<PAGE>
                   U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, DC 20549

                                  FORM 10-KSB

 /X/  Annual report under Section 13 or 15(d) of the Securities Exchange Act of
      1934 For the fiscal year ended December 31, 1997
 / /  Transition report under Section 13 or 15(d) of the Securities Exchange
      Act of 1934 For the transition period from _______ to _______.

    Commission file number: 000-21959

                           APEX PC SOLUTIONS, INC.
               (Name of Small Business Issuer in Its Charter)

                 Washington                             91-1577634
     (State or Other Jurisdiction                   (I.R.S. Employer
   of Incorporation or Organization)               Identification No.)

          20031 142nd Avenue, N.E.
          Woodinville, Washington                       98072
   (Address of Principal Executive Offices)           (Zip Code)

                                425-402-9393
               (Issuer's Telephone Number, Including Area Code)

    Securities registered under Section 12(b) of the Exchange Act: None

    Securities registered under Section 12(g) of the Exchange Act: Common
Stock, no par value per share

    Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
       ---    ---

    Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB.  / /

    The registrant's revenues for fiscal 1997 were $55,390,444.

    The aggregate market value of the voting stock held by non-affiliates of
the registrant on February 27, 1998 was $286,494,698.

    The number of shares outstanding of the registrant's common stock as of
February 27, 1998 was 13,438,059.

<PAGE>

THIS ANNUAL REPORT CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE STATEMENTS CONTAINED IN THIS ANNUAL REPORT THAT ARE NOT
PURELY HISTORICAL ARE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SUCH FORWARD-LOOKING STATEMENTS
INCLUDE, WITHOUT LIMITATION, STATEMENTS RELATING TO THE APEX STRATEGY,
BUSINESS PROSPECTS AND FUTURE OPERATING RESULTS, PROSPECTS FOR INCREASING OEM
AND BRANDED SALES, COMPETITION, NEW PRODUCT INTRODUCTIONS, DEVELOPMENT OF
ADDITIONAL SUPPLIER RELATIONSHIPS, DEVELOPMENT OF RESELLER CHANNELS, FUTURE
WARRANTY POLICIES AND PRODUCT CLAIMS, ABILITY TO OBTAIN AND PROTECT
PROPRIETARY RIGHTS, CUSTOMER SUPPORT, DEVELOPMENT OF INTERNATIONAL SALES,
FUTURE RESEARCH AND DEVELOPMENT EXPENDITURES, FUTURE SALES AND MARKETING
EXPENSES, FUTURE GENERAL AND ADMINISTRATIVE EXPENSES, BACKLOG, AND FUTURE
LIQUIDITY AND CAPITAL RESOURCES. ALL SUCH FORWARD-LOOKING STATEMENTS ARE
BASED ON INFORMATION AVAILABLE TO THE COMPANY ON THE DATE HEREOF, AND THE
COMPANY ASSUMES NO OBLIGATION TO UPDATE ANY SUCH FORWARD-LOOKING STATEMENTS.
THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED
HEREIN. THE FORWARD-LOOKING STATEMENTS CONTAINED HEREIN, AND IN OTHER WRITTEN
AND ORAL FORWARD-LOOKING STATEMENTS MADE BY THE COMPANY FROM TIME TO TIME,
ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THE FORWARD-LOOKING
STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT
LIMITED TO, THOSE DISCUSSED IN "DESCRIPTION OF BUSINESS -- RISK FACTORS."

READERS SHOULD NOT PLACE UNDUE RELIANCE ON FORWARD-LOOKING STATEMENTS, WHICH
REFLECT MANAGEMENT'S VIEW ONLY AS OF THE DATE HEREOF. THE COMPANY UNDERTAKES
NO OBLIGATION TO PUBLICLY REVISE THESE FORWARD-LOOKING STATEMENTS TO REFLECT
SUBSEQUENT EVENTS OR CIRCUMSTANCES. READERS SHOULD ALSO CAREFULLY REVIEW THE
RISK FACTORS DESCRIBED IN OTHER DOCUMENTS THE COMPANY FILES FROM TIME TO TIME
WITH THE SECURITIES AND EXCHANGE COMMISSION.

                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS.

OVERVIEW

    Apex PC Solutions, Inc. ("Apex" or the "Company") designs, manufactures
and markets stand-alone switching systems and integrated server cabinet
solutions for the client/server computing market. The Company's switching
systems enable client/server network administrators to manage multiple
servers from a single keyboard, video monitor and mouse configuration (a
"console"). Designed to address space, cost, administration and maintenance
issues that organizations increasingly face when adopting client/server
architecture, the Company's sophisticated switching and integrated server
cabinet solutions enable network administrators to more efficiently manage
their organizations' complex and growing server populations.

    The Company provides "plug and play" switching systems and integrated
server cabinet solutions for many of the network administration, management
and storage problems faced by organizations using client/server architecture.
The Company's switching products, including OutLook, OutLook4 and ViewPoint,
enable network administrators to access multiple servers from one or more
centralized consoles, consolidate hardware requirements, and provide direct
hardwired connections between the switch and the attached servers which
facilitate access to servers even when the network is down. In addition, the
Company's switching systems are able to work with heterogeneous server
populations. Most of the Company's switching products utilize the Company's
patented On Screen Configuration And Reporting ("OSCAR") interface. OSCAR
allows network administrators to immediately identify and access servers
according to the administrators' own naming conventions. The Company also
offers integrated server cabinet solutions to consolidate and store
heterogeneous servers and related hardware in a single cabinet that
facilitates more efficient physical access and safer performance of hardware
maintenance tasks.

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    The Company markets and sells its products through a direct sales force
and various distribution channels. A substantial portion of the Company's
sales are concentrated among a limited number of original equipment
manufacturers that purchase the Company's switching systems on a
private-label basis ("OEMs" and "OEM customers"). Apex supplies stand-alone
switching systems to Compaq Computer Corporation ("Compaq") and
Hewlett-Packard Company ("Hewlett-Packard") under private-label arrangements
for integration into their product offerings. For 1997, 1996 and 1995, sales
to Compaq represented approximately 51%, 30% and 54%, respectively, of the
Company's net sales. In addition, for 1996, sales to Hewlett-Packard
represented approximately 15% of the Company's net sales. According to
International Data Corporation, a market research firm, Compaq and
Hewlett-Packard shipped 43.6% of all PC servers shipped worldwide in 1997.
The Company also sells its branded switching products to various
manufacturers of servers and related networking products, such as Advanced
Logic Research, Inc., Data General Corporation, Dell Computer Corporation
("Dell"), International Business Machines Corporation ("IBM") and Unisys
Corporation. These customers integrate and sell the Company's branded
switches with their own products. The Company's end-user branded sales
customers for 1997 included Comcast Corporation, Inacom Corporation,
Microsoft Corporation, Network Associates, Inc., Reuters Holdings plc, and
Starwave Corporation.

    OSCAR, OutLook, SwitchBack and ViewPoint are registered trademarks of the
Company. Apex PC Solutions, OutLook4, SunDial, EL-40LC, A-1000 and S-1000 are
trademarks of the Company. This annual report also includes trademarks of
other companies.

INDUSTRY BACKGROUND

    Information technology has become increasingly critical to the operation
of most businesses as computers are utilized to perform multiple and diverse
functions throughout organizations. The desire of many organizations to
decentralize computing power while sharing technology resources and providing
broad access to enterprise data has resulted in the widespread adoption of
distributed network computing environments using a client/server architecture
of interconnected PCs. The typical client/server installation consists of a
local area network ("LAN") with multiple centralized PCs operating as
"servers" dedicated to performing specific functions for the many "client"
PCs connected to the LAN. According to International Data Corporation,
worldwide shipments of PC servers are expected to grow 15.4% on a compounded
annual basis from 1998 to 2001, reaching approximately 3.4 million units
shipped in the year 2001.

    The proliferation of PC-based LANs and wide-area networks ("WANs") has
created significant network administration and space problems for the
organizations that rely on them. Network administrators, who may supervise up
to a thousand servers, must identify and access relevant servers to add or
delete users, to add, change or upgrade applications, to tune systems for
better performance, and to diagnose and correct network failures.
Client/server networks utilize servers that were designed to operate as
stand-alone systems, each with its own console consisting of a keyboard,
video monitor and mouse. Thus, to perform network administration and
management tasks, network administrators must deal with an unwieldy number of
consoles, whether centrally located or dispersed throughout the organization.
In addition, inadvertent access to network servers can be difficult to
prevent when there are many consoles, and, therefore, multiple access points,
available.

    As network resources become more critical to organizations, constant
availability of the network becomes increasingly important. The time that a
network is down or degraded can cause significant inconvenience, loss of
productivity and financial loss. Because diagnosis and correction of
anomalous network behavior often requires the network staff to physically
access each affected server through its own console, quick and efficient
"fault" management can be difficult, especially when there are a large number
of dispersed servers involved. In addition, when a network fails, an
administrator's ability to quickly and efficiently diagnose and correct the
problem is often hampered because the administrator is not able to access the
software tools that reside on the network and that are normally used to
manage network failures.

    In addition to these network administration and management problems, as
organizations' network computing needs increase, the number of servers,
consoles and other peripherals proliferates. Without efficient storage and
configuration, network hardware consumes substantial and often expensive
floor space, creates clutter that hampers network administration and
management, and increases the risk of physical damage to expensive hardware.
The typical individual keyboard, monitor and mouse console architecture of
servers exacerbates this space problem, as multiple consoles consume valuable
and costly space. The increased use of "heterogeneous" server configurations
using different platforms, such as Intel, Macintosh, IBM RS 6000,
Hewlett-Packard 9000, DEC Alpha and Sun Sparc, and different

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operating systems, such as Windows NT, Unix, NetWare and O/S 2, compounds the
storage and administration problems faced by network administrators.

    The advent of console switching technology has facilitated more effective
network management by giving administrators the ability to control a larger
number of servers through fewer consoles. To date, however, most console
switching solutions have been difficult to install and configure, and many
have used proprietary cabling that has made network administrators reluctant
to embrace a solution that may restrict them from expanding or using a
different solution in the future. In addition, there have been a limited
number of solutions available for those users who want to control computers
from a distance, such as those who need access to computer resources in, but
do not want to expose those expensive resources to, harsh operating
environments. The space management solutions available to network
administrators have generally consisted of racks or cabinets designed to
house only one type of server, and most have not been technically designed
for ease of access. Those with distributed, heterogeneous client/server
networks have often been left with no customized solution.

THE APEX SOLUTION

    The Company provides "plug and play" stand-alone switching systems and
integrated server cabinet solutions for many of the network administration,
management and storage problems faced by organizations with client/server
networks. By providing both console switching and cabinet systems, the
Company offers a comprehensive solution to the space and administrative
issues related to client/server networks. The Company's products allow
organizations to:

    - Access Multiple Servers From a Central Location. Apex products allow
      network administrators to manage multiple platforms from a centralized
      console, to identify and access servers from a single screen according to
      the administrator's own naming conventions, and to solve distance problems
      by providing end-to-end connections of up to 850 feet.

    - Consolidate Hardware Requirements. Apex products reduce the need for
      multiple keyboards, monitors and mice by allowing direct access to
      multiple servers from a single console, thereby facilitating more
      efficient network management and administration and reducing hardware
      costs.

    - Provide "Out-of-Band" Access to Servers. By providing direct hardwired
      connections to network servers, Apex switching systems enable network
      administrators to access each server as if they were physically present at
      that server, even when the network is down. Moreover, unlike the
      connectivity approach of many competitive products, which connect numerous
      switches to other switches in a continuous chain, the Company's switching
      products are designed so that each server has its own connection to the
      master switch in a two-tiered system. This direct linkage makes it easier
      for network administrators to isolate problems with individual servers.

    - Provide Connectivity to Virtually All Major Platforms. Apex switching
      products work in heterogeneous server environments, providing connectivity
      with Intel, Macintosh, IBM RS 6000, Hewlett-Packard 9000, DEC Alpha and
      Sun Sparc platforms.

    - Maximize Space Efficiency. Apex integrated server cabinet solutions
      consolidate servers and other hardware in a single location to facilitate
      more efficient physical access for hardware maintenance tasks. The Company
      also provides customized solutions for the storage of heterogeneous server
      populations.

THE APEX STRATEGY

    The Company's objective is to be the leading provider of hardware
solutions for the administration, management and storage challenges inherent
in the client/server network environment. To achieve this objective, the
Company is implementing the following strategies:

    - Continue Innovative Product Development. The Company believes that the
      continued, timely development of innovative products and enhancements to
      existing products is essential to maintaining its competitive position. By
      maintaining close contact with key customers who are often early-
      adopters of leading technologies, the Company seeks to develop new
      products, as well as modifications and improvements to existing products.
      Many of the Company's products are designed to accommodate future
      modifications and additional features,

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      which the Company believes facilitates the development and integration
      of modifications and features if a market need is perceived. The Company
      was recently granted a U.S. Patent on its OSCAR interface and has other
      United States and foreign patents pending.

    - Leverage OEM Experience to Increase OEM Sales. The Company intends to
      leverage its significant experience in working with OEM customers to enter
      into new relationships with other manufacturers of servers in the United
      States and in Europe. The Company believes that the architecture, quality
      and reliability of its products, together with the Company's commitment to
      customer support, are attractive to server manufacturers.

    - Increase Branded Sales. To increase its market penetration, the Company
      intends to aggressively market its branded products to end users through a
      direct sales force and through a variety of reseller channels. The Company
      believes that its comprehensive and customized solutions will appeal to
      many organizations that, because of heterogeneous server populations and
      for other reasons, have problems that are not effectively solved by
      competing switching and cabinet products. For the years ended December 31,
      1997, 1996 and 1995, sales of Apex-brand products represented
      approximately 35%, 29% and 31%, respectively, of the Company's net sales.

    - Create an International Distribution Network. The Company intends to
      create an international sales distribution network for the Company's
      branded switching products, focusing initially on the network computing
      market in Europe because of its large installed server base. The Company
      is currently shipping its switching systems to OEMs and other server
      manufacturers with facilities in Europe. The Company has recently
      established relationships with 16 international distributors in 15 foreign
      countries as part of an effort to build an international third-party
      distribution network.

PRODUCTS

    The Company provides comprehensive solutions to many of the network
administration, management and storage problems inherent in client/server
network environments by offering a family of stand-alone switching systems
together with integrated server cabinet solutions designed to store servers
efficiently.

    Switching Systems

    The Company's switching systems consolidate the control and monitoring of
multiple network servers to a centralized command center consisting of one or
more console positions. The Company's console switching products can work with
heterogeneous server populations that use different platforms, such as Intel,
Macintosh, IBM RS 6000, Hewlett-Packard 9000, DEC Alpha and Sun Sparc, and
different operating systems, such as Windows NT, Unix, NetWare and O/S 2. Most
of the Company's console switching products utilize the Company's proprietary On
Screen Configuration And Reporting ("OSCAR") interface that enables network
administrators to immediately identify and access servers according to the
administrators' own naming conventions, as opposed to predesignated numbers. On
February 24, 1998, the United States Patent and Trademark Office issued Patent
Number 5,721,842 to the Company for various aspects of its OutLook and ViewPoint
products and its OSCAR interface. See "- Proprietary Technology." The Company's
console switching products operate on an out-of-band basis, meaning there is a
direct hardwired connection between the console and the attached servers through
the switch. This direct connection enables network administrators to access
network servers and locate the problem server even when the network is down. The
Company also recently began manufacturing two new switching products designed to
provide a more efficient, cost-effective and convenient way to consolidate and
manage other peripherals, such as multimedia input/output devices, modems,
printers, touchscreens and serial mice, and recently introduced a lower-cost
console switching system.

    OutLook, introduced in September 1995, enables administrators to control
up to eight servers using a single console and, by integrating additional
OutLook switches, can be expanded to provide centralized control of up to 64
servers. OutLook offers programmable scanning to allow users to vary the
frequency and duration of monitoring individual servers. OutLook also enables
network managers to reduce inadvertent access to the system by eliminating
additional consoles. OutLook provides access to a wide range of network
elements such as servers, PBX monitors and database engines from a single
console.

    OutLook4, introduced in March 1996, includes the same features as OutLook,
except that this multi-user system allows network administrators to administer
up to 64 servers from up to four console positions.

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    ViewPoint, introduced in September 1995 to address the needs of very
large server-intensive organizations with large network administrative
staffs, includes all of the attributes of OutLook except that it enables
network administration staff to control up to 32 servers from as many as 16
console positions. Total capacity can be expanded to as many as 1024 servers
by integrating the ViewPoint switch with additional ViewPoint switches, and
Viewpoint's technology allows access to a server up to 850 feet away.
Viewpoint also supports remote diagnostics via a serial port.

    SunDial, introduced in March 1996, enables administrators to control up
to 10 Sun Sparc workstations from a single console and, by integrating
additional SunDial switches, can be expanded to provide centralized control
of up to 100 workstations. The SunDial switch maintains communications with
attached workstations and, if power is interrupted, the unit's nonvolatile
memory helps restore the system's established settings. The SunDial switch is
designed to work with the OutLook, OutLook4 and ViewPoint switches.

    SwitchBack, introduced in March 1995, consists of a local unit and a
remote unit that allow users to control the attached server from either a
primary console position or a remote console position linked by a single
cable. SwitchBack's intelligent circuits were recently enhanced to enable
100mhz transmission of high resolution video signals up to 600 feet away from
the attached servers using industry-standard UTP Category 5 cabling. The
SwitchBack system includes a lock-out feature that prevents system capture.
The SwitchBack system can be combined with the OutLook and OutLook4 switches.

    The EL-40LC, introduced in March 1998 with deliveries scheduled for April
1998, provides basic switch and scanning functions that make network
administration easy and cost-effective. The system can be efficiently
monitored with simple keystroke commands, or with buttons located on the
switch and it can provide periodic status updates on attached computers. The
EL-40LC lets users easily administer the resources of up to four computers
with a single keyboard, monitor and mouse.

    The A-1000, introduced in June 1997, is an accessory product for the
Company's switches and connects to a PC's multimedia ports, providing
switching capabilities for multimedia peripherals such as sound cards,
speakers and microphones. The A-1000 can be used as a companion to OutLook or
as a stand-alone device using a separate keypad.

    The S-1000, introduced in June 1997, is an accessory product for the
Company's switches and connects to a server's serial ports, providing
switching capabilities for devices such as modems, printers, touchscreens and
serial mice. Like the A-1000, the S-1000 can be used with OutLook or as a
stand-alone device.

    The current U.S. list prices of the Company's switching systems as of
March 30, 1998 were as set forth below. The list prices of the Company's
products have changed in the past, and the prices set forth below are likely
to change in the future.

<TABLE>
<CAPTION>
PRODUCT                                                    U.S. LIST PRICE
--------------------------------------------------------  ------------------
<S>                                                                                             <C>
OutLook (4 port)........................................  $              839
OutLook (8 port)........................................  $              995
OutLook4................................................  $            2,695
ViewPoint (depending on configuration)..................  $   13,000-$44,000
SunDial.................................................  $            1,929
SwitchBack..............................................  $              895
EL-40LC.................................................  $              495
A-1000..................................................  $              790
S-1000..................................................  $              867
</TABLE>


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    The Company's current switching products are described in the table below:

<TABLE>
<CAPTION>
PRODUCT NAME             KEY FEATURES                          BENEFITS
------------------       -------------------                   --------------------------------------------------------------
<S>                      <C>                                   <C>
OutLook                  - ports: 1 x 4 and 1 x 8              - reduces required space and hardware needs by allowing
                         - capacity: 64 servers                  one console to control up to four or eight servers per
                         - multi-platform compatibility          switch
                         - OSCAR interface                     - multiple switches can be used to support up to 64 servers
                                                               - supports major server platforms
                                                               - OSCAR interface permits easy on- screen control of switch

OutLook4                 - ports: 4 x 8                        - offers the benefits of OutLook as well as permits up to four
                         - capacity: 64 servers                  administrator consoles to control up to eight servers
                         - multi-platform compatibility
                         - OSCAR interface

ViewPoint                - ports: 16 x 32                      - in addition to benefits of OutLook and OutLook4, allows up
                         - capacity: 1024 servers                to 16 network administrator consoles to access up to 32
                         - 850 ft. extension                     servers
                         - multi-platform compatibility        - multiple ViewPoints can be used to support up to 1024 servers
                         - OSCAR interface                     - administrator consoles can be up to 850 ft. away from server

SunDial                  - ports: 1 x 10                       - enables control of large Sun Sparc workstation networks
                         - capacity: 100 servers                 using a single console
                         - OSCAR interface                     - may be combined with OutLook, OutLook4 and ViewPoint
                                                                 switches

SwitchBack               - 600 ft. extension product           - 100 mhz bandwidth transmission over industry-standard
                                                                 UTP Category 5 cabling
                                                               - allows the addition of a remote console up to 600 feet
                                                                 away
                                                               - remote lock-out feature
                                                               - may be combined with OutLook and OutLook4 switches

EL-40LC                  - ports: 1 x 4 -                      - entry-level product for small-business and  desktop
                         - capacity: 4 servers/computers         applications
                         - multi-platform compatibility        - reduces required space and hardware needs by allowing
                                                                 one console to control up to four servers/computers
                                                               - supports major server platforms

A-1000                   - accessory product for               - provides switching capabilities for sound cards, speakers
                           multimedia peripherals                and microphones

S-1000                   - accessory product for serial        - provides switching capabilities for modems, printers,
                           devices                               touchscreens and serial mice

</TABLE>

    DensePack Cabinet Solutions

    DensePack cabinets are specifically designed to house network servers and
communication equipment, improve system administration and facilitate CPU
maintenance. DensePack cabinets are typically customized to meet specific
customer needs and are pre-cabled to allow network administrators to quickly
install hardware and connect to their networks. DensePack cabinets
incorporate the Company's OutLook switching technology, as well as built-in
ventilator fans, large rear doors and optional slide-out shelves to
facilitate access to cables, connectors and servers. The DensePack Model RS
is a scaled-down version of the Company's DensePack and is designed for small
businesses and stand-alone departments. The DensePack Model RS can be used in
combination with full-sized DensePack cabinets.

