10.3% in the 1996  period  to  11.5%  in the 1997  period.  The
increase as a percentage of total revenue resulted  primarily from the hiring of
new employees in sales support functions,  as well as additional personnel hired
for IT Services administration and other general administration functions.

       OPERATING  INCOME.  Operating  income  decreased by $239,000 ( 8.8%) from
$2.7 million in the nine months ended  September 30, 1996 to $2.5 million in the
1997 period.  Operating  income  decreased as a percentage of total revenue from
3.1% in the 1996 period to 2.7% in the 1997 period.

       INTEREST  EXPENSE (NET OF OTHER INCOME).  Interest  expense (net of other
income)  decreased from $920,000 during the nine months ended September 30, 1996
to  $680,000  during  the  1997  period..  This  reflects  the  repayment  of  a
substantial portion of the Company's short-term debt during the 1997 period. The
repayment was  accomplished by applying all of the net proceeds from the sale of
common stock to the repayment of the Company's debt.

       NET INCOME.  Net  income,  after a provision  for income  taxes  totaling
$701,000  (reflecting  an effective  tax rate of 38.9%  compared to 38.6% in the
1996  period),  decreased by $4,000  (0.4%) from  $1,106,000  in the nine months
ended September 30, 1996 to $1,102,000 in the 1997 period.  Net income decreased
as a  percentage  of  revenues  from 1.3% in the 1996 period to 1.2% in the 1997
period.

Liquidity And Capital Resources

       The  Company's  working  capital was $2.3  million  and $12.4  million at
December 31, 1996 and  September  30, 1997,  respectively.  As of September  30,
1997, the Company had borrowing  capacity under the Company's credit facility of
$7.4 million.

Cash Flow

       Operating  activities  used net cash  totaling  $331,000  during the nine
months ended September 30, 1997.  Operating  activities used net cash during the
nine months ended  September  30, 1997  because the  increase in trade  accounts
receivable was not offset by net income and depreciation,  increases in accounts
payables.

       Investing  activities used cash totaling  $468,000 during the nine months
ended  September 30, 1997.  The Company's  investing  activities  that used cash
during this period was  primarily  related to capital  expenditures.  During the
next twelve months,  the Company expects to incur an estimated  $700,000 million
for capital  expenditures,  a majority  of which is expected to be incurred  for
leasehold  improvements  and other capital  expenditures  in connection with the
planned  consolidation of its warehouse facilities into a single facility in the
Dallas-Fort  Worth area,  the  relocation  of its Dallas  branch  office and the
opening of a branch office in San Antonio,  Texas.  The actual amount and timing
of such capital expenditures may vary substantially  depending upon, among other
things, the actual facilities  selected,  the level of expenditures  required to
render the facilities suitable for the Company's purposes and the terms of lease
arrangements pertaining to the facilities.

       Financing  activities provided cash totaling $1.7 million during the nine
months ended September 30, 1997. During the quarter ended September 30, 1997 the
Company  completed  the sale of 1,765,125  common  shares which  resulted in the
receipt  of net  proceeds  of $8.7  million,  all of  which  was  used to  repay
short-term debt.

Asset Management

       The Company had trade accounts receivable,  net of allowance for doubtful
accounts,  of $19.0  million at September  30,  1997.  The number of days' sales
outstanding in trade accounts receivable was 52 days, which is equal to the days
outstanding of the prior quarter but reflecting slower than normal
 payment by the Company's  customers during the three months ended September 30,
1997.  Bad debt  expense as a percentage  of total  revenue for the three months
ended September 30, 1997 was 0.3%, which was slightly less than bad debt expense
for the three months ended  September  30, 1996.  The  Company's  allowance  for
doubtful  accounts,  as a percentage of trade accounts  receivable,  was 1.3% at
December 31, 1996,  and 1.1% at September 30, 1997.  Inventory  turnover for the
three months and nine months ended  September 30, 1997 was 19.7 times,  and 19.4
times, respectively.






<PAGE>


Current Debt Obligations

       Historically, the Company has satisfied its cash requirements principally
through borrowings under its lines of credit and through operations. The Company
maintains a cash position sufficient to pay only its immediately due obligations
and expenses. When the amount of cash available falls below its immediate needs,
the Company  requests  advances under a credit  facility  provided by IBM Credit
Corporation ("IBMCC Facility")

       The total credit  available  under the IBMCC Facility is currently  $20.0
million, subject to borrowing base limitations which are generally computed as a
percentage of various  classes of eligible  accounts  receivable  and qualifying
inventory.  Borrowings  are  available  under the IBMCC  Facility for floor plan
financing of inventory  from approved  manufacturers  (the  "Inventory  Line"').
Available  credit under the IBMCC Facility,  net of Inventory Line advances,  is
used by the Company primarily to carry accounts receivable and for other working
capital and general corporate  purposes (the "Accounts Line").  Borrowings under
the  Accounts  Line bear  interest at the  fluctuating  prime rate plus 2.0% per
annum (10.5% at September 30, 1997).  Under the Inventory  Line,  IBMCC pays the
Company's  inventory  vendors  directly,  generally in exchange  for  negotiated
financial incentives. Typically, the financial incentives received are such that
IBMCC does not charge interest to the Company until  approximately 30 days after
the transaction is financed, at which time the Company is required to either pay
the full invoice amount of the inventory  purchased  from corporate  funds or to
borrow  under the  Accounts  Line for the  amount due to IBMCC.  Inventory  Line
advances not paid within 30 days after the  financing  date bear interest at the
fluctuating prime rate plus 6.0%. IBMCC is permitted to fix a minimum prime rate
for the IBMCC  Facility of not less than the average prime rate in effect at the
time the minimum  prime rate is set but has not done so. IBMCC is  authorized to
change,  on 30  days  notice,  the  computation  of the  borrowing  base  and to
disqualify  accounts  receivable  upon which advances have been made and require
repayment  of such  advances  to the  extent  such  disqualifications  cause the
Company's  borrowings to exceed the reduced  borrowing  base. The IBMCC Facility
renews  for  successive  periods of 13 months  unless  either  party  chooses to
terminate the arrangement on 60 days notice.