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<PAGE>

SALES AND MARKETING

    The Company markets and sells its products through an internal sales
force and various distribution channels, including private-label OEM and
reseller arrangements. To date, the Company has marketed its products
primarily through advertisements in trade publications, participation in
major industry trade shows and the Company's home page on the World Wide Web.
As of December 31, 1997 the Company's sales and marketing staff consisted of
19 employees. The Company's sales personnel process written and telephonic
orders, support existing customers and respond to telephone inquiries.

    The Company currently sells various switching products to Compaq,
Hewlett-Packard and Wright Line, Inc. ("Wright Line") pursuant to
private-label arrangements. These private-label OEM customers integrate and
sell the Company's switches with their own networking products, including
network servers and integrated server cabinets. The Company devotes
significant sales and customer support resources to its OEM accounts. The
Company also sells its branded switching products to various other
manufacturers of servers and related networking products, such as Advanced
Logic Research, Data General Corporation, Dell, IBM and Unisys Corporation.
These customers integrate and sell the Company's branded switches with their
own products. The Company intends to leverage its significant experience in
working with its OEM and other server manufacturer customers to enter into
new relationships with other manufacturers of servers in the United States
and Europe. The Company believes that the architecture, quality and
reliability of its products, together with the Company's commitment to
customer support, are attractive to server manufacturers. There can be no
assurance that the Company will be successful in its attempts to gain
additional OEM or branded server manufacturers customers. See "-- Risk Factors."

    The Company has relationships with a variety of resellers, including
distributors, value-added resellers ("VARs") and systems integrators, for the
distribution and sale of Apex-brand switching and cabinet products in the
United States, Europe and elsewhere. The Company devotes resources to
educating its resellers as to the benefits of the Company's products and
training them in the proper installation and support of the Company's
products. The Company's strategy contemplates devoting additional resources
to increase these branded sales, and to that end, the Company intends to
pursue additional relationships with resellers both domestically and
internationally. The Company has focused and expects to continue to focus on
contracting with local, regional and international resellers who have the
technical capability and market presence to assist end-user customers in
developing network space management and access and control solutions to meet
their particular needs. The Company's future success will depend in part on
its ability to attract, train and motivate such resellers. There can be no
assurance that the Company will be successful in expanding its reseller
channel. The Company will be required to invest significant additional
resources in order to expand its reseller channel, and there can be no
assurance that the cost of the Company's investment in further developing
this channel will not exceed the revenues generated from such investment. The
Company provides and expects to continue providing discounts and other
special pricing arrangements to its resellers. As a result of such discounts
and other arrangements, the Company's gross margins on sales through
resellers are expected to be lower than gross margins on direct sales. The
Company's agreements with its resellers generally are nonexclusive and may be
terminated on short notice by either party without cause. The Company's
resellers are not within the control of the Company, are not obligated to
purchase products from the Company and frequently offer products of several
different manufacturers, including products competitive with the Company's
products. There can be no assurance that these resellers will not give higher
priority to the sale of such other products. A reduction in sales efforts by
the Company's resellers could lead to reduced sales by the Company and could
materially adversely affect the Company's business, financial condition and
results of operations.

    Compaq, Hewlett-Packard and, the Company believes, many other
manufacturers of servers market and sell their own branded server cabinets.
Accordingly, the Company believes it has limited opportunities to sell its
own server cabinets to new purchasers of servers. Instead, the Company
believes that sales of its server cabinets have been and will continue to be
limited primarily to end-user customers who have a need to more efficiently
configure and manage existing network systems.

    The Company's strategy with regard to international sales is to create an
international sales distribution network for the Company's branded switching
products focusing initially on the network computing market in Europe because
of its large installed server base. The Company is currently shipping
private-label switching products to OEMs with facilities in Europe and
branded switching products to other manufacturers of servers and related
networking products with facilities in Europe. The Company has recently
established relationships with 16 international distributors in 15 foreign
countries as part of an effort to build an international third-party
distribution network. To date, however, the Company's direct end-user or VAR,
integrator, and reseller channel sales into Europe have not been significant.
The Company is continuing efforts to build a third party international

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distribution network. There can be no assurance that the Company will be
successful in creating an international distribution network or successfully
market and sell its products in foreign markets. If the revenues generated by
international sales are not adequate to recover the expense of establishing,
expanding and maintaining an international distribution network, the
Company's business, financial condition and results of operations will be
materially adversely affected. In addition, as international sales become a
more significant component of the Company's net sales, the Company's business
will become more vulnerable to the risks inherent in doing business on an
international level, including difficulties in managing foreign resellers,
longer payment cycles and problems in collecting accounts receivable, the
effects of seasonal customer demand, changes in regulatory requirements,
risks relating to intellectual property rights, export restrictions, tariffs
and other trade barriers, fluctuations in currency exchange rates,
potentially adverse tax consequences and political instability. The existence
or occurrence of any one of these factors could have a material adverse
effect on the Company's business, financial condition and results of
operations. See "-- Risk Factors--Risks Relating to Development of
International Distribution Network and International Sales."

CUSTOMERS

    To date, a substantial portion of the Company's net sales have been
generated from private-label sales of switches to OEMs for integration into
their product offerings. For 1997, 1996 and 1995, sales to the Company's
private-label OEM customers represented approximately 65%, 71% and 69% of the
Company's net sales, respectively. While the Company has contracts with
certain of its existing private-label OEM customers, none of the Company's
OEM customers is obligated to purchase products from the Company except
pursuant to binding purchase orders. Consequently, any OEM customer could
cease doing business with the Company at any time. The Company also sells its
branded switching products to various other manufacturers of servers and
related networking products, who integrate and sell Apex-brand switches with
their own products. The loss or material decline in orders from certain of
the Company's current private-label OEM customers or certain of the Company's
other customers who manufacture servers and related networking products would
have a material adverse effect on the Company's business, financial condition
and results of operations. For 1997, the following is a list of the Company's
private-label OEM customers, and a representative list of branded product
customers, including both manufacturers of servers and end-users:

<TABLE>
<CAPTION>
PRIVATE-LABEL OEM CUSTOMERS       BRANDED PRODUCT CUSTOMERS
---------------------------       -------------------------
<S>                               <C>
Compaq                            Advanced Logic Research, Inc.
Hewlett-Packard                   Comcast Corporation
Wright Line                       Countrywide Credit Industries
                                  Data General Corporation
                                  Dell
                                  Digital Equipment Corporation
                                  IBM
                                  Inacom Corporation
                                  Microsoft Corporation
                                  NCR Corporation
                                  Network Associates, Inc.
                                  Pioneer-Standard Electronics, Inc.
                                  Reuters Holdings plc
                                  Starwave Corporation
                                  Unisys Corporation
</TABLE>

    For 1997, 1996 and 1995, sales to Compaq represented approximately 51%,
30% and 54%, respectively, of the Company's net sales. In addition, for 1996,
sales to Hewlett-Packard represented approximately 15% of the Company's net
sales. In March 1997, Apex was selected by Dell to provide Apex-brand
switching systems to Dell for integration into one of Dell's new server
lines. Dell is not obligated to purchase switching systems except pursuant to
binding purchase orders.

    In October 1995, the Company entered into a private-label OEM arrangement
with IBM for the production of integrated server cabinet solutions
incorporating the Company's switching products. While the products supplied
by the Company met IBM's requirements, IBM concluded that its program had not
achieved IBM's desired results and sought to terminate the program in
mid-1996 after the Company had expended significant product development and
operational resources in connection with this OEM arrangement. Although the
Company negotiated a settlement that covered its

                                       9

<PAGE>

direct costs associated with the program, the Company's branded product
development efforts were delayed as a result of the Company's commitment of
substantial product development resources to the IBM program in the third and
fourth quarters of 1995 and the first quarter of 1996. IBM accounted for
approximately 18% of the Company's net sales in 1996. IBM continues to be a
customer of the Company, and starting in the third quarter of 1997, IBM began
purchasing material quantities of the Company's branded switch products for
incorporation into IBM's new cabinet-based server products.

    The Company's private-label OEM business is subject to risks such as
contract termination, reduced or delayed orders, adoption of competing
products developed by third parties for the OEM or by the OEM's internal
development team, and change in corporate ownership, financial condition,
business direction or product mix by the OEM, any of which could have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company has experienced, and may continue to
experience, significant reductions or delays in orders from its OEM
customers, which have had and may in the future have a material adverse
effect on the Company's quarterly sales and operating results. The Company's
branded switch business with other server manufacturers is subject to similar
risks. See "--Risk Factors--Fluctuations in Operating Results;--Dependence
Upon a Limited Number of Customers" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."

BACKLOG

    The Company's backlog was $7.9 million, $9.2 million and $6.0 million at
December 31, 1997, 1996 and 1995, respectively. Backlog consists of purchase
orders with delivery dates scheduled within the next six months. None of the
Company's customers is obligated to purchase products from the Company except
pursuant to binding purchase orders. Because of the timing of orders and the
possibility of customer changes to delivery schedules, the Company's backlog
as of any particular date may not be representative of actual sales for any
succeeding period. Moreover, with recent industry-wide initiatives to reduce
all channel inventories and shorten lead times, the Company views backlog as
a less important indicator of future results than may have been the case
through 1996.

CUSTOMER SUPPORT

    The Company emphasizes customer support by developing innovative, high
quality products, encouraging customer feedback through contact with key
customers, and providing a customer hot-line that offers technical support
for the life of the Company's products. The Company's switches have a "plug
and play" design and are intended not to require extensive configuration. The
Company seeks to respond quickly to customers' requests for technical support
and service, and the Company's engineering department often works with
individual customers to troubleshoot problems and develop custom solutions.
The Company offers warranties for parts and service on all of its products.
To date, the Company has not experienced significant product returns. There
can be no assurance, however, that the Company's rate of product returns will
not increase or that the Company's customer support operations will be
sufficient to meet the needs of the Company's customers. In addition, the
Company may, as a result of competitive pressures, change its warranty
policies in the future to provide warranty coverage that is greater in scope
and duration than that currently offered. To the extent that the Company were
to increase its warranty coverage, its risk of warranty claims and therefore
its warranty reserves would likely increase. See "-- Risk Factors -- Product
Returns and Warranty Claims."

    Although the Company's existing reseller arrangements generally do not
afford material rights of return, as the Company expands its reseller
channel, the Company expects that certain resellers will have significant
rights of return. There can be no assurance that actual returns in the future
will not have a material adverse effect on the Company's business, financial
condition and results of operations. See "-- Risk Factors -- Product Returns
and Warranty Claims."

    Growth of the Company's branded sales, should it occur, is likely to be
accompanied by increasing demands on the Company's customer support
operations. As a result of the Company's commitment to a high level of
customer support, the Company is likely to need to invest significant
resources in the maintenance and improvement of its customer support
resources. Any failure to maintain adequate customer support could cause
customer dissatisfaction, result in reduced sales of the Company's products
and, accordingly, materially adversely affect the Company's business,
financial condition and results of operations. See "-- Risk Factors --
Increased Demands on Customer Support Operations."

                                      10

<PAGE>

PRODUCT DEVELOPMENT

    The Company believes that the continued, timely development of new
products and enhancements to its existing products is essential to
maintaining its competitive position. The market for the Company's switching
products in particular is characterized by rapid technological advances,
frequent new product introductions and enhancements, and significant price
competition. The introduction of products incorporating superior or
alternative technologies (such as switching software), the emergence of new
industry standards or changes in the market's pricing structure could render
the Company's existing products and products under development obsolete or
unmarketable. The Company's switching systems combine components, such as
printed circuit boards, connectors, cable assemblies, power supplies and
enclosures, that are manufactured by other companies and are generally
available to the Company's competitors and potential competitors. The
Company's future success will depend in large part upon its continued
innovative application of such commercially available components to the
expansion and enhancement of its existing products and the development and
introduction of new products which address changing customer needs on a
cost-effective and timely basis. The Company's failure to respond on a timely
basis to technological developments, changes in industry standards or
customer requirements, or any significant delay in product development or
introduction would have a material adverse effect on the Company's business,
financial condition and results of operations.

    Due to the Company's significant reliance on private-label OEM
relationships, the Company's product development efforts are often focused on
developing new products or enhancements for OEM customers. At times, these
new products or enhancements may not be readily marketable to other customers
without significant modification. The termination or significant disruption
of the Company's relationship with certain OEMs or other customers for whom
the Company has devoted significant product development resources is likely
to result in lost opportunities with respect to the development of other
products or enhancements.

    The Company's engineering and product development efforts focus on
responding to the needs of its customers by providing practical, marketable
products that have immediate applications in their markets. By maintaining
contact with customers throughout the installation and technical support
process, the Company is able to identify and test potential design
modifications and improvements as well as new applications and extensions for
existing products. The Company anticipates that this process will enable the
development of new product categories and applications based on existing
technology developed to meet specific customer needs. Many of the Company's
products are designed to accommodate future modifications and additional
features, which it believes facilitates the development and integration of
modifications and features if a market need is perceived.

    For 1997, 1996 and 1995, the Company's engineering and product
development expenditures were approximately $2,044,000, $965,000 and $913,000,
respectively. As of December 31, 1997, the Company's engineering staff
consisted of 16 employees. In addition, the Company uses independent
contractors from time to time. As of December 31, 1997 four such individuals
were engaged by the Company. To meet the challenges of the rapidly changing
technology in the computer industry, the Company expects to make substantial
investments in product development in the future.

MANUFACTURING

    The Company performs final assembly, quality assurance and testing of its
products. In order to avoid the capital investment required to establish and
maintain in-house manufacturing capabilities, the Company generally relies on
subcontractors in the United States for the assembly of printed circuit board
assemblies, subassemblies, chassis and equipment enclosures. The Company
believes that such assembly can typically be done by subcontractors at a
lower cost than if the Company assembled such items internally. Outsourcing
manufacturing operations allows the Company to concentrate its resources on
research and development, product design, quality assurance, sales and
marketing and customer support. Prior to shipping, the Company subjects its
finished products to quality and regulatory screenings and functional testing
to assure quality and reliability.

    The Company relies on various third party manufacturers, including
Technical Services, Inc., for subassembly of the Company's products. These
outsourcing arrangements, and any future outsourcing arrangements, involve
numerous risks, including reduced control over product quality, delivery
schedules, manufacturing yields and costs. Moreover, although arrangements
with such manufacturers may contain provisions for warranty obligations on
the part of such manufacturers, the Company remains primarily responsible to
its customers for warranty obligations.

                                      11

<PAGE>

    The Company purchases industry-standard parts and components, including
power supplies, cable assemblies, line filters, enclosures and printed
circuit boards for the assembly of its products from multiple vendors and
suppliers through a worldwide sourcing program. The Company buys components
under purchase orders and generally does not have long-term agreements with
its suppliers. No custom integrated circuits are currently used in any
product in production, although custom integrated circuits may be used in the
Company's products in the future. Circuit boards are currently obtained from
a number of sources, including Technical Services, Inc. Any termination of or
significant disruption in the Company's relationship with suppliers of its
switching product components may prevent the Company from filling customer
orders in a timely manner, as the Company generally does not maintain large
inventories of its products or components. Certain of the components for the
Company's switching products are available from a limited number of
suppliers. For example, Pioneer-Standard Electronics, Inc. and Reptron
Electronics, Inc. supply the Company with power supply components, Redmond
Cable, Inc. supplies the Company with cable components and Kent Electronics,
Inc. supplies the Company with various electronic components. In addition,
the frames for the Company's server cabinets are obtained from a single
source, APW (a division of Wright Line), and the sheet metal components are
purchased locally from a small number of manufacturers, including Northwest
Manufacturing. In the past, the Company has experienced delays in the receipt
of certain of its switching and cabinet components, which have resulted in
delays in related product deliveries. The Company is attempting to manage
such risks by qualifying alternative sources and maintaining quality
relationships and close personal contact with each of its suppliers. Although
the Company believes that there are adequate alternative sources for its
components, there can be no assurance that delays in component and product
deliveries will not occur in the future or that the Company's reliance on
sole or limited sources of supply for its components will not otherwise
adversely affect the Company's business.

    The Company depends upon its suppliers to deliver components that are
free from defects, competitive in functionality and cost and in compliance
with the Company's specifications and delivery schedules. Disruption in
supply, a significant increase in the cost of one or more components, failure
of a third party supplier to remain competitive in functionality or price, or
the failure of a supplier to comply with any of the Company's procurement
needs could delay or interrupt the Company's ability to manufacture and
deliver its products to customers on a timely basis, thereby adversely
affecting the Company's business, financial condition and results of
operations.

COMPETITION

    The market for the Company's products is highly fragmented and
competitive, and the Company expects competition to increase in the future.
In the market for switching systems, the Company competes with independent
third parties such as Cybex Computer Products Corporation, Raritan Computer
Inc., Rose Electronics, Elsner ComputerTechnik GmbH (which was acquired by
Cybex Computer Products Corporation in 1997), Minicom Advanced Systems, Inc.,
Aten International Co., Ltd., and StarTech Computer Accessories Ltd., some of
which have substantially greater financial, marketing and technical resources
than the Company. In addition, certain of the Company's OEM customers, such
as Hewlett-Packard and Compaq, could decide to manufacture their own switch
products or offer those supplied by the Company's competitors. In the market
for server cabinets, the Company competes with a significant number of
regional and international cabinet manufactures including Zero Stantron
Cabinets, Ergotron Inc., Rittal Corporation, Hergo Corp. and Engineered Data
Products Inc., many of which have substantially greater financial, marketing
and technical resources than the Company. In addition, Compaq,
Hewlett-Packard and Wright Line, all of whom are OEM customers for certain of
the Company's switching products, sell their own branded integrated server
cabinets. The Company's cabinet systems also compete with other types of
lower density, unenclosed technology storage systems.

    In the market for integrated switches, the Company competes primarily on
the basis of technological advances, performance in relation to price,
quality, reliability, development capabilities and customer support. In the
market for server cabinets, the Company competes primarily on the basis of
available product features, quality, reliability, development capabilities
and customer support. In addition, the market for server cabinets and other
technology storage systems is characterized by intense price competition, and
many of the Company's competitors in this market offer products at
significantly lower price points. The Company's ability to compete
successfully in this market will depend in part upon the Company's ability to
continue to differentiate its cabinet systems from competing products.

    The Company's future success will be highly dependent upon timely
completion and introduction of new products and product features at
competitive price and performance levels which address the evolving needs of
the Company's customers. The Company is currently experiencing increased
price competition in both the market for

                                      12

<PAGE>

stand-alone switching systems and the market for integrated server cabinet
solutions and expects that pricing pressures will increase in the future.
Increased competition could result in price reduction and loss of market
share which would adversely affect the Company's business, financial
condition and results of operations.

PROPRIETARY TECHNOLOGY

    The Company's future success is dependent in part upon its ability to
protect its proprietary rights in its products. The Company seeks to protect
its intellectual property rights by invoking the benefits of the patent,
trademark, copyright, trade secret and unfair competition laws of the United
States, which afford only limited protection. On February 24, 1998, the U.S.
Patent and Trademark Office issued Patent Number 5,721,842 to the Company for
various aspects of its OutLook and ViewPoint products and its OSCAR
interface. The Company has a corresponding patent application pending under
the provisions of the Patent Cooperation Treaty (which permits the filing of
corresponding foreign patent applications in numerous foreign countries
within a limited time period). The Company also has other United States and
foreign patent applications pending. There can be no assurance that any
additional patents will issue from any of the Company's pending applications,
that any patents will be issued in any additional countries where the
Company's products can be sold, or that any claims allowed in U.S. Patent
Number 5,721,842 or in any pending patent applications will be of sufficient
scope or strength, or provide any meaningful protection or any commercial
advantage to the Company. Moreover, competitors of the Company may challenge
the validity of, or be able to design around, U.S. Patent Number 5,721,842 or
any other patents that may be issued to the Company. The laws of certain
foreign countries in which the Company's products are or may be developed,
manufactured or sold may not protect the Company's products or intellectual
property rights to the same extent as do the laws of the United States and
thus increase the likelihood of piracy of the Company's technology and
products. The Company believes that certain products of certain competitors
infringe U.S. Patent Number 5,721,842. The Company has filed lawsuits against
certain companies, and may file additional lawsuits against other companies
regarding the alleged infringement. See "-- Legal Proceedings." This
litigation, and any other litigation relating to the Company's intellectual
property to which the Company becomes a party, is subject to numerous risks
and uncertainties, and there can be no assurance that the Company will be
successful in any such litigation. See "-- Risk Factors -- Limited Protection
of Proprietary Rights; Risks of Third Party Infringement." Although the
Company is not currently aware of any infringement of its intellectual property
rights, other than U.S. Patent Number 5,721,482, or any violation of its
trade secrets, nondisclosure or licensing arrangements, there can be no
assurance that the steps taken by the Company to protect its intellectual
property rights will be adequate to prevent misappropriation of its
technology or that the Company's competitors will not independently develop
technologies that are substantially equivalent or superior to the Company's
technology. See "-- Risk Factors -- Limited Protection of Proprietary Rights;
Risks of Third Party Infringement."

EMPLOYEES

    As of December 31, 1997, the Company employed 72 persons, 18 of whom were
in administration and management, 16 of whom were in engineering and product
development, three of whom were in service and technical support, 16 of whom
were in manufacturing and 19 of whom were in sales and marketing. The
Company's employees are not covered by any collective bargaining agreements
with respect to their employment by the Company. The Company believes that
its employee relations are good.

RISK FACTORS

    This Annual Report contains certain forward-looking statements that are
subject to certain risks and uncertainties that could cause actual results to
vary materially from those anticipated in the forward-looking statements.
Factors that might cause a difference include, but are not limited to the
following:

FLUCTUATIONS IN OPERATING RESULTS

    The Company has experienced substantial fluctuations in its operating
results, on a quarterly and an annual basis, and the Company expects such
fluctuations to continue in the future. The Company's operating results are
affected by a number of factors, including: the volume and timing of orders,
particularly from private-label OEM and other large customers; the timing of
shipments; the timing of new product introductions and enhancements by the
Company and its competitors; changes in product or distribution channel
mixes; changes in pricing policies or price reductions by the Company;
competition and price reductions by the Company's competitors; the
availability and cost of supplies and components; sales and marketing
expenses related to entering into new markets, introducing new products

                                      13

<PAGE>

and retaining current OEM and other large customers; seasonal customer
demand; and fluctuations in sales of servers due to changes in economic
conditions or capital spending levels.

    In general, the Company's sales cycle varies substantially and may be
lengthy, making revenues difficult to forecast. The Company has experienced
period to period variability in sales to each of its OEM customers and
expects this pattern to continue in the future. Although the Company's OEM
customers typically place orders for products up to several months prior to
scheduled shipment dates, these orders are subject to cancellation up to four
to six weeks prior to the scheduled shipment date. The Company generally must
plan production, order components and undertake its manufacturing activities
prior to the time that these orders become firm. In addition, the Company's
OEM customers have in the past requested, and will likely continue to request
from time to time, that the Company delay shipment dates or cancel orders for
products that are subject to firm orders. Accordingly, sales to OEMs for
future quarters are difficult to predict. Moreover, any cancellation,
rescheduling or reduction of orders by OEM customers in the future could
materially adversely affect the Company's operating results. If the Company
succeeds in increasing branded sales (i.e., sales to customers other than
OEMs) as a percentage of net sales, the Company's quarterly sales and
operating results will become more dependent upon the volume and timing of
branded product orders received during the quarter. Because many customers of
the Company's branded products (including resellers) typically place orders
shortly before their requested shipment date, revenues from branded sales are
difficult to forecast. The failure of the Company to accurately forecast the
timing and volume of orders for branded products during any given quarter
could adversely affect the Company's operating results for such quarter and,
potentially, for future periods. With recent industry-wide initiatives to
reduce all channel inventories and to shorten lead times, trends with Apex's
major customers are, generally, to reduce the number of weeks of
forward-committed firm orders.

    Gross margins may vary significantly from period to period depending on a
number of factors, including: the ratio of OEM sales to branded sales, as OEM
sales typically have lower gross margins than branded sales; product mix,
including the percentage of integrated server cabinet solution sales, which
generally have lower gross margins than sales of stand-alone switching
systems; raw materials and labor costs; new product introductions by the
Company and its competitors; and the level of outsourcing of manufacturing
and assembly services by the Company. The Company expects that its gross
margins will decline in the future primarily due to increased competition and
the introduction of new technologies that may affect the prices of the
Company's products. The Company expects that its operating results will be
affected by seasonal trends and by general conditions in the server market.
The Company believes that it has experienced and will continue to experience
some degree of seasonality due to customer buying cycles. The Company
believes that the third and fourth quarters generally have higher net sales
levels due to customer budgeting and procurement cycles, which
correspondingly may depress net sales in other quarters. Because the
Company's business and operating results depend to a significant extent on
the general conditions in the server market, any adverse change in the server
market due to adverse economic conditions, declining capital spending levels
or other factors could have a material adverse effect on the Company's
business, financial condition and results of operations.

DEPENDENCE UPON A LIMITED NUMBER OF CUSTOMERS

    A substantial portion of the Company's sales is concentrated among a
limited number of private-label OEM customers. For 1997, 1996, and 1995,
sales to OEMs represented approximately 65%, 71% and 69% of the Company's net
sales, respectively. For 1997, 1996 and 1995, sales to Compaq represented
approximately 51%, 30% and 54% respectively, of the Company's net sales. For
1996, sales to Hewlett-Packard represented approximately 15% of the Company's
net sales. The Company's OEM business is subject to risks such as contract
termination, reduced or delayed orders, adoption of competing products
developed by third parties for the OEM or by the OEM's internal development
team, and change in corporate ownership, financial condition, business
direction or product mix by the OEM, any of which could have a material
adverse effect on the Company's business, financial condition and results of
operations. The Company has experienced, and may continue to experience,
significant reductions or delays in orders from its OEM customers, which have
had and may in the future have a material adverse effect on the Company's
quarterly sales and operating results. See "- Fluctuations in Operating
Results" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations." For example, in late 1995, one of the Company's OEM
customers determined that its orders in the last half of 1995 exceeded its
needs. Accordingly, at such customer's request, the Company delayed its
scheduled deliveries to such OEM for the first half of 1996. The loss of
certain OEM customers could have a material adverse effect on the Company's
business, financial condition and results of operations. For example, in
October 1995, the Company entered into a private-label OEM arrangement with
IBM for the production of an integrated server cabinet solution incorporating
the Company's switching products. While the products supplied by the Company
met IBM's requirements, IBM concluded that its program had not achieved IBM's
desired results and sought to terminate the program in mid-1996

                                      14

<PAGE>

after the Company had expended significant financial, product development and
operational resources in connection with this OEM arrangement. Although the
Company negotiated a settlement with IBM that reimbursed the Company for its
direct costs associated with the program, the Company's branded product
development efforts were delayed as a result of the Company's commitment of
substantial product development resources to the IBM program in the third and
fourth quarters of 1995 and the first quarter of 1996. For 1996, sales to IBM
represented approximately 18% of the Company's net sales. While the Company
has contracts with certain of its existing OEM customers, none of the
Company's OEM customers is obligated to purchase products from the Company
except pursuant to binding purchase orders. Consequently, any OEM customer
could cease doing business with the Company at any time. The Company's
dependence upon certain OEMs also results in a significant concentration of
credit risk, as a substantial portion of the Company's trade receivables
outstanding from time to time is concentrated among a limited number of
customers. See Note 1 of Notes to Consolidated Financial Statements.

    The Company's business and results of operation are becoming more
dependent upon the Company's sales of branded switching products to other
manufacturers of servers and related networking products, who integrate and
sell Apex-brand switches with their own products. The Company does not have
contracts with any of these customers, who are obligated to purchase products
from the Company only pursuant to binding purchase orders and could cease
doing business with the Company at any time. The Company's business with
these customers is subject to risks such as short order cycles and difficulty
in predicting sales, reductions or delays in orders, adoption of competing
products developed by third parties of the customer or by the customer's own
internal development team, and change in corporate ownership, financial
condition, business direction or product mix of the customer. The loss of, or
material decline in orders from, certain of these customers could have a
material adverse effect on the Company's business, financial condition and
results of operations.

INTENSE COMPETITION

    The markets for the Company's products are highly fragmented and
intensely competitive. The Company's business is becoming increasingly
sensitive to new product introductions, price changes and marketing efforts
by its competitors. Accordingly, the Company's future success will be highly
dependent upon timely completion and introduction of new products and product
features at competitive price and performance levels which address the
evolving needs of the Company's customers. The Company is currently
experiencing increased price competition in both the market for stand-alone
switching systems and the market for integrated server cabinet solutions and
expects that pricing pressures will increase in the future. Increased
competition could result in price reductions and loss of market share, which
would adversely affect the Company's business, financial condition and
results of operations. In the market for switching systems, the Company
competes with independent third parties such as Cybex Computer Products
Corporation, Raritan Computer Inc., Rose Electronics, Elsner ComputerTechnik
GmbH (which was acquired by Cybex Computer Products Corporation in 1997),
Minicom Advanced Systems, Inc., Aten International Co., Ltd., and StarTech
Computer Accessories Ltd. In addition, certain of the Company's OEM
customers, such as Hewlett-Packard and Compaq, could decide to manufacture
their own switch products or offer those supplied by the Company's
competitors. The Company may in the future face competition from software
providers who are able to offer a software solution to address many of the
problems the Company's switching systems are designed to address. In the
market for server cabinets, the Company competes with a significant number of
regional and international manufacturers. Moreover, the Company's current OEM
customers and certain of its other branded server manufacturer customers sell
their own branded integrated server cabinets. The Company's server cabinets
also compete with other types of lower density, unenclosed technology storage
systems. The market for server cabinets and other technology storage systems
is characterized by intense price competition and low barriers to entry, and
many of the Company's competitors in this market offer products at
significantly lower price points. The Company's ability to compete
successfully in this market will depend in part upon the Company's ability to
continue to differentiate its cabinet systems from competing products.

    The Company's current and potential competitors, many of which have
significantly greater financial, technical, marketing and other resources
than the Company, may be able to respond more quickly to new or emerging
technologies and changes in customer requirements or to devote greater
resources to the development, promotion and sale of their products than the
Company. In addition, current and potential competitors have established or
may establish cooperative relationships among themselves or with third
parties that enhance the ability of their products to address the needs of
the Company's prospective customers. There can be no assurance that the
Company will be able to compete successfully against current and future
competitors or that competitive pressure faced by the Company will not have a
material adverse effect on the Company's business, financial condition and
results of operations.

                                      15

<PAGE>

RAPID TECHNOLOGICAL CHANGE; NEED FOR NEW PRODUCT INTRODUCTIONS

    The market for the Company's switching products is characterized by rapid
technological advances, frequent new product introductions and enhancements,
and significant price competition. The introduction of products incorporating
superior or alternative technologies (such as switching software), the
emergence of new industry standards or changes in the market's pricing
structure could render the Company's existing products and products under
development obsolete or unmarketable. The Company's switching systems combine
components, such as printed circuit boards, connectors, cable assemblies,
power supplies and enclosures, that are manufactured by other companies and
are generally available to the Company's competitors and potential
competitors. The Company's future success will depend in large part upon its
continued innovative application of such commercially available components to
the expansion and enhancement of its existing products and the development
and introduction of new products which address changing customer needs on a
cost-effective and timely basis. The Company's failure to respond on a timely
basis to technological developments, changes in industry standards or
customer requirements, software innovations or any significant delay in
product development or introduction would have a material adverse effect on
the Company's business, financial condition and results of operations. Due to
the Company's significant reliance on OEM relationships, the Company's
product development efforts are often focused on developing new products or
enhancements for OEM customers. At times, these new products or enhancements
may not be readily marketable to other customers without significant
modification. The termination or significant disruption of the Company's
relationship with certain OEMs or other customers for whom the Company has
devoted significant product development resources is likely to result in lost
opportunities with respect to the development of other products or
enhancements.

DEPENDENCE UPON SUPPLIERS AND OUTSOURCED MANUFACTURING

    The principal components of the Company's switching products are power
supplies, cable assemblies, line filters, enclosures and printed circuit
boards, all of which are purchased from outside vendors. The Company buys
components under purchase orders and generally does not have long-term
agreements with its suppliers. Any termination of or significant disruption
in the Company's relationship with suppliers of its switching product
components may prevent the Company from filling customer orders in a timely
manner, as the Company generally does not maintain large inventories of its
products or components. The Company purchases a number of the components for
its switching products from sole or a limited number of suppliers. For
example, the Company currently obtains printed circuit boards included in,
and the partial assembly of, concentrator switches from a single source. In
addition, the frames for the Company's server cabinets are obtained from a
single source and the sheet metal components are purchased locally from a
small number of manufacturers. The Company has occasionally experienced and
may in the future experience delays in delivery of such components. Although
alternate suppliers are available for most of the components and services
needed to produce the Company's products, the number of suppliers of some
components is limited, and qualifying a replacement supplier and receiving
components from alternate suppliers could take several months. The Company
depends upon its suppliers to deliver components that are free from defects,
competitive in functionality and cost and in compliance with the Company's
specifications and delivery schedules. Disruption in supply, a significant
increase in the cost of one or more components, failure of a third party
supplier to remain competitive in functionality or price, or the failure of a
supplier to comply with any of the Company's procurement needs could delay or
interrupt the Company's ability to manufacture and deliver its products to
customers on a timely basis, thereby adversely affecting the Company's
business, financial condition and results of operations.

    The Company relies on third party manufacturers for subassembly of the
Company's products. These outsourcing arrangements and any future outsourcing
arrangements involve numerous risks, including reduced control over product
quality, delivery schedules, manufacturing yields and costs. Moreover,
although arrangements with such manufacturers may contain provisions for
warranty obligations on the part of such manufacturers, the Company remains
primarily responsible to its customers for warranty obligations.

RELIANCE ON CLIENT/SERVER MARKET; IMPROVING NETWORK RELIABILITY AND TOOLS

    The Company's business is dependent upon the continued acceptance of the
PC-based client/server model of network computing. Although distributed
network computing utilizing client/server architecture has gained increasing
acceptance, there can be no assurance that use of this networking model will
continue to grow or that it will not be replaced by new technologies for
network computing, thereby rendering the Company's products obsolete. In
addition, the market for the Company's switching products is driven in part
by the inherent unreliability of client/server networks. As client/server
networks continue to proliferate, however, server manufacturers and software
developers or providers

                                      16

<PAGE>

may develop greater reliability and better tools for managing networks. To
the extent that greater reliability and better network management tools are
successfully developed, the Company's switching products could be rendered
obsolete, which would have a material adverse effect on the Company's
business, financial condition and results of operations.

RISKS RELATING TO DEVELOPMENT OF EXPANDED RESELLER CHANNEL

    The Company expects to rely increasingly on resellers, including
distributors, VARs and systems integrators, for the distribution and sale of
its branded products, and the Company's strategy contemplates the expansion
of its reseller channel both domestically and internationally. The Company's
future success will depend in part on its ability to attract, train and
motivate such resellers. There can be no assurance that the Company will be
successful in expanding its reseller channel. The Company will be required to
invest significant additional resources in order to expand its reseller
channel, and there can be no assurance that the cost of the Company's
investment in further developing this channel will not exceed the revenues
generated from such investment. The Company provides and expects to continue
providing discounts and other special pricing arrangements to its resellers.
As a result of such discounts and other arrangements, the Company's gross
margins on sales through resellers are expected to be lower than gross
margins on direct sales. Although the Company's existing reseller
arrangements generally do not afford material rights of return, as the
Company expands its reseller channel, the Company expects that certain
resellers will have significant rights of return. There can be no assurance
that actual returns in the future will not have a material adverse effect on
the Company's business, financial condition and results of operations. See
"--Product Returns and Warranty Claims." The Company's agreements with its
resellers generally are nonexclusive and may be terminated on short notice by
either party without cause. The Company's resellers are not within the
control of the Company, are not obligated to purchase products from the
Company and frequently offer products of several different manufacturers,
including products competitive with the Company's products. There can be no
assurance that these resellers will not give higher priority to the sale of
such other products. A reduction in sales efforts by the Company's resellers
could lead to reduced sales by the Company and could materially adversely
affect the Company's business, financial condition and results of operations.

DEPENDENCE ON KEY PERSONNEL

    The Company is dependent in large part upon its ability to retain its key
management and technical personnel, including Kevin Hafer, President and
Chief Executive Officer, and Chris Sirianni, Vice President for Sales. The
future success of the Company will be highly dependent upon the personal
efforts of Mr. Hafer, Mr. Sirianni and other key management and technical
personnel, and the loss of services of any one of them could have a material
adverse effect on the Company's business, financial condition and results of
operations. Mr. Hafer is the only executive officer or employee with whom the
Company has entered into an employment agreement and the only executive
officer upon whom the Company maintains "key-man" life insurance. The
Company's success will also be dependent in part upon its ability to attract,
retain and motivate highly skilled employees. Competition for employees with
the skills required by the Company, particularly engineering and other
technical personnel, is intense, and there can be no assurance that the
Company will be able to attract and retain highly skilled employees in
sufficient numbers to sustain its current business or to support future
growth.

MANAGEMENT OF GROWTH

    In recent periods, the Company has experienced rapid revenue and customer
growth and expansion in the number of its employees, its product offerings
and the scope and complexity of its financial systems. This growth has placed
significant strain on the Company's management, operational and financial
resources and has resulted in new and increased responsibilities for
management personnel. The Company's officers have had limited or no
experience in managing companies larger than the Company. There can be no
assurance that the Company's management, personnel, systems, procedures and
controls will be adequate to support the Company's existing and future
operations. The Company's ability to effectively manage its recent growth and
any future growth will require the Company to continue to implement and
improve its operational, financial and information systems and will likely
require additional management personnel. In addition, the Company believes
that it must develop greater engineering, marketing, sales and customer
support capabilities in order to develop new products and product
enhancements, secure new customers at a rate necessary to achieve desired
growth and effectively serve the evolving needs of present and future
customers. There can be no assurance that the Company will be successful in
strengthening these capabilities. Without adequate management, engineering,
product development, marketing and sales and customer support capabilities,
the Company's ability to effectively manage its growth, expand and enhance
its product line, further penetrate its existing markets and develop

                                      17

<PAGE>

new markets will be significantly limited. If the Company's management is
unable to effectively manage the Company's growth, the business, financial
condition and results of operations of the Company will be materially
adversely affected.

PRODUCT RETURNS AND WARRANTY CLAIMS

    The Company's products carry warranties for parts and service. Although
the Company's historical product return and warranty claims have not been
significant, the Company's business, financial condition and results of
operations could be materially adversely affected should the rate of product
returns or warranty claims increase in the future. In addition, the Company
may change its warranty policies in the future as a result of competitive
pressures.

LIMITED PROTECTION OF PROPRIETARY RIGHTS; RISKS OF THIRD PARTY INFRINGEMENTS

    The Company's future success is dependent in part upon its ability to
protect its proprietary rights in its products. The Company seeks to protect
its intellectual property rights by invoking the benefits of the patent,
trademark, copyright, trade secret and unfair competition laws of the United
States, which afford only limited protection. On February 24, 1998, the U.S.
Patent and Trademark Office issued Patent Number 5,721,842 to the Company for
various aspects of its OutLook and ViewPoint products and its OSCAR
interface. The Company has a corresponding patent application pending under
the provisions of the Patent Cooperation Treaty (which permits the filing of
corresponding foreign patent applications in numerous foreign countries
within a limited time period). The Company also has other United States and
foreign patent applications pending. There can be no assurance that any
additional patents will issue from any of the Company's pending applications,
that any patents will be issued in any additional countries where the
Company's products can be sold, or that any claims allowed in U.S. Patent
Number 5,721,842 or in any pending patent applications will be of sufficient
scope or strength, or provide meaningful protection or any commercial
advantage to the Company. Moreover, competitors of the Company may challenge
the validity of, or be able to design around, U.S. Patent Number 5,721,842 or
any other patents that may be issued to the Company. The laws of certain
foreign countries in which the Company's products are or may be developed,
manufactured or sold may not protect the Company's products or intellectual
property rights to the same extent as do the laws of the United States and
thus increase the likelihood of piracy of the Company's technology and
products. There can be no assurance that the steps taken by the Company to
protect its intellectual property rights will be adequate to prevent
misappropriation of its technology or that the Company's competitors will not
independently develop technologies that are substantially equivalent or
superior to the Company's technology.

    The network server, electronics and related industries are characterized
by vigorous pursuit and protection of intellectual property rights or
positions, which have resulted in significant and often protracted and
expensive litigation. The Company may from time to time be subject to
proceedings alleging infringement by the Company of intellectual property
rights owned by third parties. If necessary or desirable, the Company may
seek licenses under such intellectual property rights. However, there can be
no assurance that licenses will be offered or that the terms of any offered
license will be acceptable to the Company. The failure to obtain a license
from a third party for technology used by the Company could cause the Company
to incur substantial liabilities and to suspend or cease the manufacture of
products requiring such technology.