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

       At September 30, 1997,  the total  indebtedness  of the Company under the
IBMCC Facility was $7.7 million of which $3.0 million was outstanding  under the
Accounts Line and $4.7 million was  outstanding  under the Inventory  Line.  The
Company's  remaining  available  credit  at  September  30,  1997,  based on its
borrowing base was approximately $7.4 million.

       The Company has a $3.0 million  credit  facility with Deutsche  Financial
Services  (the "DFS  Facility")  for the  purchase  of  inventory  from  certain
suppliers.  As in the case of the IBMCC Inventory  Line,  advances under the DFS
Facility are typically  interest  free for 30 days after the financing  date for
transactions in which adequate financial incentives are received by DFS from the
vendor.  Within 30 days after the financing  date,  the full invoice  amount for
inventory  financed  through DFS is required to be paid by the Company.  Amounts
remaining  outstanding  thereafter bear interest at the  fluctuating  prime rate
(but not less than 6.5%)  plus 6.0%.  DFS  retains a  security  interest  in the
inventory financed.  The DFS Facility is immediately  terminable by either party
by written notice to the other.  At September 30, 1997,  the amount  outstanding
under the DFS Facility was $1.7 million.

       Both the IBMCC  Facility  and the DFS  Facility  prohibit  the payment of
dividends,  repurchase of the Company's shares and advances to affiliates unless
consented to by the lender.

Subsequent Events

In October, 1997 the Company commenced the renegotiation of the Company's credit
facilities with its existing lenders and sought  financing  proposals from other
financing  sources.  Based upon the  proposals  the Company  has  received it is
likely that the Company will restructure its existing credit facilities on terms
more favorable to the Company than its currently existing credit facilities.

In October,  1997 the Company's Board of Directors  authorized the establishment
of the 1997 Employee  Stock  Purchase  Plan whereby the Company's  employees may
voluntarily  purchase shares of the Company's stock.  Under the Plan the Company
may issue newly issued shares or purchase shares in the open market. The Company
expects to  purchase  such  shares as may be  required  for the plan in the open
market.  The Board of Directors has,  however,  authorized the issuance of up to
100,000 shares for such purpose.



<PAGE>



                                                                     EXHIBIT 11

                              ALLSTAR SYSTEMS, INC.
      COMPUTATION OF EARNINGS PER COMMON SHARE AND COMMON SHARE EQUIVALENTS
               (In thousands of dollars, except per share amounts)

                                                      For the Three Months ended
                                                              September 30,
                                                            1997            1996
PRIMARY EARNINGS PER SHARE:
Weighted average shares of common stock outstanding      4,261,609     2,675,000

Effect of issuance of shares from exercise of stock
       options or warrants (treasury stock method)           7,055           -
                                                        ----------      --------
Weighted average shares                                  4,268,664     2,675,000
                       ------------------------          =========     =========

Net Income                                            $        380   $       499
          -------------------------------------       ============   ===========
Primary earnings per share                            $       0.09   $      0.19
                          --------------------        ============   ===========

FULLY DILUTED EARNINGS PER SHARE: (a)
Weighted average shares of common stock outstanding      4,261,609     2,675,000
                                                   -
Effect of issuance of shares from exercise of stock
       options  or warrants (treasury stock method)        (65,618)          -
                                                   -    ----------    ----------
Weighted average shares                                  4,195,991     2,675,000
                       ----------------------------      =========     =========

Net Income                                            $        380   $       499
          -----------------------------------------   ============   ===========
Fully diluted earnings per share                      $       0.09   $      0.19
                                -------------------   ============   ===========

                                                      For the Nine Months ended
                                                              September 30,
                                                            1997          1996
PRIMARY EARNINGS PER SHARE:
Weighted average shares of common stock outstanding      3,209,681     2,675,000

Effect of issuance of shares from exercise of stock
       options or warrants (treasury stock method)           3,278           -
                                                      ------------   -----------
Weighted average shares                                  3,212,059     2,675,000
                       -----------------------------     =========     =========

Net Income                                             $     1,102   $     1,106
          ------------------------------------------   ===========   ===========
Primary earnings per share                             $      0.34   $      0.41
                          --------------------------   ===========   ===========

FULLY DILUTED EARNINGS PER SHARE: (a)
Weighted average shares of common stock outstanding      3,209,681     2,675,000

Effect of issuance of shares from exercise of stock
       options  or warrants (treasury stock method)        (22,112)           -

Weighted average shares                                  3,187,569     2,675,000
                       -----------------------------     =========     =========

Net Income                                             $     1,102   $     1,106
          ------------------------------------------   ===========   ===========
Fully diluted earnings per share                      $       0.35   $      0.41
                                --------------------  ============   ===========

(a)This  calculation  is  submitted  in  accordance  with  Regulation  S-K  item
601(b)(11)  although it is contrary to  paragraphs  14, 30 and 40 of APB Opinion
No. 15 because it produces an antidilutive result for period set forth above.


<PAGE>


Part II.  Other Information

Item 1.  Legal Proceedings

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

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



<PAGE>


                                   SIGNATURES


Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned, thereunto duly authorized.

October 4, 1997                  BY:  /s/ James H. Long
Date                             James H. Long, Chief Executive Officer



October 4,1997                   BY: /s/ Donald R. Chadwick
Date                             Donald R. Chadwick, Chief Financial Officer