    On February 25, 1998, the Company filed complaints for infringement of
U.S. Patent Number 5,721,842 in United States District Court for the Western
District of Washington at Seattle against Cybex Computer Products Corporation
and Rose Electronics. The Company may initiate claims or litigation against
additional third parties for infringement of the Company's proprietary rights
or to establish the validity of the Company's proprietary rights. This
litigation, and any other litigation relating to the Company's intellectual
property to which the Company becomes a party, is subject to numerous risks
and uncertainties, and there can be no assurance that the Company will be
successful in any such litigation. This litigation or other litigation by or
against the Company could result in significant expense to the Company and
divert the efforts of the Company's technical and management personnel,
whether or not such litigation results in a favorable determination for the
Company. In the event of an adverse result in this litigation or any other
such litigation, the Company could be required to pay substantial damages,
suspend or cease the manufacture, use and sale of infringing products, expend
significant resources to develop

                                      18

<PAGE>

non-infringing technology, discontinue the use of certain processes or obtain
licenses to the infringing technology. There can be no assurance that the
Company would be successful in such development or that such licenses would
be available on reasonable terms, or at all, and any such development or
license could require expenditures by the Company of substantial time and
other resources. In the event that any third party makes a successful claim
against the Company or its customers and a license is not made available to
the Company on commercially reasonable terms, the Company's business,
financial condition and results of operations would be adversely affected.

INCREASED DEMANDS ON CUSTOMER SUPPORT OPERATIONS

    Growth of the Company's branded sales, should it occur, is likely to be
accompanied by increasing demands on the Company's customer support
operations. As a result of the Company's commitment to a high level of
customer support, the Company is likely to need to invest significant
resources in the maintenance and improvement of its customer support
resources. Any failure to maintain adequate customer support could cause
customer dissatisfaction, result in reduced sales of the Company's products
and, accordingly, materially adversely affect the Company's business,
financial condition and results of operations.

RISKS RELATING TO DEVELOPMENT OF INTERNATIONAL DISTRIBUTION NETWORK AND
INTERNATIONAL SALES

    The Company's strategy contemplates the development of an international
distribution network in an effort to increase international sales of its
branded switching products. There can be no assurance that the Company will
be successful in creating an international distribution network or in
marketing and selling its products in foreign markets. If the revenues
generated by international sales are not adequate to recover the expense of
establishing, expanding and maintaining an international distribution
network, the Company's business, financial condition and results of
operations will be materially adversely affected. If international sales
become a more significant component of the Company's net sales, the Company's
business will become more vulnerable to the risks inherent in doing business
on an international level, including difficulties in managing foreign
resellers, longer payment cycles and problems in collecting accounts
receivable, the effects of seasonal customer demand, changes in regulatory
requirements, risks relating to intellectual property rights, export
restrictions, tariffs and other trade barriers, fluctuations in currency
exchange rates, potentially adverse tax consequences and political
instability. The existence or occurrence of any one of these factors could
have a material adverse effect on the Company's business, financial condition
and results of operations.

LIMITED INDEPENDENT OPERATING HISTORY

    The business of the Company was operated as a division of, and was
provided financial and operational support by, Apex Computer Company (the
"Predecessor") through January 1993. In February 1993, the net assets of that
division were spun off as a dividend to the sole shareholder of the
Predecessor, who contributed those assets to the Company as its initial
capital. The historical core business of the Company, computer maintenance
services, was discontinued in mid-1994. As a company with limited independent
operating history, the Company is subject to the risks inherent in a new
business enterprise, including limited predictability of future operating
results, competition from more established businesses, limited financial
resources, limited management resources, limited sales and distribution
capabilities, limited technical personnel resources and vulnerability to
adverse economic conditions. Although the Company achieved profitability for
the eleven months ended December 31, 1993 and was profitable in 1994, 1995,
1996 and 1997, there can be no assurance that growth in net sales will
continue or that the Company will be able to achieve or sustain profitability
on a quarterly or annual basis in the future.

ITEM 2. DESCRIPTION OF PROPERTY.

    The Company leases approximately 36,000 square feet in an industrial
office building in Woodinville, Washington. The base rent for the Company's
facilities is approximately $21,000 per month, plus taxes, insurance and
maintenance. The lease on this building expires in two stages: approximately
25,000 square feet expire in September 1998, and approximately 11,000 square
feet expire in January 2001. On February 24, 1998 the Company signed an
agreement for a five-year lease of approximately 117,000 square feet in an
industrial office building being built in Redmond, Washington, for scheduled
occupancy by the Company in February 1999. The initial base rent under this
lease is approximately $90,000 per month, plus taxes, insurance and
maintenance. The 117,000 square foot leased premises has approximately 40,000
more square feet than the Company currently projects it will need in February
1999, and the Company intends to sublease the excess space until needed for
planned expansion. However, there can be no

                                       19

<PAGE>

assurance that the Company will be successful in subleasing that excess
space. If the Company is unable to sublease the excess space, it will bear
full responsibility for all rent due under the Redmond lease.

ITEM 3. LEGAL PROCEEDINGS.

    On February 25, 1998, the Company filed complaints for patent
infringement against Cybex Computer Products Corporation and Rose Electronics
(cause numbers C98-246Z and C98-245Z, respectively) in United States District
Court for the Western District of Washington at Seattle in connection with
United States Patent Number 5,721,842, which was issued to the Company on
February 24, 1998. The complaints allege that the products manufactured and
sold by Cybex Computer Products Corporation and Rose Electronics embody the
inventions claimed in U.S. Patent Number 5,721,842, and seek injunctive
relief, damages, attorneys' fees, interest and costs. See "-- Risk
Factors -- Limited Protection of Proprietary Rights; Risks of Third Party
Infringement."

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.

    No matters were submitted for a vote of the shareholders in the fourth
quarter of 1997.

                                      20

<PAGE>

                                    PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

PRICE RANGE OF COMMON STOCK; HOLDERS OF RECORD

    The Company's Common Stock has been quoted on the Nasdaq National Market
System under the symbol "APEX" since February 19, 1997. The following table
shows the high and low sales prices for the Common Stock for the periods
indicated, as reported by the Nasdaq National Market System.

<TABLE>
<CAPTION>
                                                                HIGH        LOW
                                                              ---------  ---------
<S>                                                           <C>        <C>
Quarter ended December 31, 1997.............................  $   39.63  $   18.50
Quarter ended September 26, 1997............................  $   41.75  $   18.75
Quarter ended June 27, 1997.................................  $   21.13  $    6.88
Quarter ended March 28, 1997................................  $   10.50  $    8.13

</TABLE>

    As of February 27, 1998, there were 64 holders of record of the Company's
Common Stock.

DIVIDEND POLICY

    No cash dividends were declared or paid in 1997 or 1996, and for the
foreseeable future, the Company expects to retain earnings to finance the
expansion and development of its business. The payment of dividends is within
the discretion of the Company's Board of Directors and will depend on the
earnings, capital requirements and operating and financial condition of the
Company, among other factors. In addition, the Company's line of credit
facility prohibits the payment of dividends if any loans are outstanding
under such facility.

    From its inception through October 31, 1995, the Company was treated for
federal income tax purposes as an S Corporation under Subchapter S of the
Internal Revenue Code of 1986, as amended. As a result, the Company's
earnings from its inception through October 31, 1995 (the "Termination Date")
were for federal income tax purposes taxed directly to the Company's sole
shareholder, at his individual federal income tax rate, rather than to the
Company. Subsequent to the Termination Date, the Company was no longer
treated as an S Corporation and, accordingly, has been subject to federal and
state income taxes on its earnings after October 31, 1995. In 1995, prior to
the Termination Date, the Company's Board of Directors declared dividends in
the aggregate amount of $4,614,322.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS.

THE INFORMATION IN THIS ITEM 6--"MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" CONTAINS FORWARD-LOOKING
STATEMENTS, INCLUDING, WITHOUT LIMITATION, STATEMENTS RELATING TO THE
COMPANY'S REVENUES, EXPENSES, MARGINS, LIQUIDITY AND CAPITAL NEEDS. SUCH
FORWARD-LOOKING STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES
THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE ANTICIPATED
IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE
INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "DESCRIPTION OF BUSINESS
-- RISK FACTORS."

OVERVIEW

    The Company designs, manufactures and markets stand-alone switching
systems and integrated server cabinet solutions for the client/server
computing market. The Company operated as a division of Apex Computer Company
(the "Predecessor") through January 1993, providing computer maintenance
services to Microsoft and selling integrated server cabinets and, to a
limited extent, stand-alone switching systems, primarily to Microsoft. In
February 1993, the assets of that division were spun off as a dividend to the
sole shareholder of the Predecessor, who contributed those assets as the
initial capital of the Company. Throughout 1993, the Company derived revenue
primarily from the provision of computer maintenance services to Microsoft.
In May 1994, the Company began selling stand-alone switching systems to
Compaq for integration into server cabinets. In June 1994, the Company
discontinued its computer maintenance service business and determined to
concentrate on sales of stand-alone switching products and server cabinets,
including server cabinets with integrated switching systems.

                                      21

<PAGE>

    In December 1995, the Company effected a leveraged recapitalization (the
"Leveraged Recapitalization") pursuant to which (i) the Company redeemed from
one of its shareholders Common Stock representing a 50% voting interest in
the Company prior to the Leveraged Recapitalization for approximately $12.5
million in cash and a Class B Subordinated Promissory Note in the principal
amount of $10.0 million, and (ii) the Company sold to a group of entities
affiliated with TA Associates, Inc. (the "TA Group") Common Stock and Series
A Redeemable and Convertible Preferred Stock representing a 50% voting
interest in the Company after the Leveraged Recapitalization for $2.5 million
and sold to the TA Group Class A Subordinated Promissory Notes in the
aggregate principal amount of $10.0 million.

    In February 1997, the Company consummated an initial public offering of
its Common Stock (the "IPO") and received net proceeds of approximately $28.4
million. Approximately $20.0 million of such proceeds was used to repay the
subordinated promissory notes issued by the Company in connection with the
Leveraged Recapitalization. In connection with the IPO, all of the Series A
Redeemable and Convertible Preferred Stock was converted into shares of the
Company's Common Stock.

    In August 1997, the Company consummated a follow-on offering of its
Common Stock (the "follow-on offering") and received net proceeds of
approximately $30.3 million.

    From its inception through October 31, 1995 (the "Termination Date"), the
Company was treated for federal income tax purposes as an S Corporation under
Subchapter S of the Internal Revenue Code of 1986, as amended. As a result,
the Company's earnings from its inception through the Termination Date were
for federal income tax purposes taxed directly to the Company's sole
shareholder, at his individual federal income tax rate, rather than to the
Company. The pro forma provision for income taxes reflects an estimate of
income tax expense at federal statutory rates as if the Company were taxable
as a C Corporation for the year ended December 31, 1995. See Notes 1 and 10
of Notes to Consolidated Financial Statements.

    A substantial portion of the Company's sales are concentrated among a
limited number of original equipment manufacturers that purchase the
Company's switching systems on a private-label basis ("OEMs" and "OEM
customers"). For 1997, 1996, and 1995, sales to the Company's OEM customers
represented approximately 65%, 71%, and 69% of the Company's net sales,
respectively. The Company's OEM business is subject to risks such as contract
termination, reduced or delayed orders, adoption of competing products
developed by third parties for the OEM or by the OEM's internal development
team, and change in corporate ownership, financial condition, business
direction or product mix by the OEM, any of which could have a material
adverse effect on the Company's results of operations. The Company has
experienced, and may continue to experience, significant reductions or delays
in orders from its OEM customers which have had and may in the future have a
material adverse effect on the Company's quarterly sales and operating
results. In December 1995, one of the Company's OEM customers determined that
its orders of Company switches in late 1995 exceeded its needs. Accordingly,
at such customer's request, the Company delayed its scheduled deliveries to
such OEM for additional switches in the first half of 1996. While the Company
has contracts with certain of its existing OEM customers, none of the
Company's OEM customers is obligated to purchase products from the Company
except pursuant to binding purchase orders. The failure of any of the
Company's OEMs to continue to place orders at current or anticipated levels
would likely have a material adverse effect on the Company's business,
financial condition and results of operations.

    In 1995, the Company entered into a private-label OEM arrangement with
IBM for the production of an integrated server cabinet solution incorporating
the Company's switching products. While the products supplied by the Company
met IBM's requirements, IBM concluded that its program had not achieved
desired results and sought to terminate the program in mid-1996 after the
Company had expended significant product development and operational
resources in connection with this OEM arrangement. Although the Company
negotiated a settlement that covered its direct costs associated with the
program, the Company's branded product development efforts were delayed as a
result of the Company's commitment of substantial product development
resources to the IBM program in the third and fourth quarters of 1995 and the
first quarter of 1996. IBM accounted for only 1% of the Company's net sales
in 1995, but accounted for 18% of the Company's net sales in 1996.

    The Company's business and results of operations are becoming more
dependent upon the Company's sales of branded switching products to other
manufacturers of servers and related networking products, who integrate and
sell Apex-brand switches with their own products. The Company does not have
contracts with any of these customers, who are obligated to purchase products
from the Company only pursuant to binding purchase orders and

                                      22

<PAGE>

could cease doing business with the Company at any time. The Company's
business with these customers is subject to risks such as short order cycles
and difficulty in predicting sales, reductions or delays in orders, adoption
of competing products developed by third parties of the customer or by the
customer's own internal development team, and change in corporate ownership,
financial condition, business direction or product mix of the customer. The
loss of or material decline in orders from certain of these customers could
have a material adverse effect on the Company's business, financial condition
and results of operations.

    With recent industry-wide initiatives to reduce all channel inventories
and to shorten lead times, trends with Apex's major customers are, generally,
to reduce the number of weeks of forward-committed firm orders. As a result
of this factor, which currently is affecting the Company's business with
certain OEMs and certain other server manufacturers purchasing Apex-brand
switches, the Company believes that its sales are becoming more difficult to
predict.

    The Company is currently experiencing increased price competition in both
the market for stand-alone switching systems and the market for integrated
server cabinet systems and expects that pricing pressures will increase in
the future. Increased competition could result in price reduction and loss of
market share which would adversely affect the Company's business, financial
condition and results of operations. See "Description of Business--Risk
Factors."

    On February 24, 1998 the Company signed an agreement for a five-year
lease of approximately 117,000 square feet in an industrial office building
being built in Redmond, Washington for scheduled occupancy in February 1999.
The initial base rent under the lease, portions of which will be allocable to
cost of sales and to general and administrative expense, is approximately
$90,000 per month, plus taxes, insurance and maintenance. Consequently,
beginning in 1999, the Company's gross margin and net income may be adversely
affected by the Company's increased rent expense. See "Description of
Property."

RESULTS OF OPERATIONS

    The following table sets forth, for the periods indicated, selected
statement of operations data expressed as a percentage of net sales:

<TABLE>
<CAPTION>
                                                                  Years Ended December 31,
                                                             -------------------------------
                                                               1997       1996       1995
                                                             ---------  ---------  ---------
<S>                                                          <C>        <C>        <C>
Net sales..................................................      100.0%     100.0%     100.0%
Cost of sales..............................................       55.0       57.2       54.1
                                                             ---------  ---------  ---------
  Gross margin.............................................       45.0       42.8       45.9
                                                             ---------  ---------  ---------
Operating expenses:
  Research and development.................................        3.7        2.9        4.6
  Sales and marketing......................................        8.0        7.4        8.3
  General and administrative...............................        6.8       10.7       14.0
                                                             ---------  ---------  ---------
    Total operating expenses...............................       18.5       21.0       26.9
                                                             ---------  ---------  ---------
Income from operations.....................................       26.5       21.8       19.0
Interest income (expense), net.............................        1.4       (5.6)      (0.9)
Other income...............................................        0.3     --         --
                                                             ---------  ---------  ---------
Income before income taxes and extraordinary item..........       28.2       16.2       18.1
Provision for income taxes (pro forma for 1995)............        9.3        5.5        6.2
                                                             ---------  ---------  ---------
Income before extraordinary item (pro forma for 1995)......       18.9       10.7       11.9
Extraordinary item -- loss on early extinguishment
  of debt, net of applicable income tax benefit............       (0.3)    --         --
                                                              ---------  ---------  --------
Net income (pro forma for 1995)............................    18.6%      10.7%      11.9%
                                                             ---------  ---------  ---------
                                                             ---------  ---------  ---------
</TABLE>

    Years Ended December 31, 1997 and 1996

    NET SALES.  The Company's net sales consist of sales of stand-alone
switching systems and integrated server cabinet solutions. Net sales
increased 65% to $55.4 million for 1997 from $33.6 million for 1996. This
increase was due primarily to increased demand for stand-alone switching
systems from private-label OEM customers, and, to a lesser extent, to
increased demand for Apex-brand products. On a percentage basis,
private-label OEM sales for 1997

                                      23

<PAGE>

increased 51% over 1996, and sales of Apex-brand switching systems and
integrated server cabinet solutions for 1997 increased 99% over 1996.
Private-label OEM sales and sales of Apex-brand products represented 65% and
35%, respectively, of net sales for 1997, compared to 71% and 29%,
respectively, of net sales for 1996. Any cancellation, rescheduling or
reduction of orders by certain of the Company's private-label OEM customers
or other major customers could materially adversely affect the Company's
future operating results. See "Description of Business -- Risk Factors --
Dependence Upon a Limited Number of Customers."

    GROSS MARGIN.  Gross margin is affected by a variety of factors,
including: the ratio of OEM sales to branded sales, as OEM sales typically
have lower gross margins than branded sales; product mix, including the
percentage of integrated server cabinet solution sales, which generally have
lower gross margins than sales of stand-alone switching systems; raw
materials and labor costs; new product introductions by the Company and its
competitors; and the level of outsourcing of manufacturing and assembly
services by the Company. Gross margin increased to 45.0% for 1997 from 42.8%
for 1996, due primarily to shifts in the Company's product mix to a larger
percentage of switch sales, and to a lesser extent, lower levels of warranty
expense. To date, the Company has not experienced significant product
returns. The Company expects that increased competition may affect pricing
and therefore erode the Company's gross margins in the future. See
"Description of Business -- Risk Factors -- Intense Competition."

    RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
include compensation for engineers and materials costs, and are expensed as
they are incurred. Research and development expenses increased to $2.0
million for 1997 from $965,000 for 1996. As a percentage of net sales,
research and development expenses increased to 3.7% in 1997 from 2.9% in
1996. The increases in absolute dollars and as a percentage of net sales were
due primarily to increased project spending and, to a lesser extent,
increased compensation expense associated with increased staffing levels. The
Company believes that the timely development of innovative new products and
enhancements to existing products is essential to maintaining its competitive
position and, therefore, expects research and development expenditures to
increase in absolute dollars.

    SALES AND MARKETING EXPENSES. Sales and marketing expenses include
advertising, promotional material, trade show expenses and sales and
marketing personnel costs, including sales commissions and travel. Sales and
marketing expenses increased to $4.4 million for 1997 from $2.5 million for
1996. As a percentage of net sales, sales and marketing expenses increased to
8.0% in 1997 from 7.4% in 1996. The increases in absolute dollars and as a
percentage of net sales were due primarily to increased sales commissions and
personnel costs associated with increased staffing levels, and increased
advertising and tradeshow expenses. The Company expects these expenditures to
increase in absolute dollars as it seeks to increase its branded and
international sales.

    GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
include personnel costs for administration, finance, human resources and
general management, as well as rent, utilities and legal and accounting
expenses, and provision for Washington State's gross receipts tax. General
and administrative expenses for 1997 increased slightly to $3.7 million from
$3.6 million for 1996. As a percentage of net sales, general and
administrative expenses declined to 6.8% in 1997 from 10.7% in 1996.
Increased personnel costs, including compensation expense associated with the
addition of a Chief Financial Officer and a Corporate Controller in late
1996, and increased legal, accounting and other costs relating to the
Company's being publicly held were partially offset by the elimination of
deferred compensation associated with the Leveraged Recapitalization and, to
a lesser extent, decreased bad debt expense.

    INTEREST INCOME (EXPENSE), NET. Net interest income was $781,000 in 1997.
Net interest expense was $1.9 million in 1996. The increase in net interest
income for 1997, compared to 1996's interest expense, resulted from
elimination of all Company long-term debt immediately following the February
1997 IPO, and from interest income earned on the approximately $30.3 million
of net proceeds from the Company's August 1997 follow-on offering.

    PROVISION FOR INCOME TAXES. The provision for income taxes was
approximately $5.1 million for 1997. The effective federal tax rate for 1997
was approximately 33%, compared to 34% for 1996. The rate declined due to the
benefits associated with implementing a foreign sales corporation in 1997.

    NET INCOME.  Net income increased to $10.3 million for 1997 from $3.6
million net income for 1996. As a percentage of net sales, net income
increased to 18.6% in 1997 from 10.7% in 1996. The increase in absolute
dollars and as a percentage of net sales were due to the factors discussed
above.

                                      24

<PAGE>


Years Ended December 31, 1996 and 1995

    NET SALES.  Net sales increased 71% to $33.6 million for 1996 from $19.7
million for 1995. This increase was due primarily to increased sales of
stand-alone switching systems to OEMs, sales of integrated server cabinet
solutions to IBM in the first half of 1996, and, to a lesser extent, sales of
branded switching systems to resellers. Private-label OEM sales and sales of
Apex-brand products represented 71% and 29%, respectively, of net sales for
1996, compared to 69% and 31%, respectively, of net sales for 1995.

    GROSS MARGIN.  Gross margin declined to 42.8% for 1996 from 45.9% for
1995, due to increased OEM sales as a percentage of net sales, including
sales of integrated server cabinet solutions to IBM in the first half of
1996, as well as increased outsourcing by the Company of component assembly
to meet customer demand. In addition, the Company accrued $630,000 and
$215,000, respectively, in warranty and inventory reserves in 1996. The
increase in warranty reserves in 1996 was the result of the Company's
evaluation of the composition of its product mix and the Company's increased
sales of OEM and branded switching systems which the Company believed
increased its warranty exposure.

    RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased to $965,000 for 1996 from $913,000 for 1995, but decreased as a
percentage of net sales to 2.9% for 1996 from 4.6% for 1995.

    SALES AND MARKETING EXPENSES. Sales and marketing expenses increased to
$2.5 million for 1996 from $1.6 million for 1995, but declined as a
percentage of net sales to 7.4% for 1996 from 8.3% for 1995. The increase in
absolute dollars was primarily due to increased advertising and trade show
expenses, including travel, and, to a lesser extent, increased personnel
costs.

    GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased to $3.6 million for 1996 from $2.8 million for 1995. As a
percentage of net sales, general and administrative expenses declined to
10.7% for 1996 from 14.0% for 1995. The increase in absolute dollars was
primarily due to the move to larger facilities by the Company in September
1995 which increased rent, an increase in the Company's allowance for
doubtful accounts, state tax increases associated with increased net sales
and, to a lesser extent, increased legal and accounting costs and the
addition of corporate infrastructure to support the Company's growth in net
sales.

    INTEREST INCOME (EXPENSE), NET. Net interest expense increased to $1.9
million for 1996 from $186,000 for 1995. The increase in net interest expense
resulted from indebtedness incurred in the Leveraged Recapitalization.

    PROVISION FOR INCOME TAXES. The provision for income taxes was
approximately $1.9 million for 1996. The effective federal tax rate for 1996
was approximately 34%.

    NET INCOME.  Net income increased to $3.6 million for 1996 from pro forma
net income of $2.3 million for 1995 due primarily to increased sales and
related gross profits offset in part by increased interest expense associated
with the Leveraged Recapitalization. As a percentage of net sales, net income
declined to 10.7% for 1996 from 11.9% (pro forma) for 1995. The increase in
absolute dollars and the decrease as a percentage of net sales was due to the
factors discussed above.

LIQUIDITY AND CAPITAL RESOURCES

    As of December 31, 1997 the Company's principal sources of liquidity
consisted of approximately $39.7 million in cash, cash equivalents, and
current investments.

    In addition, the Company has a combined line of credit and letter of
credit facility with a bank with aggregate borrowing capacity of $5.0 million
at prime. Under the line of credit, the Company may borrow up to a specified
amount based upon its accounts receivable. Under the letter of credit
arrangement, the bank will issue commercial letters of credit up to an
aggregate of $5.0 million (less any amounts outstanding under the line of
credit). The combined line of credit and letter of credit facility has a
maturity date of April 30, 1998. There were no borrowings under the line of
credit and the letter of credit facility from January 1, 1996 through March
30, 1998, and all $5.0 million was available. During March 1998, the Company
initiated discussions to renew these credit facilities with the same bank,

                                      25

<PAGE>

under similar terms and conditions, and for the same dollar amount, to be
effective no later than April 30, 1998, and with a maturity date of April 30,
1999

    The Company's operating activities generated cash of approximately $6.3
million for 1997, $725,000 for 1996, and $2.2 million for 1995. The increase
in cash flow from operations in 1997, when compared with 1996, resulted
primarily from greatly increased net income, and to a lesser extent, to
reduced cash disbursements for wages and commissions, partially offset by
increased accounts receivable. At December 31, 1997, the Company's OEM
customers accounted for approximately 59% of the accounts receivable. See
"Business--Risk Factors -Dependence Upon a Limited Number of Customers" and
Note 1 of Notes to Consolidated Financial Statements.

    In December 1995, the Company effected the Leveraged Recapitalization
pursuant to which the Company sold 1.6 million shares of Common Stock for a
total price of approximately $294,000, 300,000 shares of Series A Redeemable
and Convertible Preferred Stock for a total price of approximately $2.2
million and $10.0 million in aggregate principal amount of Class A
Subordinated Promissory Notes. In connection therewith, the Company redeemed
from one of its shareholders 4.0 million shares of Common Stock for an
aggregate price of approximately $22.5 million, consisting of cash of
approximately $12.5 million and the issuance of a Class B Subordinated
Promissory Note in the aggregate principal amount of $10.0 million. The Class
A and Class B Subordinated Promissory Notes bore interest at a rate of 7% per
annum, provided for quarterly interest payments and required the repayment of
all principal and any accrued and unpaid interest upon the consummation of
certain liquidity events, including the Company's IPO. As of December 31,
1996 the Company had outstanding indebtedness of $20.0 million in principal
amount of Class A and Class B Subordinated Promissory Notes.

    As part of the Leveraged Recapitalization, Kevin J. Hafer, the Company's
President and Chief Executive Officer, received 200,000 shares of the
Company's Series B Redeemable Preferred Stock. This Series B Redeemable
Preferred Stock was fully vested on January 1, 1997. The Company redeemed
80,000 shares of such Series B Redeemable Preferred Stock on January 1, 1997
for $5.00 per share (an aggregate of $400,000) and redeemed the balance of
such shares for $5.00 per share (an aggregate of $600,000) upon the
consummation of the Company's IPO.

    In February 1997, the Company consummated the IPO. The net proceeds to
the Company from the IPO were approximately $28.4 million. Of that amount,
$20.0 million was used to repay the subordinated promissory notes incurred in
the Leveraged Recapitalization, and $600,000 was used to redeem the shares of
Series B Redeemable Preferred Stock from Mr. Hafer, the Company's President
and CEO, and $5.6 million was used to repay long-term bank debt of the
Company incurred in connection with the Leveraged Recapitalization. After
application of the net proceeds of the IPO and payment of IPO expenses
(including $190,000 of Directors and Officers insurance policy premium which
was expensed in 1997 as a period cost), the remaining proceeds from the IPO
were approximately $2.2 million.

    A follow-on public offering of 4.6 million shares of the Company's common
stock (including 600,000 shares sold pursuant to the underwriter's
over-allotment option) was completed in August 1997, at a price of $26 per
share. Of the total, 1,250,000 shares were sold by the Company and 3,350,000
shares were sold by certain selling shareholders. The Company plans to use
the approximately $30.3 million in net proceeds from this offering for
general corporate purposes.

    The Company believes that existing cash balances, cash generated from
operations and the funds available to it under credit facilities, together
with the remaining proceeds from the IPO and from the follow-on offering,
will be sufficient to fund its operations through 1998.

Year 2000

    The Company has evaluated the integrity and reliability of its financial
and operational systems and believes that it has no material Year 2000 issues
with such systems. All products currently provided by the Company are Year
2000 compliant. The costs of achieving Year 2000 compliance are not expected
to have a material impact on the Company's business, financial condition or
results of operations. In addition, the Company is also communicating with its
principal customers, suppliers and service providers to ensure Year 2000
issues will not have an adverse impact on the Company. Until the Company's
assessment of external Year 2000 issues is completed, the Company will not
know whether such issues may materially adversely affect the Company's
business, financial condition or results of operations.


                                      26

<PAGE>

IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS

    In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income." This statement requires that
changes in comprehensive income be shown in a financial statement that is
displayed with the same prominence as other financial statements. The
statement will be effective for fiscal years beginning after December 15,
1997. Reclassification for earlier periods is required for comparative
purposes. The Company is currently evaluating the impact this statement will
have on its financial statements; however, because the statement requires
only additional disclosure, the Company does not expect the statement to have
a material impact on its reported financial position or results of operations.

    In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures About Segments of an Enterprise and Related
Information." This statement supersedes Statement of Financial Accounting
Standards No. 14, "Financial Reporting for Segments of a Business
Enterprise." This statement includes requirements to report selected segment
information quarterly and entity-wide disclosures about products and
services, major customers, and the material countries in which the entity
holds assets and reports revenues. The statement will be effective for fiscal
years beginning after December 15, 1997. Reclassification for earlier periods
is required, unless impracticable, for comparative purposes. The Company is
currently evaluating the impact this statement will have on its financial
statements; however, because the statement requires only additional
disclosure, the Company does not expect the statement to have a material
impact on its reported financial position or results of operations.

                                       27

<PAGE>

ITEM 7. FINANCIAL STATEMENTS.

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                             PAGE
                                                                             -----
<S>                                                                          <C>
Report of Independent Accountants...........................................     F-2
Consolidated Financial Statements:
  Consolidated Balance Sheets...............................................     F-3
  Consolidated Statements of Operations.....................................     F-4
  Consolidated Statements of Changes in Shareholders' Equity (Deficit)......     F-5
  Consolidated Statements of Cash Flows.....................................     F-6
  Notes to Consolidated Financial Statements................................  F-7 - F-17

</TABLE>

<PAGE>

                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders
Apex PC Solutions, Inc.

    We have audited the accompanying consolidated balance sheets of Apex PC
Solutions, Inc. (the "Company") as of December 31, 1997 and 1996 and the
related consolidated statements of operations, changes in shareholders'
equity (deficit) and cash flows for each of the three years in the period
ended December 31, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.

    We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

    In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Apex
PC Solutions, Inc. as of December 31, 1997 and 1996 and the consolidated
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1997, in conformity with generally accepted
accounting principles.

    As further described in Note 1 to the consolidated financial statements,
the Company changed its method of reporting earnings per share.

Coopers & Lybrand L.L.P.

Seattle, Washington
January 24, 1998
Except as to Note 11, as to which the date is March 26, 1998


<PAGE>
                            APEX PC SOLUTIONS, INC.

                          CONSOLIDATED BALANCE SHEETS

                           DECEMBER 31, 1997 AND 1996

<TABLE>
<CAPTION>
                                                                                            1997        1996
                                                                                         -----------  -----------
<S>                                                                                      <C>          <C>
                                         ASSETS
Current assets:
  Cash and cash equivalents............................................................. $11,824,978  $ 2,118,887
  Investments...........................................................................  27,878,683      --
  Accounts receivable, net of allowance for doubtful accounts...........................   9,843,716    6,170,193
  Inventories...........................................................................   2,918,119    1,653,011
  Interest receivable...................................................................     378,730      --
  Prepaid expenses......................................................................     243,741      130,218
  Deferred tax assets...................................................................     554,664      800,700
                                                                                          ----------  -----------
    Total current assets................................................................  53,642,631   10,873,009
                                                                                          ----------  -----------
Property and equipment, at cost:
  Leasehold improvements................................................................     145,937        4,677
  Furniture and office equipment........................................................     500,281      273,831
  Computer and other equipment..........................................................     655,581      380,334
                                                                                          ----------  -----------
                                                                                           1,301,799      658,842
  Less accumulated depreciation.........................................................     432,847      195,959
                                                                                          ----------  -----------
                                                                                             868,952      462,883
                                                                                          ----------  -----------
Investments.............................................................................     741,538      --
Other assets............................................................................      17,672      617,255
                                                                                          ----------  -----------
Total assets............................................................................ $55,270,793  $11,953,147
                                                                                          ----------  -----------
                                                                                          ----------  -----------
                     LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
  Current portion of long-term debt..................................................... $    --      $   504,349
  Accounts payable......................................................................     326,619      530,525
  Accrued wages and commissions.........................................................     791,062      554,352
  Accrued warranty costs................................................................     745,000      630,000
  Other accrued expenses................................................................     634,765      282,040
                                                                                          ----------  -----------
    Total current liabilities...........................................................   2,497,446    2,501,266
Subordinated debt.......................................................................      --       20,000,000
Long-term debt, less current portion....................................................      --        5,110,549
Deferred taxes..........................................................................      35,000       16,500
                                                                                          ----------  -----------
Total liabilities.......................................................................   2,532,446   27,628,315
                                                                                          ----------  -----------
Commitments and contingencies

Preferred stock, Series A redeemable and convertible, no par value, 300,000 shares
  authorized, issued and outstanding at December 31, 1996...............................      --        2,205,000
Preferred stock, Series B redeemable, no par value; 200,000 shares authorized, issued
  and outstanding at December 31, 1996..................................................      --        1,000,000
                                                                                          ----------  -----------
Shareholders' equity (deficit):
  Preferred stock, 1,000,000 shares authorized at December 31, 1997, no shares issued
    and outstanding.....................................................................      --          --
  Common stock, no par value;100,000,000 shares authorized at December 31, 1997, and
    10,000,000 shares authorized at December 31, 1996; 13,434,384 and 6,260,016 shares
    issued and outstanding, respectively................................................  62,014,406      648,260
  Deferred compensation.................................................................    (168,131)     (93,431)
  Retained earnings (deficit)...........................................................  (9,107,928) (19,434,997)
                                                                                          ----------  -----------
    Total shareholders' equity (deficit)................................................  52,738,347  (18,880,168)
                                                                                          ----------  -----------
Total liabilities and shareholders' equity (deficit).................................... $55,270,793  $11,953,147
                                                                                          ----------  -----------
                                                                                          ----------  -----------
</TABLE>

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

                                      F-3
<PAGE>
                            APEX PC SOLUTIONS, INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS

              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

<TABLE>
<CAPTION>
                                                                               1997        1996        1995
                                                                            ----------  ----------  ----------
<S>                                                                         <C>         <C>         <C>
Net sales.................................................................. $55,390,444 $33,621,936 $19,670,619
Cost of sales..............................................................  30,488,048  19,238,965  10,635,672
                                                                             ----------  ----------  ----------
  Gross profit.............................................................  24,902,396  14,382,971   9,034,947
                                                                             ----------  ----------  ----------
Research and development...................................................   2,044,154     965,030     913,027
Sales and marketing........................................................   4,446,000   2,481,356   1,631,075
General and administrative.................................................   3,744,458   3,608,897   2,753,763
                                                                             ----------  ----------  ----------
  Total operating expenses.................................................  10,234,612   7,055,283   5,297,865
                                                                             ----------  ----------  ----------
Income from operations.....................................................  14,667,784   7,327,688   3,737,082
Interest income (expense), net.............................................     781,368  (1,859,170)   (186,302)
Other income...............................................................     146,324      --          --
                                                                             ----------  ----------  ----------
Income before income taxes and extraordinary item..........................  15,595,476   5,468,518   3,550,780
Provision (benefit) for income taxes.......................................   5,127,644   1,860,795     (52,000)
                                                                             ----------  ----------  ----------
  Income before extraordinary item.........................................  10,467,832   3,607,723   3,602,780
Extraordinary item -- loss on early extinguishment of debt, net of
  applicable income tax benefit of $72,511.................................    (140,763)     --          --
                                                                             ----------  ----------  ----------
    Net income............................................................. $10,327,069  $3,607,723  $3,602,780
                                                                             ----------  ----------  ----------
                                                                             ----------  ----------  ----------
Pro forma information for 1995:
  Income from operations before income taxes...............................                          $3,550,780
  Pro forma provision for income taxes.....................................                           1,207,265
                                                                             ----------  ----------  ----------
  Pro forma net income.....................................................                          $2,343,515
                                                                             ----------  ----------  ----------
                                                                             ----------  ----------  ----------
Per share data(pro forma in 1995) (Note 1):
Basic:
  Income before extraordinary item.........................................  $     0.88  $     0.63  $     0.29
  Extraordinary item.......................................................       (0.01)     --          --
                                                                             ----------  ----------  ----------
  Net income...............................................................  $     0.87  $     0.63  $     0.29
                                                                             ----------  ----------  ----------
                                                                             ----------  ----------  ----------
Diluted:
  Income before extraordinary item.........................................  $     0.83  $     0.43  $     0.29
  Extraordinary item.......................................................       (0.01)     --          --
                                                                             ----------  ----------  ----------
  Net income...............................................................  $     0.82  $     0.43  $     0.29
                                                                             ----------  ----------  ----------
                                                                             ----------  ----------  ----------
Weighted average shares used in computing net income per share:
  Basic....................................................................  11,853,725   5,772,239   8,000,000
                                                                             ----------  ----------  ----------
                                                                             ----------  ----------  ----------
  Diluted..................................................................  12,651,267   8,307,631   8,000,000
                                                                             ----------  ----------  ----------
                                                                             ----------  ----------  ----------
</TABLE>

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

                                      F-4
<PAGE>
                            APEX PC SOLUTIONS, INC.

      CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)

              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

<TABLE>
<CAPTION>
                                               COMMON STOCK                          RETAINED
                                          ----------------------    DEFERRED         EARNINGS
                                           SHARES      AMOUNT    COMPENSATION      (DEFICIT)         TOTAL
                                          ----------  ----------  -------------  ----------------  -----------
<S>                                       <C>         <C>         <C>            <C>               <C>
Balances, January 1, 1995................  8,000,000  $  586,075   $   --          $    875,562    $ 1,461,637
Net income...............................     --          --           --             3,602,780      3,602,780
Distributions (cash and notes) to
  shareholder............................     --        (585,075)      --            (5,022,062)    (5,607,137)
Deferred compensation related to issuance
  of Series B redeemable preferred
  stock..................................     --          --        (1,000,000)         --          (1,000,000)
Issuance of common stock.................  1,600,000     294,000       --               --             294,000
Redemption of common stock............... (4,000,000)      --          --           (22,499,000)   (22,499,000)
                                           ---------  ----------  -------------  ----------------  -----------
Balances, December 31, 1995..............  5,600,000     295,000    (1,000,000)     (23,042,720)   (23,747,720)
Net income...............................     --          --           --             3,607,723      3,607,723
Issuance of common stock options.........     --         170,574      (170,574)         --             --
Tax benefit of common stock options
  exercised..............................     --          56,002       --               --              56,002
Exercise of common stock options.........    660,016     126,684       --               --             126,684
Amortization of deferred compensation....     --          --         1,077,143          --           1,077,143
                                           ---------  ----------  -------------  ----------------  -----------
Balances, December 31, 1996..............  6,260,016     648,260       (93,431)     (19,434,997)   (18,880,168)
Net income...............................     --          --           --            10,327,069     10,327,069
Proceeds from Initial Public Offering of
  common stock...........................  3,500,000  28,550,762       --               --          28,550,762
Conversion of Series A redeemable and
  convertible preferred stock to common
  stock..................................  2,400,000   2,205,000       --               --           2,205,000
Proceeds from follow-on offering of
  common stock...........................  1,250,000  30,293,123       --               --          30,293,123
Proceeds from issuance of common stock to
  employee stock purchase plan...........     12,792     116,731       --               --             116,731
Tax benefit of common stock options
  exercised..............................     --          98,803       --               --              98,803
Issuance of common stock options.........     --          99,600       (99,600)         --             --
Exercise of common stock options.........     11,576       2,127       --               --               2,127
Amortization of deferred compensation....     --          --            24,900          --              24,900
                                          ---------- -----------  -------------  ----------------  -----------
Balances, December 31, 1997.............. 13,434,384 $62,014,406   $  (168,131)    $ (9,107,928)   $52,738,347
                                          ---------- -----------  -------------  ----------------  -----------
                                          ---------- -----------  -------------  ----------------  -----------
</TABLE>

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

                                      F-5
<PAGE>
                            APEX PC SOLUTIONS, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

<TABLE>
<CAPTION>
                                                                                 1997         1996         1995
                                                                             -----------  -----------  -----------
<S>                                                                          <C>          <C>          <C>
Cash flows from operating activities:
  Net income................................................................ $10,327,069  $ 3,607,723  $ 3,602,780
  Adjustments to reconcile net income to net cash provided by operating
    activities:
    Depreciation and amortization...........................................     243,274      154,225       60,288
    Amortization of deferred compensation...................................      24,900    1,077,143      --
    Extraordinary loss on early extinguishment of debt......................     213,274       --          --
    Loss on disposal of equipment...........................................      --           --           10,614
    Deferred taxes..........................................................     264,536     (732,200)     (52,000)
    Tax benefit of common stock options exercised...........................      98,803       56,002      --
    Provision for obsolete and slow moving inventory........................      20,000      215,000      --
    Provision for doubtful accounts.........................................          10      305,893       30,000
    Changes in:
      Accounts receivable...................................................  (3,673,533)  (1,976,682)  (3,052,603)
      Inventories...........................................................  (1,285,108)    (610,239)    (919,748)
      Interest receivable...................................................    (378,730)       --          --
      Prepaid expenses......................................................    (113,523)      (6,171)     (71,579)
      Other assets..........................................................      63,944      (69,231)     (10,922)
      Accounts payable......................................................    (203,906)    (399,740)     543,079
      Accrued wages and commissions.........................................     236,710   (1,185,351)   1,592,713
      Accrued warranty costs................................................     115,000      630,000      --
      Other accrued expenses................................................     352,725      (61,297)     226,028
      Deferred revenue......................................................      --         (280,302)     280,302
                                                                              ----------   ----------  -----------
        Total adjustments...................................................  (4,021,624)  (2,882,950)  (1,363,828)
                                                                              ----------   ----------  -----------
        Net cash provided by operating activities...........................   6,305,445      724,773    2,238,952
                                                                              ----------    ---------  -----------
Cash flows from investing activities:
  Purchases of investments.................................................. (28,620,221)      --          --
  Purchases of equipment....................................................    (642,957)    (373,666)    (166,217)
                                                                             -----------    ---------  -----------
        Net cash used in investing activities............................... (29,263,178)    (373,666)    (166,217)
                                                                             -----------    ---------  -----------
Cash flows from financing activities:
  Proceeds from Initial Public Offering of common stock.....................  28,866,741       --          --
  Proceeds from Follow On Offering of common stock..........................  30,293,123       --          --
  Distributions paid........................................................      --           --         (992,815)
  Principal payments on notes to shareholder................................      --         (270,000)  (4,569,322)
  Proceeds from the issuance of long-term debt..............................      --           --       16,000,000
  Repayments of long-term debt and capital lease............................ (25,614,898)    (404,215)      (1,347)
  Payment of loan fees......................................................      --          (45,000)    (220,478)
  Proceeds from issuance of Series A redeemable and convertible preferred
    stock...................................................................      --           --        2,205,000
  Redemption of Series B redeemable preferred stock.........................  (1,000,000)      --          --
  Proceeds from issuance of common stock and exercise of common stock
    options.................................................................     118,858      126,684      294,000
  Payment of deferred offering costs........................................      --         (315,979)     --
  Redemption of common stock................................................      --           --      (12,499,000)
                                                                              ----------    ---------  -----------
        Net cash provided by (used in) financing activities.................  32,663,824     (908,510)     216,038
                                                                              ----------    ---------  -----------
Net increase (decrease) in cash and cash equivalents........................   9,706,091     (557,403)   2,288,773
Cash and cash equivalents at beginning of period............................   2,118,887    2,676,290      387,517
                                                                              ----------    ---------  -----------
Cash and cash equivalents at end of period.................................. $11,824,978   $2,118,887  $ 2,676,290
                                                                             -----------    ---------  -----------
                                                                             -----------    ---------  -----------
Supplemental disclosure of cash flow information:
  Cash paid during the year for interest....................................  $  287,010   $1,912,583 $   186,817
                                                                              ----------   ----------  -----------
                                                                              ----------   ----------  -----------
  Cash paid for Federal income taxes........................................  $4,630,000   $2,531,962 $   --
                                                                              ----------   ----------  -----------
                                                                              ----------   ----------  -----------
  Conversion of Series A preferred stock into common stock..................  $2,205,000    $  --      $   --
                                                                              ----------    ---------  -----------
                                                                              ----------    ---------  -----------
  Equipment obtained through capital lease..................................  $   --        $  --      $    20,460
                                                                              ----------    ---------  -----------
                                                                              ----------    ---------  -----------
  Distributions to shareholder evidenced by notes payable...................  $   --        $  --      $ 4,614,322
                                                                              ----------    ---------  -----------
                                                                              ----------    ---------  -----------
  Redemption of common stock evidenced by note payable......................  $   --        $  --      $10,000,000
                                                                              ----------    ---------  -----------
                                                                              ----------    ---------  -----------
</TABLE>

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

                                      F-6
<PAGE>
                            APEX PC SOLUTIONS, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

    THE COMPANY

    Apex PC Solutions, Inc. (the "Company") designs, manufactures and markets
stand-alone switching systems and integrated server cabinet solutions for the
client/server computing market. The Company's switching systems enable
client/server network administrators to manage multiple servers from a single
keyboard, monitor and mouse configuration, facilitating more efficient network
management and administration. The Company purchases material component parts
for the manufacture of switching systems and integrated server cabinets from
domestic suppliers, and generally contracts with third parties for the
subassembly of products. The financial statements of the Company are
consolidated and include the accounts of the Company and its wholly owned
subsidiary, Apex PC Solutions, Ltd. (a foreign sales corporation). Significant
intercompany transactions and balances have been eliminated.

RECAPITALIZATION OF THE COMPANY

    During 1995, the Company was recapitalized through a series of transactions
whereby a portion of the interest of one of its shareholders was redeemed for
cash and a note. Concurrently, new shareholders purchased shares of common and
preferred stock and provided additional financing to the Company. Immediately
prior to the recapitalization, the Company declared dividends to the shareholder
of $992,815 (including redemption of common stock with a basis of $585,075). The
significant components of the leveraged recapitalization were as follows:

        The Company split its common stock 1000 shares for 1.

        A shareholder of the Company received $4,569,322 from the Company for
    repayments of existing notes.

        The Company redeemed 4,000,000 shares (adjusted for all stock splits)
    from a shareholder through payment of $12,499,000 in cash and issuance of a
    $10,000,000 subordinated note ("Class B Subordinated Promissory Note").

        The Company issued 1,600,000 shares (adjusted for all stock splits) of
    common stock and 300,000 shares of Series A Redeemable and Convertible
    Preferred Stock for $294,000 and $2,205,000, respectively, to a group of
    investors. At the same time, the investors loaned the Company $10,000,000
    evidenced by Class A Subordinated Notes.

        The Company issued 200,000 shares of Series B Redeemable Preferred Stock
    to an officer of the Company.

    The new investors did not acquire substantially all of the shares
representing voting interests of the Company. The voting interests of new
investors represented 50% of the voting interests of the Company after the
leveraged recapitalization. Accordingly, the transaction has been recorded as a
recapitalization with amounts distributed to the selling shareholder recorded as
charges to shareholders' equity (deficit). The transaction did not result in a
new basis of accounting for the assets and liabilities of the Company because it
would not have been appropriate under EITF Issue No. 88-16, "Basis in Leveraged
Buyout Transactions" or pushdown accounting guidelines of the Securities and
Exchange Commission ("SEC").

CASH AND CASH EQUIVALENTS

    The Company considers all highly liquid debt instruments purchased with
original maturities of three months or less to be cash equivalents.

                                      F-7
<PAGE>
                            APEX PC SOLUTIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)

INVESTMENTS

    Investments generally consist of highly rated commercial paper and corporate
debt which have original maturities between three months and two years, are
classified as held-to-maturity and are recorded at amortized cost, which
approximates market value.

INVENTORIES

    Inventories are recorded at the lower of first-in, first-out cost or market.

PROPERTY AND EQUIPMENT

    Depreciation of property and equipment is computed on the basis of estimated
useful lives ranging from three to seven years using the straight-line method.
Maintenance and repairs are charged to expense as incurred. Significant
betterments are capitalized. Upon retirement or sale, the cost of the assets
disposed of and the related accumulated depreciation are removed from the
accounts and any resulting gain or loss is reflected in the statement of
operations.

OTHER ASSETS

    In 1996, other assets consisted primarily of financing costs and costs
incurred in connection with the Company's initial public offering. Financing
costs are amortized using the effective interest method, and were charged to
extraordinary loss upon extinguishment of the related debt in February 1997.

REVENUE RECOGNITION

    Revenue on equipment sales is recognized upon shipment, net of allowances
for potential returns. Certain customer contracts require equipment installation
at the customer's location and in those circumstances, revenue is recognized
after completion of the installation.

INCOME TAXES

    On October 31, 1995, the Company's status as an S Corporation for Federal
income tax purposes was automatically terminated due to a sale of stock to an
entity not eligible to be a shareholder of a subchapter S Corporation. Taxable
income prior to the change in status was taxed directly to the former sole
shareholder and financial statements for periods through this date reflected no
provision for income taxes. Subsequent to October 31, 1995 the Company has been
taxed as a C Corporation for Federal income tax purposes. The Company has
provided for these income taxes under the principles of Statement of Financial
Accounting Standards No. 109 (SFAS No. 109).

EARNINGS PER SHARE

    Prior to December 31, 1997, the Company presented pro forma income per share
based on the weighted average number of shares of common stock and common
equivalent shares outstanding, adjusted for stock splits retroactively applied
to all periods presented (see Note 8). Pursuant to certain SEC Staff Accounting
Bulletins, common stock and common stock equivalents issued at prices below the
initial public offering ("IPO") price of $9.00 during the 12 months immediately
preceding the date of the initial filing of the Registration Statement for the
Company's IPO were included in the calculation of earnings per share, using the
treasury stock method based on the assumed IPO price, as if the common stock
equivalents were outstanding for all periods presented.

    Effective December 31, 1997, the Company began reporting earnings per share
in accordance with Statement of Financial Accounting Standards Number 128 ("SFAS
128") as modified by SEC Staff Accounting Bulletin Number 98 ("SAB 98"). SFAS
128 requires the presentation of basic and diluted earnings per share. Basic
earnings per share is computed by dividing income available to common
shareholders (net income, in the Company's case) by the weighted average common
shares outstanding. Diluted earnings per share is computed in a manner similar
to computing basic earnings per share except that the denominator is increased
to include the number of additional common shares that would have been
outstanding if the dilutive potential common shares had been issued. The number
of dilutive common shares is computed using the treasury stock method. Among
other things, SAB 98 requires that the basic and diluted

                                      F-8
<PAGE>
                            APEX PC SOLUTIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)

computations give effect to the dilutive effect of common stock, options or
warrants to purchase common stock for nominal consideration by treating such
shares as outstanding for all periods presented.

    The following table summarizes the computation of shares for basic and
diluted earnings per share under SFAS 128 and SAB 98 for the years ended
December 31:

<TABLE>
<CAPTION>
                                                                    1997       1996       1995
                                                                 ----------  ---------  ---------
<S>                                                              <C>         <C>        <C>
Basic:
  Weighted average common shares................................ 11,853,725  5,772,239  8,000,000
  Effect of nominal shares......................................     --         --         --
                                                                 ----------  ---------  ---------
Weighted average shares use in computing basic earnings per
  share......................................................... 11,853,725  5,772,239  8,000,000
                                                                 ----------  ---------  ---------
                                                                 ----------  ---------  ---------
Diluted:
  Weighted average common shares................................ 11,853,725  5,772,239  8,000,000
  Potential additional common shares (treasury stock method):
    Stock options...............................................    475,351    135,392     --
    Series A preferred stock....................................    322,191  2,400,000     --
  Effect of nominal shares......................................     --         --         --
                                                                 ----------  ---------  ---------
Weighted average shares use in computing diluted earnings per
  shares........................................................ 12,651,267  8,307,631  8,000,000
                                                                 ----------  ---------  ---------
                                                                 ----------  ---------  ---------
</TABLE>

    At the time of the Company's year-end earnings press release on January 26,
1998, the SEC's guidelines for computing basic and diluted earnings per share
required that companies continue reporting common stock equivalents computed
under the treasury stock method (using the Company's IPO price for the twelve
months prior to the initial filing of the IPO). On February 3, 1998, the SEC
issued SAB 98 which indicated that the Company should follow the guidelines of
SFAS 128 for computing common stock equivalents for diluted earnings per share.
Consequently, 1997 earnings per share amounts in these financial statements
differ from the press release as follows:

<TABLE>
<CAPTION>
                                                                        AS          PRESS
                                                                     REPORTED      RELEASE     DIFFERENCE
                                                                    -----------  -----------  -------------
<S>                                                                 <C>          <C>          <C>
Basic earnings per share..........................................   $    0.87    $    0.84     $    0.03
                                                                         -----        -----         -----
                                                                         -----        -----         -----
Diluted earnings per share........................................   $    0.82    $    0.80     $    0.02
                                                                         -----        -----         -----
                                                                         -----        -----         -----
</TABLE>

    Consistent with the 1997 presentation, earnings per share for the years
ended December 31,1996 and 1995 have been restated to conform with the
presentation required by SFAS 128 and SAB 98 as follows:

<TABLE>
<CAPTION>
                                                                                       1996       1995
                                                                                     ---------  ---------
<S>                                                                                  <C>        <C>
Fully diluted earnings per share as previously reported............................  $    0.40  $    0.20
Effect of SFAS 128 implementation..................................................       0.03       0.09
                                                                                     ---------  ---------
Diluted earnings per share.........................................................  $    0.43  $    0.29
                                                                                     ---------  ---------
                                                                                     ---------  ---------
</TABLE>

PRO FORMA DATA

    Pro forma provision for income taxes, net income and per share data
represent the results of operations for the year ended December 31, 1995,
adjusted to reflect a provision for income taxes, calculated as if the Company
had been taxed as a C Corporation.

USE OF ESTIMATES

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

                                      F-9
<PAGE>
                            APEX PC SOLUTIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)

FAIR VALUE OF FINANCIAL INSTRUMENTS

    For certain financial instruments, including investments, accounts
receivable, accounts payable and accrued liabilities, recorded amounts
approximate market value.

CONCENTRATIONS OF CUSTOMER BASE AND CREDIT RISK

    One of the Company's OEM customers accounted for 51%, 30%, and 54% of the
Company's net sales (excluding service sales) for the years ended December 31,
1997, 1996 and 1995, respectively. The receivable from this customer totaled
approximately 48% and 57% of trade receivables at December 31, 1997 and 1996,
respectively. For the year ended December 31, 1996, the Company had sales to two
other OEM customers which accounted for 18% and 15% of net sales. The aggregate
receivables from these two customers totaled 18% of trade accounts receivable at
December 31, 1996. The customer which accounted for 18% of net sales for the
year ended December 31, 1996 accounted for 1% of the Company's sales in 1995 and
cancelled its 1996 OEM arrangement with the Company in mid-1996. This customer
continues to be a customer of the Company, and starting in the third quarter of
1997, began purchasing material quantities of the Company's branded switch
products for incorporation into the customer's new cabinet-based server
products.

    The Company's private-label OEM business is subject to risks such as
contract termination, reduced or delayed orders, adoption of competing products
developed by third parties for the OEM or by the OEM's internal development
team, and change in corporate ownership, financial condition, business direction
or product mix by the OEM, any of which could have a material adverse effect on
the Company's business, financial condition and results of operations. The
Company has experienced, and may continue to experience, significant reductions
or delays in orders from its OEM customers, which have had and may in the future
have a material adverse effect on the Company's quarterly sales and operating
results.

    For the remaining customers, management believes concentrations of credit
risk with respect to trade receivables are limited due to the nature of the
customers comprising the Company's customer base. The Company performs credit
reviews on major new customers, but rarely requires collateral.

    The Company maintains its cash in a bank in amounts which, at times, may
exceed federally insured limits. The Company has not experienced any losses in
such accounts.

MAJOR VENDORS

    The Company purchases all server cabinets from one vendor and has another
vendor sub-assemble its switching systems. Although there are a limited number
of vendors able to assemble concentrator switches, management believes that
other vendors could provide similar services on comparable terms. A change in
vendors, however, could cause a delay in manufacturing and possible loss of
sales, which would adversely affect operating results.

WARRANTY COSTS

    The Company provides, by a current charge to operations, an amount it
estimates will be needed to cover future warranty obligations for products sold
to date.

RESEARCH AND DEVELOPMENT

    The Company makes significant investments in research for the development of
new technologies and products, including both switching systems and server
cabinets. Research and development costs are charged to expense as incurred.

ADVERTISING

    The Company expenses advertising costs as incurred. Advertising expense was
$1,425,827, $1,044,737 and $772,484 for the years ended December 31, 1997, 1996
and 1995 respectively.

                                      F-10
<PAGE>
                            APEX PC SOLUTIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)

NEW ACCOUNTING PRONOUNCEMENTS

    In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income." This statement requires that changes
in comprehensive income be shown in a financial statement that is displayed with
the same prominence as other financial statements. The statement will be
effective for fiscal years beginning after December 15, 1997. Reclassification
for earlier periods is required for comparative purposes. The Company is
currently evaluating the impact this statement will have on its financial
statements; however, because the statement requires only additional disclosure,
the Company does not expect the statement to have a material impact on its
reported financial position or results of operations.

    In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures About Segments of an Enterprise and Related Information."
This statement supersedes Statement of Financial Accounting Standards No. 14,
"Financial Reporting for Segments of a Business Enterprise." This statement
includes requirements to report selected segment information quarterly and
entity-wide disclosures about products and services, major customers, and the
material countries in which the entity holds assets and reports revenues. The
statement will be effective for fiscal years beginning after December 15, 1997.
Reclassification for earlier periods is required, unless impracticable, for
comparative purposes. The Company is currently evaluating the impact this
statement will have on its financial statements; however, because the statement
requires only additional disclosure, the Company does not expect the statement
to have a material impact on its reported financial position or results of
operations.

NOTE 2. ACCOUNTS RECEIVABLE:

    Accounts receivable consist of the following at December 31:

<TABLE>
<CAPTION>
                                                                              1997       1996
                                                                          -----------  ----------
<S>                                                                       <C>          <C>
Trade receivables........................................................ $10,179,619  $6,506,086
Less allowance for doubtful accounts.....................................    (335,903)   (335,893)
                                                                          -----------  ----------
                                                                           $9,843,716  $6,170,193
                                                                          -----------  ----------
                                                                          -----------  ----------
</TABLE>

NOTE 3. INVENTORIES:

    Inventories consist of the following at December 31:

<TABLE>
<CAPTION>
                                                                              1997       1996
                                                                           ---------   ----------
<S>                                                                        <C>         <C>
Raw materials............................................................. $  979,438  $1,086,142
Work-in-process...........................................................    908,815     260,356
Finished goods............................................................  1,264,866     521,513
                                                                           ----------  ----------
                                                                            3,153,119   1,868,011
Less reserve for obsolescence.............................................   (235,000)   (215,000)
                                                                           ----------  ----------
                                                                           $2,918,119  $1,653,011
                                                                           ----------  ----------
                                                                           ----------  ----------
</TABLE>

NOTE 4. LINE OF CREDIT AND LETTERS OF CREDIT:

    Under the terms of a credit agreement with a bank (Note 5), the Company has
a combined line of credit and letter of credit facility with a bank with
aggregate borrowing capacity of $5.0 million at prime. Under the line of credit,
the Company may borrow up to a specified amount based upon its accounts
receivable. Under the letter of credit arrangement, the bank will issue
commercial letters of credit up to an aggregate of $5.0 million (less any
amounts outstanding under the line of credit). The agreement includes various
restrictive covenants which, among other things require the Company to maintain
certain minimum working capital and net worth amounts. The combined line of
credit and letter of credit facility has a maturity date of April 30, 1998.
There were no borrowings under the line of credit and the letter of credit
facility from January 1, 1996 through December 31, 1997, and all $5.0 million is
available.

NOTE 5. SUBORDINATED AND LONG-TERM DEBT:

    In February 1997, the Company consummated the IPO. The net proceeds to the
Company from the IPO were approximately $28.4 million. Of that amount, $20.0
million was used to repay the subordinated promissory notes incurred in the
Leveraged Recapitalization, and $5.6 million was used to repay long-term bank
debt of the Company incurred in connection with the Leveraged Recapitalization.

                                      F-11
<PAGE>
                            APEX PC SOLUTIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 5. SUBORDINATED AND LONG-TERM DEBT: (CONTINUED)

    Long-term debt consisted of the following at December 31:

<TABLE>
<CAPTION>
                                                                                                1997        1996
                                                                                              ---------  ----------
<S>                                                                                           <C>        <C>
Note payable to bank, collateralized by substantially all of the Company's assets, interest
  payable monthly at prime (8.25%, at December 31, 1996) plus 1.5%. The note was paid in
  full by the Company in February, 1997.....................................................  $  --      $5,600,000
Notes payable to shareholders subordinated to borrowings from the bank under note payable
  and line of credit and letter of credit facility, with interest payable quarterly at 7.0%.
  Unpaid interest and principal payable in full on the consummation of a Qualified Liquidity
  Event as defined in note agreements. The notes were paid in full by the Company in
  February, 1997............................................................................     --      20,000,000
Capital lease obligation for the purchase of equipment totaling $20,460, interest at 6.28%,
  monthly principal and interest payments of $442. The lease obligation was paid in full in
  April 1997................................................................................     --          14,898
                                                                                              ---------  ----------
                                                                                                 --      25,614,898
Less current portion........................................................................     --         504,349
                                                                                              --------- -----------
                                                                                              $  --     $25,110,549
                                                                                              --------- -----------
                                                                                              --------- -----------
</TABLE>

NOTE 6. OPERATING LEASE COMMITMENTS:

    The Company leases its facilities for base rent of $21,067 per month
under an operating lease with a portion expiring September 30, 1998, and a
portion expiring January 31, 2001. The Company pays taxes, insurance, normal
maintenance and certain other operating expenses in addition to the base
rent. The lease includes provisions for rent escalation based on increases in
the consumer price index. The Company has two consecutive two year renewal
options on this lease.

    Future minimum payments as of December 31, 1997 under the non-cancelable
operating lease were as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31:
----------------------------------------------------------------------------------------
<S>                                                                                       <C>
1998....................................................................................  $ 207,753
1999....................................................................................     78,595
2000....................................................................................     79,140
2001....................................................................................      6,595
                                                                                          ---------
                                                                                          $ 372,083
                                                                                          ---------
                                                                                          ---------
</TABLE>

    Rent expense totaled $268,843, $216,888 and $125,238 for the years ended
December 31, 1997, 1996 and 1995, respectively.

NOTE 7. EMPLOYEE BENEFIT PLAN:

    The Company sponsors a 401(k) plan that covers eligible full-time employees.
Employer matching contributions are made at the discretion of the Board of
Directors. Employer contributions totaled $84,487, $58,968 and $35,217 for the
years ended December 31, 1997, 1996 and 1995, respectively.

NOTE 8. SHAREHOLDERS' EQUITY (DEFICIT):

    The Company is authorized to issue 100,000,000 shares of voting common
stock, no par value. At its discretion, the Board of Directors may declare
dividends on shares of common stock. Upon liquidation or dissolution, holders of
common stock will be paid only after Preferred Stock preferences have been
satisfied.

    On December 27, 1995 all outstanding shares of common stock were split 1,000
for one. On January 22, 1996 all outstanding shares of common stock were split
two for one. On December 9, 1996, all outstanding shares of common stock were
split four for one. All common stock share and per share amounts have been
restated to reflect these stock splits.

                                       F-12

<PAGE>

NOTE 8. SHAREHOLDERS' EQUITY (DEFICIT): (CONTINUED)

    During 1995 the Company authorized and issued 300,000 shares of Series A
Redeemable and Convertible Preferred Stock, no par value. All holders of Series
A Redeemable and Convertible Preferred Stock were entitled to vote on all
matters except election of directors with the holders of the common stock on an
"as if converted" basis. Each share of Series A Redeemable and Convertible
Preferred Stock was convertible into that number of shares as determined by
dividing the original per share purchase price by a conversion price. The Series
A Redeemable and Convertible Preferred Stock was convertible at the option of
the holder or automatically upon sale of the Company's common stock in a
Qualified Public Offering as defined in the Restated Articles of Incorporation
or upon the vote of the holders of 2/3 of the outstanding Series A Redeemable
and Convertible Preferred Stock in favor of conversion. As a result of the
common stock splits in 1996, the shares of Series A Redeemable and Convertible
Preferred Stock were convertible into 2,400,000 shares of common stock. Upon
consummation of the Company's IPO in February 1997, the Series A Redeemable and
Convertible Preferred Stock was converted into 2,400,000 shares of the Company's
common stock.

    During 1995, the Company authorized and issued 200,000 shares of Series B
Redeemable Preferred Stock, no par value, to an officer as compensation for
future service. The Series B Redeemable Preferred Stock had no voting rights. At
its discretion, the Board of Directors could declare dividends on shares of
Series B Redeemable Preferred Stock. Upon liquidation or dissolution, after
payment in full of the liquidation preferences to holders of Series A Redeemable
and Convertible Preferred Stock, the holder of Series B Redeemable Preferred
Stock was entitled to the redemption value of the shares plus all accrued and
unpaid dividends. Under the terms of the officer's employment agreement, the
shares vested ratably over a period of six years. On December 9, 1996, the
employment agreement was modified whereby all 200,000 shares became fully vested
on January 1, 1997. Under the terms of the amendment, 80,000 shares became
redeemable at a price of $5 per share on January 1, 1997. The remaining 120,000
shares became redeemable at a price of $5 per share on the earlier of the
closing of a Qualified Public Offering of the Company's stock, or if no such
Qualified Public Offering has occurred, 60,000 shares in each of December 2000
and 2001. The Series B Redeemable Preferred Stock was recorded at its redemption
price of $5 per share with a corresponding charge to shareholders' equity
(deficit) for deferred compensation. Pursuant to the amendment, deferred
compensation of $1,000,000 was fully amortized to expense in 1996. In 1997, the
Series B Redeemable Preferred Stock was fully redeemed by the Company.

NOTE 9. STOCK OPTION AND PURCHASE PLANS:

    On December 9, 1996, the Company adopted an employee stock purchase plan
(the "ESPP"), through which employees of the Company may participate in stock
ownership of the Company. Shares of common stock reserved for the ESPP total
250,000. Employees of the Company who customarily work more than five months out
of the calendar year and a minimum of 20 hours per week are eligible to
participate in the ESPP. Participants shall become ineligible if employment with
the Company terminates or the participant owns greater than 5% of the combined
voting power or value of all classes of stock of the Company. The price of
shares purchased under the ESPP is the lower of 85% of the fair market value of
the shares on the first day of each quarterly offering period, or 85% of the
fair market value of the shares on the last day of the quarterly offering
period. Under the ESPP, the ESPP administrator will administer and interpret all
rules and regulations applicable to the ESPP. Pursuant to the ESPP, 12,792
shares were issued at a weighted average price of $9.13 per share in 1997 for
the first three quarters of 1997, and 3,300 shares will be issued in 1998 for
the fourth quarter of 1997. No shares were issued pursuant to the ESPP in 1996.

    The Company has adopted an employee stock option plan (the "Plan"), which
provides for nonqualified and incentive stock options for officers, directors,
employees, and consultants, and reserved a total of 2,161,760 shares of common
stock for issuance pursuant to the Plan. Options under the Plan will generally
expire 10 years from the date of grant, or 5 years in the case of an optionee
owning more than 10% of the voting power of all classes of stock. Under the
Plan, the Plan administrator will fix the conditions for the exercise of the
options. Purchase prices for common stock subject to options issued under the
Plan generally approximate fair market value of the related shares at the date
of grant. Generally, options vest over four years.

    The Company adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123 (SFAS No. 123), "Accounting for Stock-Based
Compensation." The Company has chosen to continue to account for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and
related interpretations. Accordingly, compensation cost for stock options is
measured as the excess, if any, of the fair value of the Company's stock at the
date of the grant over the amount an employee must pay to acquire the stock.

                                      F-13
<PAGE>
                            APEX PC SOLUTIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 9. STOCK OPTION AND PURCHASE PLANS: (CONTINUED)

Information regarding activity of the option Plan is as follows:

<TABLE>
<CAPTION>
                                                                                                  WEIGHTED AVERAGE
                                                                                        SHARES     EXERCISE PRICE
                                                                                       ---------  -----------------
<S>                                                                                    <C>        <C>
Options outstanding, January 1, 1995.................................................     --             --
Options granted December 29, 1995....................................................    705,880      $    0.18
                                                                                       ---------
Options outstanding, December 31, 1995...............................................    705,880           0.18
Options granted February 1996........................................................    405,000           0.18
Options granted June 1996............................................................    106,000           0.18
Options granted September 1996.......................................................    103,000           0.18
Options granted October 1996.........................................................     24,000           0.50
Options exercised....................................................................   (660,016)          0.19
                                                                                       ---------
Options outstanding, December 31, 1996...............................................    683,864           0.19
Options granted January 1997.........................................................     24,000           2.10
Options granted February 1997........................................................     22,000           9.00
Options granted June 1997............................................................    221,700          18.75
Options granted October 1997.........................................................     81,250          23.63
Options cancelled....................................................................     (2,000)          9.00
Options exercised....................................................................    (11,576)          0.18
                                                                                       ---------
Options outstanding, December 31, 1997...............................................  1,019,238           6.31
                                                                                       ---------
                                                                                       ---------
Options available for grant at December 31, 1997.....................................    470,930
                                                                                       ---------         ------
                                                                                       ---------         ------
Weighted average fair value of options granted in 1997 whose exercise price was equal
  to the fair value of the stock on the date of grant................................                 $   12.12
                                                                                                         ------
                                                                                                         ------
Weighted average fair value of options granted in 1997 whose exercise price was less
  than the fair value of the stock on the date of grant..............................                 $    5.10
                                                                                                         ------
                                                                                                         ------
</TABLE>

    No compensation expense has been recorded for options granted in December
1995, February 1996 and, June 1996, because the options granted during these
periods were for prices equal to the fair value of the related shares, based on
the price of the shares of common stock purchased by investors in December 1995
(see Note 1) and independent appraisals of the Company's common stock. For
options issued in September and October 1996, and January 1997, deferred
compensation expense of $32,574, $138,000 and $99,600, respectively, was
recorded in the amounts of the excess of the values of the underlying common
stock based on an independent appraisal, over the option prices. Vesting of 25%
of the options granted in September 1996 was accelerated in October 1996. In
addition, 50% of the options granted in October 1996 were immediately
exercisable. Remaining options granted in September and October 1996 vest over
four years. Deferred compensation expense is amortized as the related options
vest or become exercisable. No compensation expense has been recorded for
options granted in February, June and October 1997 because the options granted
during these periods were for prices equal to the fair value of the related
shares, based on the closing sales price on the date of the grant.

    The following table summarizes information about fixed-price options
outstanding at December 31, 1997:

<TABLE>
<CAPTION>
                      NUMBER OF   WEIGHTED AVERAGE    NUMBER OF
 WEIGHTED AVERAGE      OPTIONS       REMAINING         OPTIONS
  EXERCISE PRICES    OUTSTANDING  CONTRACTUAL LIFE   EXERCISABLE
-------------------  -----------  ----------------  -------------
<S>                  <C>          <C>               <C>
     $    0.18          660,288         8 Years          17,340
          0.50           12,000         9 Years          --
          2.10           24,000         9 Years          --
          9.00           20,000         9 Years          --
         18.75          221,700         9 Years          --
         23.63           81,250        10 Years           4,166
                     -----------                         ------
                      1,019,238                          21,506
                     -----------                         ------
                     -----------                         ------
</TABLE>

                                      F-14
<PAGE>
                            APEX PC SOLUTIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 9. STOCK OPTION AND PURCHASE PLANS: (CONTINUED)

    The following table presents net income and per share amounts as if the
Company accounted for compensation expense related to stock options and the
ESPP under the fair value method prescribed by SFAS 123 for the years ended
December 31:

<TABLE>
<CAPTION>
                                                                  1997        1996       1995
                                                              -----------  ---------- ----------
<S>                                                           <C>          <C>        <C>
Net income as reported (pro forma for 1995).................. $10,327,069  $3,607,723 $2,343,515
                                                              -----------  ---------- ----------
                                                              -----------  ---------- ----------
Net income pro forma.........................................  $9,954,750  $3,476,338 $2,343,515
                                                               ----------  ---------- ----------
                                                               ----------  ---------- ----------
Basic earnings per share as reported (pro forma for 1995)....  $     0.87  $     0.63  $    0.29
                                                               ----------  ----------  ---------
                                                               ----------  ----------  ---------
Diluted earnings per share as reported (pro forma for
  1995)......................................................  $     0.82  $     0.43  $    0.29
                                                               ----------  ----------  ---------
                                                               ----------  ----------  ---------
Basic earnings per share pro forma...........................  $     0.84  $     0.60  $    0.29
                                                               ----------  ----------  ---------
                                                               ----------  ----------  ---------
Diluted earnings per share pro forma.........................  $     0.79  $     0.42  $    0.29
                                                               ----------  ----------  ---------
                                                               ----------  ----------  ---------
</TABLE>

    The fair value of each option granted in 1997 was estimated on the date of
grant using the Black-Scholes single option method. For options granted prior to
1997 the fair value of each option granted was estimated on the date of grant
using the minimum value method. The following weighted average assumptions were
used for grants in 1997, 1996 and 1995:

<TABLE>
<CAPTION>
                                                                               1997         1996           1995
                                                                             ---------  -------------  -------------
<S>                                                                          <C>        <C>            <C>
Assumption:
Risk free interest rate....................................................  5.98%      5.38% to 6.77% 5.38% to 6.77%
Expected holding period....................................................  5 years    10 years       10 years
Dividend yield.............................................................  0.0%       0.0%           0.0%
Expected volatility........................................................  70.0%      0.0%           0.0%
</TABLE>

NOTE 10. INCOME TAXES:

    The Company's status as an S Corporation was automatically terminated on
October 31, 1995 as a result of the sale by the former sole shareholder of stock
to an entity that is not eligible to be a shareholder in a subchapter S
Corporation. For the period from January 1, 1995 through October 31, 1995 the
former sole shareholder was taxed on the Company's taxable income. The sole
shareholder of the Company for the periods in which the Company was taxed as an
S Corporation has agreed to indemnify and hold the Company harmless from any
federal or state income tax liability, including interest and penalties (if
any), resulting from the Company failing to qualify as an S Corporation from
inception through October 31, 1995.

    For the income earned after the termination of its status as an S
Corporation, the Company will provide for income taxes under the principles of
SFAS No. 109. This statement requires that income taxes be provided for taxes
currently due and for expected future tax effects of the temporary differences
between the book and tax bases of assets and liabilities that will result in
taxable or deductible amounts in the future based on enacted tax laws and rates
applicable to the periods in which the differences are expected to affect
taxable income. Deferred tax assets are reduced by valuation allowances when
management determines that their realization is not likely.

                                      F-15
<PAGE>
                            APEX PC SOLUTIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 10. INCOME TAXES: (CONTINUED)

    The significant components of the Company's deferred tax assets and
liabilities were as follows on December 31:

<TABLE>
<CAPTION>
                                                                                 1997       1996
                                                                               ---------  ---------
<S>                                                                            <C>        <C>
Deferred income tax assets:
  Allowance for doubtful accounts............................................  $ 117,600  $ 114,200
  Inventory capitalization...................................................     52,500     40,400
  Inventory reserve..........................................................     82,300     73,100
  Accrued warranty costs.....................................................    260,800    214,200
  Amortization of deferred compensation......................................      8,000    340,000
  Other accrued liabilities..................................................     33,464     18,800
                                                                               ---------  ---------
    Deferred income tax assets...............................................    554,664    800,700
                                                                               ---------  ---------
Deferred income tax liability:
  Depreciation...............................................................     35,000     16,500
                                                                               ---------  ---------
    Deferred income tax liability............................................     35,000     16,500
                                                                               ---------  ---------
    Net deferred tax asset...................................................  $ 519,664  $ 784,200
                                                                               ---------  ---------
                                                                               ---------  ---------
</TABLE>

    Although realization is not assured, management believes that it is more
likely than not that all of the net deferred tax asset will be realized through
future taxable income.

    The income tax (benefit) provision consisted of the following:

<TABLE>
<CAPTION>
                                                                     YEARS ENDED DECEMBER 31,
                                                                  -------------------------------
<S>                                                               <C>        <C>        <C>
                                                                    1997       1996       1995
                                                                 ---------- ----------  ---------
Current......................................................... $4,790,597 $2,592,995  $  --
Deferred........................................................    264,536   (732,200)   (25,000)
Change in tax status............................................     --         --        (27,000)
                                                                 ---------- ----------  ---------
                                                                 $5,055,133 $1,860,795  $ (52,000)
                                                                 ---------- ----------  ---------
                                                                 ---------- ----------  ---------
</TABLE>

    Reconciliations of the effective income tax rate on income before taxes with
the Federal statutory rates of 35% for 1997 and 34% for 1996 and 1995 were as
follows:

<TABLE>
<CAPTION>
                                                                                     YEARS ENDED DECEMBER 31,
                                                                               -------------------------------------
<S>                                                                            <C>          <C>          <C>
                                                                                  1997         1996         1995
                                                                                  -----        -----        -----
Statutory Rate...............................................................        35.0%        34.0%        34.0%
Tax benefit of foreign sales corporation.....................................        (1.4)      --           --
Tax rate difference on income under $10,000,000..............................        (0.6)      --           --
Change in tax status:
  Effect of earnings attributable to S Corporation shareholder...............      --           --            (35.0)
  Effect of establishment of deferred taxes..................................      --           --             (0.8)
Other........................................................................        (0.1)      --              0.3
                                                                                      ---          ---          ---
Effective tax rate...........................................................        32.9%        34.0%        (1.5)%
                                                                                      ---          ---          ---
                                                                                      ---          ---          ---
</TABLE>

    In accordance with generally accepted accounting principles, tax benefits
realized upon exercise of common stock options of $98,803 and $56,002 for the
years ended December 31, 1997 and 1996, respectively, have been accounted for as
an increase to shareholders' equity (deficit).

NOTE 11. SUBSEQUENT EVENTS:

    On February 24, 1998 the Company signed an agreement for a five-year lease
of approximately 117,000 square feet in an industrial office building being
built in Redmond, Washington, for scheduled occupancy by the Company in February
1999. The initial base rent under this lease is approximately $90,000 per month,
plus taxes, insurance and maintenance.

    On February 25, 1998, the Company filed complaints for infringement of
U.S. Patent Number 5,721,842 in United States District Court for the Western
District of Washington at Seattle against Cybex Computer Products Corporation
and Rose Electronics. This litigation, and any other litigation relating to
the Company's intellectual property to which the Company becomes a party, is
subject to numerous risks and uncertainties, and there can be no assurance
that the Company will be successful in any such litigation. This litigation
or other litigation by or against

                                      F-16
<PAGE>
                            APEX PC SOLUTIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 11. SUBSEQUENT EVENTS: (CONTINUED)

the Company could result in significant expense to the Company and divert the
efforts of the Company's technical and management personnel, whether or not such
litigation results in a favorable determination for the Company. In the event of
an adverse result in this litigation or any other such litigation, the Company
could be required to pay substantial damages, suspend or cease the manufacture,
use and sale of infringing products, expend significant resources to develop
non-infringing technology, discontinue the use of certain processes or obtain
licenses to the infringing technology.

                                       F-17

<PAGE>

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
  FINANCIAL DISCLOSURE.

    None.

                                       28
<PAGE>

                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
  WITH SECTION 16(A) OF THE EXCHANGE ACT.

EXECUTIVE OFFICERS AND DIRECTORS

    The executive officers and directors of the Company, and their ages, as of
December 31, 1997 are as follows:

<TABLE>
<CAPTION>
NAME                                               AGE                        POSITION
---------------------------------------------      ---      ---------------------------------------------
<S>                                            <C>          <C>

Kevin J. Hafer...............................          40   President, Chief Executive Officer and
                                                            Director

Douglas A. Bevis.............................          52   Vice President, Chief Financial Officer and
                                                            Secretary

Christopher L. Sirianni......................          43   Vice President, Sales and Marketing

Sterling Crum................................          43   Director

Jeffrey T. Chambers..........................          43   Director

William McAleer..............................          46   Director

Edwin L. Harper..............................          53   Director
</TABLE>

    Kevin J. Hafer has been the President of the Company since June 1995, and
has served as the Chief Executive Officer of the Company since December 1995 and
as a Director of the Company since January 1996. From February 1993 to June
1995, Mr. Hafer served as the General Manager of the Company, and from December
1989 to January 1993 he served as the Manager and Technical Operations Director
of the Predecessor. Prior to joining the Company's predecessor, Mr. Hafer was
employed at Harris Corporation from May 1979 to September 1989, serving in
various management capacities.

    Douglas A. Bevis has been the Vice President and Chief Financial Officer of
the Company since September 1996, and Secretary since December 1996. From
September 1990 to February 1996, Mr. Bevis was employed at CH2M HILL, Inc., a
national environmental engineering consulting firm, where he served as Vice
President and Treasurer from September 1990 to April 1993 and as Senior Vice
President and Chief Financial Officer from April 1993 to February 1996.

    Christopher L. Sirianni has been the Vice President, Sales and Marketing of
the Company since August 1996. From March 1994 to August 1996, Mr. Sirianni
served as the Company's Director of Sales and Marketing. From August 1992 to
February 1994, Mr. Sirianni served as the Director of Sales of Coastal
Manufacturing, a metal fabrication company. Mr. Sirianni served as a
consultant/sales executive for National Precision Bearing, a distributor, from
November 1991 to June 1992. From September 1982 to October 1991, Mr. Sirianni
served in various capacities, including Vice President of Sales and Marketing
for Augat Communications, a telecommunications company.

    Sterling Crum has served as a Director of the Company since its inception.
From the Company's inception until June 1995, Mr. Crum served as the Company's
President. From May 1985 to February 1993 Mr. Crum served in various capacities
for the Predecessor, including as President and as Director. In addition, since
November 1993 Mr. Crum has served as President and sole director of Water
Sports, Inc., a water sports recreation company.

    Jeffrey T. Chambers has served as a Director of the Company since January
1996. Mr. Chambers has been employed by TA Associates, Inc., a venture capital
firm, or its predecessor, since 1980, has been a partner of affiliated venture
funds since 1984 and is currently a Managing Director of TA Associates, Inc. Mr.
Chambers is also a director of Diamond Multimedia Systems, Inc.

    William McAleer has served as a Director of the Company since June 1996. Mr.
McAleer is currently Managing Director of Voyager Capital, which provides
venture financing to private information technology companies. From 1988 through
1994, he was Vice President Finance, Chief Financial Officer and Secretary with
Aldus Corporation, a publicly held software company. Prior to joining Aldus, he
was Vice President, Finance and Administration from 1987 to 1988 of Ecova
Corporation and also served as a Vice President with Westin Hotels Company from
1984 through 1987. Mr. McAleer is also a Director of Endura Software
Corporation, Primus Communications Corporation and Truevision, Inc.

                                       29
<PAGE>

    Edwin L. Harper has served as a Director of the Company since October 1996.
Since June 1996 Mr. Harper has served as President and Chief Executive Officer
of SyQuest Technology, a computer hardware company. From July 1993 to June 1996
Mr. Harper was employed as President and Chief Executive Officer of ComByte,
Inc., and from June 1988 to May 1993 Mr. Harper served in various capacities,
including President and Chief Executive Officer, at Colorado Memory Systems,
Inc. Mr. Harper is also a Director of SyQuest Technology and Network Associates,
a network security management company.

    All members of the Board of Directors are elected to serve until their
respective successors have been elected and qualified or until their earlier
death, resignation or removal in the manner specified in the Company's Bylaws.
The officers are appointed to hold their respective offices until their
respective successors have been elected, or their earlier death, resignation or
removal in the manner specified by the Company's Bylaws.

OTHER KEY EMPLOYEES

    In addition to directors and executive officers, the Company has the
following key employees:

    Danny L. Beasley has served as the Company's Director of Engineering since
March 1994. From December 1992 to March 1994, Mr. Beasley served as a Research
and Development Engineer for the Company and the Predecessor. Mr. Beasley served
as the Director of Engineering for Spectralogic, Inc., an engineering design and
product development firm, from April 1989 to October 1992.

    Stephen J. McCarthy has served as the Company's Director of Product
Development since July 1995. From February 1994 to July 1995, Mr. McCarthy
served as the Company's Research and Development Manager, and from November 1987
to February 1994 he served as the Account Manager for the Company and for the
Predecessor's on-site service division.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

    Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and executive officers, and persons who own more than
ten percent of a registered class of the Company's equity securities, to file
reports of ownership of, and transactions in, the Company's securities with the
Securities and Exchange Commission and The Nasdaq Stock Market, Inc. Such
directors, executive officers and ten-percent shareholders are also required to
furnish the Company with copies of all Section 16(a) forms that they file.

    Based solely on its review of the copies of such forms received by the
Company, or written representations from certain reporting persons, the Company
believes that during fiscal 1997, all Section 16(a) filing requirements
applicable to its directors, executive officers and ten-percent shareholders
were complied with, except that (i) Kevin J. Hafer, the Company's President, CEO
and a director, filed one report relating to the sale of shares in connection
with the Company's IPO late, (ii) Sterling Crum, a director, filed one report
relating to the sale of shares in connection with the Company's IPO late, (iii)
Britannia Holdings, Ltd., a ten-percent shareholder, filed one report relating
to the sale of shares in connection with the Company's IPO late, (iv) Douglas A.
Bevis, the Company's Chief Financial Officer, filed one report relating to a
stock purchase late, and (v) Edwin L. Harper, a director, filed one report
relating to a stock purchase late.

                                       30
<PAGE>

ITEM 10. EXECUTIVE COMPENSATION.

    SUMMARY COMPENSATION TABLE.  The following table summarizes all compensation
earned by the Company's Chief Executive Officer and by the Company's other most
highly compensated executive officers whose total annual salary and bonus
exceeded $100,000 (collectively, the "Named Executive Officers") for services
rendered in all capacities during the fiscal years ended December 31, 1997 and
1996.

<TABLE>
<CAPTION>
                                                                                                LONG-TERM
                                                                          ANNUAL COMPENSATION  COMPENSATION
                                                                          -------------------- ------------

<S>                                                            <C>        <C>        <C>        <C>          <C>
                                                                                                   STOCK       ALL OTHER
NAME AND PRINCIPAL POSITION                                      YEAR      SALARY      BONUS      OPTIONS    COMPENSATION
-------------------------------------------------------------  ---------  ---------  ---------  -----------  -------------

Kevin J. Hafer...............................................       1997  $ 200,000  $ 167,500(1)    160,250  $    10,119(2)
President and Chief Executive Officer                               1996  $ 157,692  $ 164,707(3)     24,000  $ 1,009,619(2)

Christopher L. Sirianni......................................       1997  $ 145,000  $ 108,750(4)     22,000  $   292,422(5)
Vice President, Sales and Marketing                                 1996  $  89,123  $ 148,396(6)    132,000  $     4,456(5)

Douglas A. Bevis.............................................       1997  $ 120,000  $  60,000(7)     17,000  $     4,385(8)
Vice President and Chief Financial Officer
</TABLE>

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

(1) Includes $150,000 in bonus earned in 1997 and paid in 1998.

(2) Includes $1,000,000 related to the vesting of Series B Redeemable Preferred
    Stock in 1996, which was paid in 1997. Also represents matching
    contributions in the aggregate amounts of $8,000 and $7,500 made by the
    Company in 1997 and 1996, respectively, to its 401(k) Profit Sharing Plan
    and Trust on behalf of Mr. Hafer and premium payments in the aggregate
    amount of $2,119 and $2,119 paid by the Company in 1997 and 1996,
    respectively, towards Mr. Hafer's life insurance policy.

(3) Includes $80,000 bonus earned in 1996 and paid in 1997.

(4) Bonus earned in 1997 and paid in 1998.

(5) Represents matching contributions in the aggregate amounts of $8,000 and
    $4,456 made by the Company in 1997 and 1996, respectively, to its 401(k)
    Profit Sharing Plan and Trust on behalf of Mr. Sirianni, and $284,422 in
    compensation related to the exercise of stock options by Mr. Sirianni in
    1997.

(6) Includes $54,894 bonus earned in 1996 and paid in 1997.

(7) Includes $15,000 bonus earned in 1997 and paid in 1998.

(8) Represents matching contributions made by the Company in 1997 to its 401(k)
    Profit Sharing Plan and Trust on behalf of Mr. Bevis.

                                       31
<PAGE>


    OPTION GRANTS IN LAST FISCAL YEAR.  The following table sets forth certain
information with respect to individual grants to the Named Executive Officers
of options to purchase Common Stock of the Company made during the fiscal
year ended December 31, 1997:
<TABLE>
<CAPTION>
                                                                                                             POTENTIAL REALIZED
                                                                                                                  VALUE AT
                                                                                                            ASSUMED ANNUAL RATES
                                                                                                                     OF
                                                                                                                STOCK PRICE
                                                                                                              APPRECIATION FOR
                                                                                                                OPTION TERM
                                                                                                           --------------------
                                  NUMBER OF SECURITIES     % OF TOTAL OPTIONS      EXERCISE
                                   UNDERLYING OPTIONS     GRANTED TO EMPLOYEES     PRICE PER   EXPIRATION
NAME                                   GRANTED(#)            IN FISCAL YEAR          SHARE        DATE         5%         10%
--------------------------------  ---------------------  -----------------------  -----------  -----------  ---------- ----------
<S>                               <C>                    <C>                      <C>          <C>          <C>        <C>

Kevin J. Hafer..................           79,000                    22.6%         $   18.75      6/19/07   $  931,540  $2,360,731

                                           81,250                    23.3%         $   23.63     10/27/07   $1,207,183  $3,059,238

Christopher L. Sirianni.........           22,000                     6.3%         $   18.75      6/19/07   $  259,419  $  657,419

Douglas A. Bevis................           17,000                     4.9%         $   18.75      6/19/07   $  200,460  $  508,005
</TABLE>

    AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES.  The following table sets forth information with respect to option
exercises during the fiscal year ended December 31, 1997 by the Named Executive
Officers and 1997 year-end option values:

<TABLE>
<CAPTION>
                                       VALUE REALIZED        NUMBER OF SECURITIES
                                        (MARKET PRICE            UNDERLYING               VALUE OF UNEXERCISED
                   NUMBER OF SHARES          AT         UNEXERCISED OPTIONS AT FISCAL     IN-THE-MONEY OPTIONS
                       ACQUIRED         EXERCISE LESS             YEAR END                 AT FISCAL YEAR END
NAME                  ON EXERCISE      EXERCISE PRICE)   (EXERCISABLE/UNEXERCISABLE)   (EXERCISABLE/UNEXERCISABLE)(1)
----------------  -------------------  ---------------  -----------------------------  ---------------------------
<S>               <C>                  <C>              <C>                            <C>

Kevin J.
  Hafer.........          --                 --                 4,171/481,115                 $110/$7,398,211

Christopher L.
  Sirianni......          11,576          $284,422(2)                0/88,000                   --/$1,522,373

Douglas A.
  Bevis.........          --                 --                 4,294/89,958              $94,208/$1,658,172
</TABLE>

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

(1) Based upon the fair market value of the Company's Common Stock at fiscal
    year end of $22.13 per share less the exercise price payable for such
    shares.

(2) Based upon the net sales price received on August 7, 1997 of $24.57 per
    share.

                                       32
<PAGE>

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

    The following table sets forth as of February 27, 1998 certain information
with respect to the ownership of the Common Stock of the Company by (i) each
person (or group of affiliated persons) known by the Company to be the
beneficial owner of more than 5% of the Company's outstanding Common Stock, (ii)
each director of the Company, (iii) each of the Company's executive officers
named under "Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act Executive Officers and
Directors" and (iv) all executive officers and directors of the Company as a
group. Unless otherwise noted, each person or group identified possesses sole
voting and investment power with respect to such shares, subject to community
property laws, where applicable.

<TABLE>
<CAPTION>
NAME OF BENEFICIAL OWNER(1)                                                                   SHARES     PERCENTAGE
-------------------------------------------------------------------------------------------  ---------  -------------
<S>                                                                                          <C>        <C>

Sterling Crum(2)...........................................................................  1,873,666         13.9%

Pilgrim Baxter & Associates, Ltd...........................................................  1,349,800         10.0
  825 Duportail Road
  Wayne, PA 19087

Britannia Holdings Limited.................................................................    942,500          7.0
  P.O. Box 556
  Main Street
  Charleston, Nevis

TA Group(3)................................................................................    806,920          6.0
  c/o TA Associates, Inc.
  125 High Street
  High Street Tower, Suite 2500
  Boston, MA 02110

Kevin J. Hafer(4)..........................................................................    282,421          2.1

Christopher L. Sirianni(5).................................................................     56,500        *

Douglas A. Bevis(6)........................................................................     40,295        *

Jeffrey T. Chambers(7).....................................................................     36,913        *

Edwin L. Harper(8).........................................................................     15,266        *

William McAleer(9).........................................................................     11,666        *

All directors and executive officers as a group (7 persons)(10)............................  2,316,727         17.1%
</TABLE>

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

*   Less than 1%.

(1) Except as set forth herein the address of the directors and executive
    officers set forth in the table is the address of the Company, 20031 142nd
    Avenue, N.E., Woodinville, Washington 98072.

(2) Includes 942,500 shares beneficially owned by Britannia Holdings Limited
    ("Britannia"), whose sole shareholder is The Duvall Trust, an irrevocable
    trust for the benefit of Mr. Crum and certain members of his family. Mr.
    Crum disclaims beneficial ownership with respect to all of such 942,500
    shares. Also includes 2,666 shares of Common Stock issuable upon exercise of
    stock options currently exercisable or becoming exercisable within 60 days
    at $0.18375 per share. Also includes 928,500 shares beneficially owned by
    the Crum Family Trust, a revocable trust for the benefit of Mr. Crum and
    certain members of his family.

(3) Includes (i) 658,883 shares of Common Stock owned by Advent Atlantic and
    Pacific II L.P., (ii) 120,118 shares of Common Stock owned by Advent New
    York L.P., (iii) 22,983 shares of Common Stock owned by TA Associates VII
    L.P., (iv) 2,468 shares of Common Stock owned by TA Associates, Inc. and (v)
    2,468 shares of Common Stock owned by TA Associates Service Corporation.
    Advent Atlantic and Pacific II L.P., Advent New York L.P., TA Associates VII
    L.P., TA Associates, Inc. and TA Associates Service Corporation are part of
    an affiliated group of investment partnerships and corporations referred to,
    collectively, as the TA Group. The general partner of Advent Atlantic and
    Pacific II L.P. is TA Associates AAP II Partners L.P. The general partner of
    Advent New York L.P. is TA Associates VI L.P. The general partner of each of
    TA Associates VII L.P., TA Associates AAP II Partners L.P. and TA Associates
    VI L.P. is TA Associates, Inc. TA Associates Service Corporation, whose sole
    shareholder is TA Associates, Inc., is a limited partner in TA Associates
    VII L.P. TA Associates, Inc. exercises sole voting and investment power with
    respect to all of the shares held of record by the named investment
    partnerships and corporations. Individually, no stockholder, director or
    officer of TA Associates, Inc. is deemed to have or share such voting or
    investment power.

                                       33
<PAGE>


    Principals and employees of TA Associates, Inc. (including Mr. Chambers, a
    director of the Company) may be deemed to share voting and investment power
    with respect to the shares of Common Stock held of record by the TA Group.
    Mr. Chambers disclaims beneficial ownership of all such shares.


(4) Includes 62,536 shares of Common Stock issuable upon exercise of stock
    options currently exercisable or becoming exercisable within 60 days at a
    weighted average exercise price of $4.87 per share.

(5) Includes 5,500 shares of Common Stock issuable upon exercise of stock
    options becoming exercisable within 60 days at $0.18375 per share.

(6) Includes 12,877 shares of Common Stock issuable upon exercise of stock
    options currently exercisable or becoming exercisable within 60 days at
    $0.18375 per share.

(7) Includes 14,666 shares of Common Stock issuable upon exercise of stock
    options currently exercisable or becoming exercisable within 60 days at
    $0.18375 per share, of which Mr. Chambers disclaims beneficial ownership.
    Does not include any shares beneficially owned by the members of the TA
    Group, of which Mr. Chambers disclaims beneficial ownership.

(8) Includes 2,666 shares of Common Stock issuable upon exercise of stock
    options currently exercisable or becoming exercisable within 60 days at
    $0.18375 per share.

(9) Includes 2,666 shares of Common Stock issuable upon exercise of stock
    options currently exercisable or becoming exercisable within 60 days at
    $0.18375 per share.

(10) Includes 103,577 shares of Common Stock issuable upon exercise of stock
    options currently exercisable or becoming exercisable within 60 days at a
    weighted average exercise price of $3.01 per share. Also includes 942,500
    shares held by Britannia. See Notes (2), (4), (5), (6), (7), (8) and (9)
    above.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

    None.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.

    (a) Exhibits.

<TABLE>
<CAPTION>
  EXHIBIT
  NUMBER                                                EXHIBIT DESCRIPTION
-----------  ---------------------------------------------------------------------------------------------------------
<C>          <S>

       3.1   Amended and Restated Articles of Incorporation. (Incorporated by reference to the Company's Registration
             Statement on Form SB-2 (Registration No. 333-17753).)

       3.2   Amended and Restated Bylaws. ( Incorporated by reference to the Company's Registration Statement on Form
             SB-2 (Registration No. 333-31697).)

       4.1   See Article III of Exhibit 3.1 and Articles II, IV and IX of Exhibit 3.2

      10.1   Registration Rights Agreement dated December 29, 1995. (Incorporated by reference to the Company's
             Registration Statement on Form SB-2 (Registration No. 333-17753).)

      10.2   S Corporation Indemnification Agreement dated December 29, 1995. (Incorporated by reference to the
             Company's Registration Statement on Form SB-2 (Registration No. 333-17753).)

    10.3.1   Employment Agreement dated December 29, 1995 by and between the Company and Kevin J. Hafer. (Incorporated
             by reference to the Company's Registration Statement on Form SB-2 (Registration No. 333-17753).)

    10.3.2   First Amendment to Employment Agreement dated December 1996 by and between the Company and Kevin J.
             Hafer. (Incorporated by reference to the Company's Registration Statement on Form SB-2 (Registration No.
             333-31697).)

      10.4   Credit Agreement dated December 28, 1995 by and between the Company and U.S. Bank of Washington, National
             Association. (Incorporated by reference to the Company's Registration Statement on Form SB-2
             (Registration No. 333-17753).)

    10.5.1   Lease Agreement dated March 22, 1995 by and between the Company and Christopher L. Clark. (Incorporated
             by reference to the Company's Registration Statement on Form SB-2 (Registration No. 333-17753).)
</TABLE>

                                       34
<PAGE>



<TABLE>
<CAPTION>
  EXHIBIT
  NUMBER                                                EXHIBIT DESCRIPTION
-----------  ---------------------------------------------------------------------------------------------------------
<C>          <S>
    10.5.2   Second Amendment to Lease dated March 13, 1997 by and between the company and Christopher L. Clark
             (Incorporated by reference to the Company's Registration Statement on Form SB-2 (Registration No.
             333-31697).)

      10.6   Purchase Agreement dated September 19, 1994 by and between the Company and Compaq Computer Corporation.
             (Incorporated by reference to the Company's Registration Statement on Form SB-2 (Registration No.
             333-31697).)+

      10.7   Private Label Agreement dated September 8, 1994 by and between the Company and Wright Line, Inc.
             (Incorporated by reference to the Company's Registration Statement on Form SB-2 (Registration No.
             333-17753).)+

      10.8   Form of the Company's Proprietary Information and Noncompetition Agreement. (Incorporated by reference to
             the Company's Registration Statement on Form SB-2 (Registration No. 333-17753).)

      10.9   1995 Employee Stock Plan. (Incorporated by reference to the Company's Registration Statement on Form SB-2
             (Registration No. 333-17753).)

     10.10   Form of Nonstatutory Stock Option Letter Agreement related to 1995 Employee Stock Plan. (Incorporated by
             reference to the Company's Registration Statement on Form SB-2 (Registration No. 333-17753).)

     10.11   Employee Stock Purchase Plan. (Incorporated by reference to the Company's Registration Statement on Form
             SB-2 (Registration No. 333-17753).)

     10.12   Letter Agreements dated October 16, 1996 and October 24, 1996 by and between the Company and Pioneer-
             Standard Electronics, Inc. (Incorporated by reference to the Company's Registration Statement on Form
             SB-2 (Registration No. 333-17753).)+

     10.13   Stock and Subordinated Note Purchase Agreement dated December 29, 1995. (Incorporated by reference to the
             Company's Registration Statement on Form SB-2 (Registration No. 333-17753).)

     10.14   Class A Subordinated Promissory Notes dated December 29, 1995. (Incorporated by reference to the
             Company's Registration Statement on Form SB-2 (Registration No. 333-17753).)

     10.15   Class B Subordinated Promissory Note dated December 29, 1995. (Incorporated by reference to the Company's
             Registration Statement on Form SB-2 (Registration No. 333-17753).)

     10.16   Business Loan Agreement dated March 27, 1997 by and between the Company and U.S. Bank of Washington,
             National Association (Incorporated by reference to the Company's Registration Statement on Form SB-2
             (Registration No. 333-31697).)

      21.1   Subsidiaries of Registrant (Incorporated by reference to the Company's Registration Statement on Form
             SB-2 (Registration No. 333-31697).)

      24.1   Power of Attorney (set forth on pages 36 and 37 and incorporated herein by reference).

      27.1   Financial Data Schedule

      27.2   Financial Data Schedule

</TABLE>

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

+   Portions of these agreements are subject to confidential treatment.

    (b) Reports on Form 8-K.

    None.

                                       35
<PAGE>

                                   SIGNATURES

    In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

<TABLE>
<S>                             <C>  <C>
                                APEX PC SOLUTIONS, INC.

                                By:  /s/ Kevin J. Hafer
                                     ------------------------------------------
                                     Kevin J. Hafer
                                     PRESIDENT AND CHIEF EXECUTIVE OFFICER

                                     Date: March 30, 1998
</TABLE>

                               POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS:

    That the undersigned officers and directors of Apex PC Solutions, Inc. do
hereby constitute and appoint Kevin J. Hafer, and Douglas A. Bevis, and each of
them, the lawful attorney and agent or attorneys and agents with power and
authority to do any and all acts and things and to execute any and all
instruments which said attorneys and agents, or either of them, determine may be
necessary or advisable or required to enable Apex PC Solutions, Inc. to comply
with the Securities Exchange Act of 1934, as amended, and any rules or
regulations or requirements of the Securities Exchange Act of 1934, as amended,
and any rules or regulations or requirements of the Securities and Exchange
Commission in connection with this Form 10-KSB Report. Without limiting the
generality of the foregoing power and authority, the powers granted include the
power and authority to sign the names of the undersigned officers and directors
in the capacities indicated below to this Form 10-KSB Report of amendments or
supplements thereto, and each of the undersigned hereby ratifies and confirms
all that said attorneys and agents or either of them, shall do or cause to be
done by virtue hereof. This Power of Attorney may be signed in several
counterparts.

    IN WITNESS WHEREOF, each of the undersigned has executed this Power of
Attorney as of the date indicated opposite his name.

                                       36
<PAGE>

    In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.

          SIGNATURE                       TITLE                    DATE
------------------------------  --------------------------  -------------------

                                President and Chief
      /s/ KEVIN J. HAFER          Executive Officer and
------------------------------    Director                    March 30, 1998
        Kevin J. Hafer            (Principal Executive
                                  Officer)

                                Vice President, Chief
     /s/ DOUGLAS A. BEVIS         Financial Officer
------------------------------    (Principal Financial and    March 30, 1998
       Douglas A. Bevis           Accounting Officer)

   /s/ JEFFREY T. CHAMBERS
------------------------------  Director                      March 30, 1998
     Jeffrey T. Chambers

      /s/ STERLING CRUM
------------------------------  Director                      March 30, 1998
        Sterling Crum

      /s/ FRANZ FICHTNER
------------------------------  Director                      March 30, 1998
        Franz Fichtner

     /s/ EDWIN L. HARPER
------------------------------  Director                      March 30, 1998
       Edwin L. Harper

     /s/ WILLIAM MCALEER
------------------------------  Director                      March 30, 1998
       William McAleer

                                       37